Now you can understand why older "Priority dates" may make some Rights far more dependable and therefore far more "valuable" than other extremely "junior rights". But Priority is only one of many factors needed to determine a "dollar value" for a Water Rights.

Another key factor in valuing water rights under this "doctrine of prior appropriation" is that water must be put to a "beneficial use". When this system evolved in the arid west a century ago, "beneficial use" was largely defined as the act of diverting waters from a stream or river. Water left instream was widely considered to be wasted. A well-managed stream was a dry one. The idea of water left instream to serve a beneficial use didn't begin to surface in Montana law until the late 1960's. Now, in specific circumstances, it is possible to Purchase or Lease a legal water right for such things as the benefit of fisheries, wildlife, water quality or the mitigation of possible adverse effects on the other water users.

It should be noted that some believe that simply diverting a lot of water, even if they don't actually apply it to a beneficial use, protects a water right from a clain of "abandonment". Unfortunately, it doesn't.

The essential element in protecting a claim to a water right is to apply it to a beneficial use. In the case of irrigation, for instance, that means actually irrigating something other than a ditch bottom. Likewise, pouring enough water on forty acres to irrigate 400 acres doesn't establish a beneficial use of the excess water. The beneficial use is limited by the reasonable need of the particular use. The "reasonable needed quantity" can be extremely difficult to calculate and even harder to substantiate, but it remains a key element in determinging a water right's "dollar value".

Next are the concepts of “Owning Water” as opposed to “Owning the Right to Use Water”.  While it may seem contradictory at first blush, the State of Montana believes it owns all the water in the state, while the owners of water rights merely possess the "right to use" some of that water.  Here’s the crucial language in Article IX of the Montana Constitution:

            “All surface, underground, flood, and atmospheric waters within the boundaries of the state are the property of the state for the use of its people and are subject to appropriation for beneficial uses as provided for by law.”

Therefore, the mere fact that water arises on or passes over your land doesn’t mean you have an automatic right to use it.  You   must have a “Water Right”, whether you obtain it as a new junior (more recent) right or purchase it as a more valuable senior (older) right.

Next is the “use it or lose it” factor.  Now you understand the state owns it, but you may get to use it.  Your right to use the water – your water right or appropriation right – has been recognized as a form of a real property right.  But it’s not exactly like a piece of land or a home:  you have to use it.  If you don’t use it, you can lose it.  This concept of “use it or lose it” doesn’t mean it has to be used every day or every year – a really junior right may only find available water every few years, and then only for a small part of the year – it’s still a valid water right; just not a very reliable or valuable one.  Disuse, coupled with some outward sign of intent to no longer use the water, can lead to a claim or finding of abandonment of a water right and it may simply and silently be lost forever.  In such event it will simply revert back to the state.  Keep this factor in mind as you consider the water rights you are selling or buying.

Likewise, a declaration of intent to use a water right, by itself, does not establish a viable water right.  A water right has to be “perfected” by actually putting it to a beneficial use and being able to document that use.  In the 19th and early 20th century, it was possible to file a notice of a water right in the county clerk’s office.  Miners, often with an excess of wishful thinking, were particularly fond of doing this.  In many cases, that is all that ever actually happened – no ditches were dug or water diverted and no actual provable “beneficial use” ever occurred!  To put it kindly, the validity (and therefore the dollar value) of those water rights is highly suspect and potentially worthless for any modern day use. 

Perhaps the most important factor in value of a water right is the fact that now water rights are transferable.  A lot of water rights traditionalists repeat a common refrain, “Water runs with the land” as though it were an indisputable and absolute fact.  In actual fact, the statement is only partly true.  If you own a piece of real estate, and it has water rights currently associated with it, and you sell that real estate, if you don’t mention the water rights in the conveyance, the water rights may automatically transfer to the buyer of the real estate (to the extent they were valid to begin with). Sort of an invisible Quit Claim effect.

Some old timers want to believe that this means the water right can never be “severed from the land”.  That isn’t true, and hasn’t been true since at least 1895. Water rights can be severed from one place and transferred to new places of use totally unrelated to the original real estate.  But there’s a process to be observed.

Any change in the purpose, place of use, or place of diversion of a water right must first be approved by the Montana Department of Natural Resources and Conservation (DNRC).  Prior to 1973, if you wanted to change the place of use, purpose, or point of diversion, you just did it.  While you had an obligation not to do anything that would adversely affect the water rights of others, you didn’t have to seek any prior agency approval to do the change.  If you harmed somebody, they had the option to sue you after the damage (real or imagined) was done.  In 1973, however, with the passage of the Montana Water Use Act, all that changed.  Now in order to sever or change a place of use, purpose of use, point of diversion of your water right, you have to first secure DNRC’s approval, and the burden is on you to prove that you won’t adversely affect the water rights of anyone else.  And step one in providing that proof is documenting the historic use.  Ultimately, it’s a bit more complicated than that – there is some hydrology involved – but a key part of granting a change is assuring that there won’t be any expansion of use over what historically occurred.

Historic use of a water right – not what an “abstract”, or even what a court decree says – is key to establishing the extent of a water right.  So, when you decide to Sell or Buy all or part of a water right, one basic factor in verifying its value is the degree of documented actual historic use.  There are a variety of ways to accomplish this, but it takes a degree of experience, time and effort to perform such due diligence.  Any water right for sale should be offered complete with all the best available documentation, just as land being offered should come with documented proof of ownership.  Over the years we have developed a step-by-step plan for researching the validity, the viability and the value of water rights claims attached to a piece of land.  This does not cover every single aspect of a due-diligence inquiry, but rather those things than can be researched and provided to potential Sellers and prospective Buyers.  There are a number of useful steps such as, examination of tax records, close examination of 19th century filing documents, comparison of claimed flow rates with measured ditch capacity, or a review of electrical records where irrigation is powered by electricity, to name a few.  These things are best done by a trained professional.  But I hope this summary has substantially improved your understanding of the water rights that may attach to a property or be separated and moved to another property.  Perhaps it will even help you decide whether you need a professional Water Broker’s insights on the water rights aspects of your sale or purchase. If so, give me a call.