Water permits can be essential for a farm or vineyard to function and can therefore be extremely valuable assets. If you are purchasing a property it can be of critical importance to ensure that the necessary water permits are in place and can be transferred to you.
Restrictions on water use
The Resource Management Act 1991(RMA) prohibits the taking, using, damming or diverting of water unless it is allowed by a national environmental standard (established by regulations made under the RMA), by the relevant regional plan or by a resource consent. It is, however, permissible to take and use fresh water for reasonable domestic needs or for animals’ drinking water provided there is no adverse effect on the environment. In most cases water permits will be required where significant amounts of water are required for farming activities.
Due diligence and water permits
If you are purchasing or leasing a property or business, you can obtain copies of relevant water permits from the Regional Council. As water permits are issued by the relevant Regional Council, details of them are not usually given in a LIM report which is given by the local authority.
It is important to establish who owns the water permits, as they will not necessarily be owned by the person selling or leasing the land or business. If different people own the land or business and the water permits your lawyer will need to make sure that the owner of the water permits is contractually bound to transfer the water permits, or allow you to use them, in conjunction with the transfer or lease of the property or business.
It is also important to establish whether there are any conditions in the water permits that might restrict their transfer, and whether the water permits have been given as security to any third party. The sale and purchase agreement should provide that the water permits will be transferred free of any charges.
If you are lending money on the security of a property or business that is reliant on water permits, your lawyer will need to ensure that the security documents include security over the water permits. Thus, if the borrower defaults and you must exercise your power of sale, both the property or business and the water rights can be sold together.
Transfer of water permits
Water permits are usually transferred by lodging a transfer notice with the Regional Council. The transfer must be signed by the existing holder of the permit and the new owner of the permit. The water permit transfer form is one of the documents your lawyer will obtain as a condition of settlement of your purchase or lease. Your lawyer can also make sure that any security interest has been discharged.
Water rights agreement
Instead of having the water permit transferred to you, you can obtain the benefit of the water permit by entering a water rights agreement with the owner of the water permit. This type of agreement is common for a leased property where the owner of the land holds the permit and allows the tenant to have the benefit of the permit. It is important that the water rights agreement is properly drafted to cover such matters as liability for breaches of the water permit and what happens if the council changes the terms of the permit.
Protect your valuable property
Water permits can be valuable property and should be treated as such. This means it is critical to do proper due diligence when purchasing a property or business dependent on the use of water. It is also critical to carefully document the right to the transfer or use of a water permit.
Please email me at [email protected] with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.
Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.