By Barbara McDermott
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 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.
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.