Arizona Supreme Court to Address Significant Water Law Issue

Earlier this year the Arizona Court of Appeals rendered a decision on a case that purports to consider the issue of whether water rights can be reserved in a sale of property, permitting the seller to retain the rights to market groundwater from the property in the future. Shaun McKinnon, of the Arizona Republic, is reporting on his blog that the Arizona Supreme Court has agreed to consider a renewed appeal on the matter in the coming year. His characterization of the case (and the Court of Appeal's from what I can tell) gives the impression that actual "water rights" to groundwater are associated with the property. I'm afraid I have to take exception to that characterization.

Because the property at issue in the case (in the Big Chino valley, north of Prescott) is not within an active management area (AMA), under Arizona law the right to pump groundwater from beneath the property is held by the overlying landowner, subject to the reasonable use doctrine. This means that the only "rights" to groundwater associated with the property, are the rights of the landowner to pump water for reasonable use on the property. In that sense the plaintiffs in the case are correct - the seller could not really reserve groundwater rights as part of the sale. But the sellers did not reserve rights to groundwater here. They reserved the right to earn the proceeds from the sale of groundwater pumped on the property. If I remember my first year property class, this could be construed as a profit a prendre (old French for right of taking; typically called a "profit" for short). A profit is a nonpossessory interest in land, permitting the holder of the profit to remove natural resources from the land of another. In this case it would be a profit in gross, which is held separate from ownership of land and is transferable.

For some reason the court never even mentions the possibility that this could be a "profit", instead referring to what the defendant's owned as actual water rights. It would be interesting to check into the law in Texas, a rule of capture state, to see if they permit any reservation of rights to groundwater separate from ownership of land. It has always been my stated contention that the reasonable use doctrine, followed in Arizona outside of AMAs, is essentially the same as the rule of capture, but with modest limitations on transportation of water from the parcel it was extracted from.

Personally, I think the court got the ruling correct. In fact, I think it would be a good thing if actual property rights in groundwater existed in Arizona, but that would require overturning existing precedent. I suspect that the AZ Supreme Court will affirm the court of appeals ruling, but they might be persuaded by a public policy argument (that appeared to be unconvincing to the appeals court) because this could lead to speculation in groundwater rights. On the other hand, possibly not, because of the statutory restrictions on transporting groundwater from outside an AMA into an AMA. This would appear to limit the opportunities to speculate in this manner.