Groundwater Rights Have Become Negotiable in Property Sales

groundwater rights

As the supply of Texas groundwater continues to dwindle, the value escalates and landowners realize that it can add another revenue stream to the property. It is not uncommon for groundwater ownership to be one of the negotiable points in rural land sales. Groundwater ownership is sometimes retained by the seller and the buyer takes possession of the property with limited or no access to water beneath the surface.

In the following paragraphs Regan Beck and Stephanie McMullen, Assistant General Counsels for Public Policy, with the Texas Farm Bureau describe a Texas Court of Appeals case between the City of Del Rio and Clayton Sam Colt Hamilton Trust.

According to the record in 1997, the state sold 15 acres from the ranch’s western border to the City of Del Rio. The warranty deed that conveyed the tract to the City contained the following clause: “Grantor RESERVES unto Grantor, its successors, heirs and assigns forever all water rights associated with said tract, however, Grantor may not use any portion of the surface of said tract for exploring, drilling or producing any such water.”

“In 2000, three years after the City purchased the tract, they realized that their municipal drinking water supply needed augmenting,” Beck relates. “A year and a half later, the City drilled a well on the property that tested to pump approximately 500 gallons per minute and produce several hundred thousand gallons of water. The well was completed in the summer of 2002, at a cost to the City of about $850,000.”

About six months after the City had the well tested, Hamilton, the trustee of the Trust visited the property and noticed drilling activity on the 15-acre tract. He then had the Trust’s attorney send the City a letter demanding that it neither produce nor capture any water from the well. A short time later, the Trust’s attorney gave formal notice of a $500,000 claim against the City.

After the City rejected the Trust’s claim, the Trust filed suit against the City, seeking a declaratory judgment that 1) it owned the groundwater beneath the 15-acre tract, and 2) the City’s claim of ownership to those water rights should be rejected. The Trust also sought monetary damages for unconstitutional taking and action for trespass.

City of Del Rio responded with a counterclaim, seeking a declaratory judgment that the warranty deed did not leave the Trust with “right, title, or interest in any groundwater pumped to the surface by the City” on the 15-acre tract and that any groundwater pumped to the surface was the City’s property. The City also pled for condemnation of the water rights.

“McMullen explained that the trial court concluded that:
•    The water rights reservation was valid and enforceable.
•    The City’s argument that groundwater, until captured, cannot be the subject of ownership was an incorrect statement of the law.
•    Ownership to the groundwater rights beneath the 15-acre tract belonged to the Trust.

“The City appealed and the Texas Court of Appeals upheld the judgment of the trial court,” says Beck. “This court decision affirms the right of landowners to reserve groundwater rights when selling property…”

Chapter 36 of the Texas Water Code gives groundwater conservation districts the right to regulate the use of groundwater.  It is stated in Chapter 36, “Nothing in this code shall be construed as granting the authority to deprive or divest a landowner, including a landowner’s lessees, heirs, or assigns, of the groundwater ownership and rights described by this section.”

Whether buying land within or outside a groundwater conservation district, it is wise to examine the conveyance deed closely to determine if groundwater rights are  being reserved by the seller. If the reservation is unclear, getting it resolved through the courts can be expensive.


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