Water permits can be essential for a farm or vineyard to
function and can therefore be extremely valuable assets. A recent
court case (Marlborough District Council v Altimarloch Joint
Venture Ltd  NZSC 11) highlights the importance of
ensuring that the necessary water permits are in place and can be
transferred to the purchaser of a property.
The Altimarloch Case
In the Altimarloch case Mr and Mrs Moorhouse sold their
Marlborough property to Altimarloch for $2.675m. Altimarloch
planned to establish a vineyard on the property.
The Moorhouses' real estate agent and solicitor wrongly
represented to Altimarloch that certain water permits were in
place. The local Council also gave the incorrect water permit
information in a LIM report.
Unfortunately for all parties, after the transaction had been
completed, it was discovered that all these water permits were not
in place. In order to rectify the situation, Altimarloch had to
spend nearly $1.1m to obtain further water permits and to construct
a dam. The case was complex, but in essence the Court found the
Moorhouses' real estate agent and lawyer liable for
Altimarloch's $1.1m loss. The court also found that a Council
could be liable for an incorrect statement in a LIM report.
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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