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Overview of Water Law in Nevada

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SEPTEMBER 2009
NEVADA LAWYER
OVERVIEW OF
WATER LAW
IN NEVADA
BY R . c R A I G H o WA R D , E S q . A N D B RY c E c . A L S T E A D , E S q .
evada is on the cutting edge of many issues groundwater right claims in the state. concerning water law. Much of the population With these competing interests, the expansion in the United States over the past 60 years state engineer must often perform has occurred in the arid portions of the west, including Nevada. tricky balancing acts. As one of the country’s most arid states, and for years its most The complexity that permeates rapidly growing state, major and developing metropolitan administrative issues involved in areas in both northern and southern Nevada today require water the establishment of water supply resources at a rate, and in quantities, few in theunique. 1950s could have is also a feature of the transactions The Sixth Judicial District Court judges are envisioned being possible in a desert. that involve the exchange and This is the only district in Nevada where both the In meeting this challenge, our state must consider how best to use of that supply. While many judges are native Nevadans. Judge Richard Wagner use all available resources. To that end, Nevada’s portion of the water lawyers in Nevada are familiar was born in Hawthorne, Mineral County, while Judge from the Colorado River is increasingly utilized for southern Nevada’s with the principle that water Mike Montero was born in Winnemucca, Humboldt water from needs. Water importation and interbasin transfers of rights are an appurtenance to County. In addition to their native Nevada births, the at the forefront sparsely populated areas to densely populated areas are the land that is the place of judges both married their college sweethearts. been approved by the of Nevada water law, and interbasin transfers have use, this principle and its Evenengineer in southern and northern Nevada. The federal government state their elections were similar. They began their corollaries are only the tip of “elected”a careers in highNevada’s less-populated were and significant owns large portion of school, where they regions, the iceberg in water-rights elected student body presidents. They continued not subject to the issues regarding federal reserved water rights, which are transactions. The process of their electoral successes when theyoften take priority in use,1 add to tension permit system of the state and which were elected to changing the use of water the on the water resources in Wagner and Montero won District Court bench. the state. rights from agricultural their first judicial elections supply challenges for communities, Nevada water In addition to water in contested races, when to municipal use, the due law involves environmental and retired. Although diligence involved in incumbent District Court judges water quality issues, endangered species requirements (such as the cui-ui both Pyramid Lake buying and selling water judicial offices are non-partisan, fish in judges are and the pupfish at Devil’sof the in Amargosa Party. and the Native American tribes’ reserved Hole Republican Valley) rights, and encumbering members Despite their native births and election similarities,
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water rights to secure a lender’s loan are all transactions that present traps for the unwary. These issues and others will be briefly discussed in the following overview of Nevada water law.
Once available water is identified, and except as to the vested rights discussed above, a person must obtain a permit from the state engineer prior to initiating use of such water.6 The permit, if granted, may be subject to conditions, including metering, monitoring, mitigation of impacts and term of use. Water rights used in mining operations, for example, are Background As background, there are two dominant water-rights temporary water rights that may continue during the life of systems in the United States. The riparian model provides the particular mine. Water appropriated pursuant to a permit 7 that water is an incident to owning land adjacent to a water must be put to beneficial use within 10 years. As long as the course. The prior appropriation model, which is the dominant applicant is proceeding in good faith with reasonable diligence, 8 model in the arid west, is essentially a “first in time, first in this statutory deadline may be extended by the state engineer. right” system granting water rights to the first person to put A physical diversion of the water is not absolutely necessary to establish the use of a water right; however, the water must the water to beneficial use. Nevada’s present system of new appropriations of be put to a state-recognized beneficial9use in order to formally surface and groundwater through applications to the state establish (and maintain) a water right. Since most of Nevada’s surface water and much of its engineer was enacted by the legislature in 1905, with groundwater has been appropriated, there is comprehensive reforms and updates being great demand to acquire existing water rights. approved by the legislature in 1913. When To effectuate a transfer of existing rights, this permitting system was put into place, any typically the holder of the water rights would existing water use became a “vested” water apply to the state engineer to change the water right and therefore not subject to the otherwise right to the place and manner of use and point 2 applicable permitting system. The process of of diversion required by the purchaser, pursuant determining amounts and priority of vested to the provisions of NRS 533.370(5) (change rights is by an adjudication that culminates applications). The process provides for the in a final judicial decree, as statutorily opportunity to protest and, if required by the provided in NRS Chapter 533. Examples of Mark Twain state engineer, have an administrative hearing adjudicated stream systems in Nevada, for on the protests. These change applications which the allocations and priorities of vested occur regularly. The state engineer determines if the changes water rights have been set by a final judicial decree, include the Muddy River in southern Nevada (state decree) and the will conflict with existing water rights or protectable interests change threatens to prove Truckee River in northern Nevada (the federal Orr Ditch in existing domestic wells or if the10 detrimental to the public interest. Change applications of decree). Vested rights, once subject to a final judicial decree, are typically referred to as “decreed” water rights, and operate water rights used for agricultural uses to municipal uses outside the scope of the general permitting system except if may cause a loss of a portion of the water rights because there is a change in the point of diversion, or manner or place of the difference in consumptive use. It would be a mistake of use. Other than vested rights, however, the statutory permit to pursue a transfer of water rights without first giving full process is the exclusive means of obtaining surface water consideration to the change application process and whether rights3 and groundwater rights,4 both of which are under the it will lead to any obstacles, collateral attacks or reductions in the rights being conveyed. jurisdiction of the state engineer. In addition to considering the issues involved in a change application, the purchaser of water rights should be certain to Permitting give thought to whether it will be able to promptly put its water All of Nevada’s water resources, whether surface or rights to beneficial use. Beneficial use is the essence of the underground, belong to the public.5 Water rights are rights water right, and it controls both the use to which the water may to use the water in a specific manner and place, and with a be put as well as the quantity of water a diverter is entitled to specific point of diversion. Subject to some exceptions, all use (“Beneficial use shall be the basis, the measure and the water not yet put to beneficial use within the state is subject limit of the right to use the water.” NRS 533.035). Beneficial to appropriation.
“Whiskey is for drinking; water is for fighting over.”
COnTInUEd On PAgE 10
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SEPTEMBER 2009
NEVADA LAWYER
OvERvIEW OF WATER LAW In nEvAdA
COnTInUEd FROM PAgE 9
use is a broad concept that brings in many pragmatic considerations, including reasonableness and economic use, and it encompasses long-established uses like irrigation and mining, recreation,11 wildlife support12 and municipal water supply,13 among others. Once a recognized beneficial use is made, such use must continue in order to keep the water rights permit in good standing (subject to the water right holder’s ability to file a change application). A purchaser should always satisfy itself prior to acquisition that it will be able to satisfy Nevada’s beneficial use test, lest it find its rights at risk of loss immediately after acquisition.14
Appurtenances and Severability
Water rights, whether vested, permitted, certificated or simply at the application phase, are treated as real property under Nevada law. Once a water right is granted, it becomes appurtenant to the land upon which it is used. Unless water rights are specifically reserved to the grantor in a deed conveying land, appurtenant water rights are conveyed along with the land.15 Additionally, as long as the water right is appurtenant to the land, any deed of trust or lien encumbrance on the land will also serve to encumber the water rights.16 The water right may also be encumbered by a deed of trust separately from the land. Because of the complexities surrounding recording issues and severance of water rights, each discussed below, major issues can arise in both purchase and financing transactions. As real property, the same types of recording procedures that apply to land transactions also apply to water rights. Water rights, deeds, deeds of trust encumbering water rights and memorandums of water rights leases must all be recorded with the recorder for the county in which the water is beneficially used and the recorder of the county where the water is diverted.17 The state engineer employs a separate filing system for administrative purposes. A report of conveyance should be filed with the state engineer upon conveyance or encumbrance of water rights.18 Searches of water rights should be conducted in the state engineer’s office and the applicable county recorder’s office. Water rights can be severed from the land in various ways. A water right holder may file a change application with the state engineer, which, if approved, allows the holder to change the place of beneficial use for a water right to a new parcel of land. Additionally, water rights can be separately deeded apart from the real property upon which the water right is used.19 The owner can reserve water rights
in a conveyance of the land. If a lender secures its note with only water rights and not the land, the purchase by the lender or third party of the water rights at a foreclosure sale causes a severance of ownership although the place of use remains the same.20 In northern Nevada and some other counties in the state, developers often enter into “water banking agreements” with water purveyors and in this process, the place of use for the water right is converted into the entire water service area of the water purveyor. These changes, in the place of use, sever the water right from the land where the water was originally put to beneficial use. This severance of the water rights from the land means a deed conveying that same land or a deed of trust encumbering such land does not convey or encumber the water rights.
Summary
In the current contraction in Nevada’s real estate market, water rights have retained their value in a much more substantial way than land. As such, land owners, developers, lenders and their legal counsel will continue to have more than a passing interest in understanding Nevada’s water rights system. However, all should take care not to avoid complacency once that understanding is achieved. Nevada’s system will continue to evolve to address future and continuing challenges. For example, in a pending appeal to the Nevada Supreme Court, appellant argues for implied reserved underground water rights for Native American tribes. Additionally, significant importation projects are pending that will continue to refine the interbasin transfer process. In sum, although the basic principles of appropriation have been in place for some time, it is likely that water law in Nevada will continue its historically dynamic development.
R. cRAIG HowARd is a Reno partner with Holland & Hart, LLP (which combined with the Hale Lane Peek Dennison and Howard Law Firm in 2008). Howard is chair of the natural resources subsection of the Real Property Law Section of the State Bar of Nevada. He has practiced in the areas of real property and water law for more than 35 years. BRycE c. AlstEAd is an associate in the Reno office of Holland & Hart, LLP and is a member of the firm’s natural resources department. Alstead practices in the area of real property, land use and natural resource law.
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U.S. v. Winters, 207 U.S. 564 (1908). NRS 533.085(1). NRS 533.030(1). No adverse possession to obtain right to use water. NRS 533.060. NRS 534.020; NRS 534.080. NRS 533.025. NRS 533.325. 533.380(1). See, Bailey v. State, 95 Nev. 378, 594 P.2d 734 (1979) (diligence is determined on a case-by-case basis); but, see, Desert Irrigation, Ltd. v. State, 113 Nev. 1049, 944 P.2d 835 (1997) (cancelling permit after 20 years and 14 extensions of time). NRS 533.380(3)-(6). See, State v. Morros, 104 Nev. 709, 766 P.2d 263 (1988) (recognizing in situ use in certain situations). See, Pyramid Lake Paiute Tribe v Washoe County, 112 Nev 743, 918 P.2d 697 (1996). NRS 533.030(2). State v. Morros, supra. NRS 533.023. NRS 533.340. Surface water rights that are certificated cannot be forfeited but are subject to abandonment in certain situations; groundwater rights that are certificated are subject to forfeiture and abandonment. NRS 533.045; NRS 533.060; 534.090.
15 Margrave v. Dermody Properties, 110 Nev. 824, 878 P.2d 291 (1994); Dermody v. City of Reno, 113 Nev. 207, 931 P.2d 1354 (1997); NRS 111.167. 16 See, Adaven Mgmt v. Mountain Falls Acquisition Corp., 191 P.3d 1189 (2008). 17 NRS 533.382. The description of a water right which can be conveyed by deed is broad. 18 NRS 533.384(1)(a). Since the filing with the State Engineer of the report of conveyance is administrative, the researcher should not rely solely on the State Engineer’s records. See, Adaven, supra. 19 See, Adaven, supra. 20 See, Adaven, supra.
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