Fall 2013

Groundwater Rights Have Become
Negotiable in Property Sales
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.
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:
1) The water rights reservation was valid and enforceable.
2) The City’s argument that groundwater, until captured, cannot
be the subject of ownership was an incorrect statement of the law.
3) 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. “These court decisions develop case
law that affirm the right of landowners to reserve groundwater rights when
selling property, unless they are in a groundwater district.”
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 ensure that
groundwater rights are not being reserved by the seller. Even though the
reservation might be illegal, getting it revoked through the courts can be
expensive.
Whether buying land within or outside a
groundwater conservation district, it is wise to
examine the conveyance deed closely to ensure
that groundwater rights are not
being reserved by the seller.
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