Recently, I have received several questions related to whether a seller of land can reserve groundwater rights at the time of sale.  The San Antonio Court of Appeals addressed this question in 2008 in City of Del Rio v. Clayton Sam Colt Hamilton Trust, 269 S.W.3d 613 (Tex. App. San Antonio 2008).  In light of the interest level in this topic, I thought a discussion of this decision might be useful.

Basic Texas Water Law

For those of you new to the blog and those of you not for Texas, remember that in this state, landowners have a private property interest in the water beneath their land.  To read more on the basics of Texas water law, click here.

Factual Background

The Clayton Sam Colt Hamilton Trust (“Trust”) owned a 3,200 acre ranch near Del Rio.  In 1997, the Trust sold 15 acres of the ranch to the City of Del Rio for $56,000.  The deed conveying these 15 acres expressly reserved mineral rights, and contained the a provision whereby the seller reserved “forever all water rights associated with said tract” but provided that the seller could not use any portion of the surface of the tract for “exploring, drilling or producing any such water.”

In 2000, Del Rio determined it needed to increase its water supply and decided to drill a well on the 15 acre property.  It completed a water well on the property in 2002.  At that time, the Trust’s trustee visited the ranch, discovered the well, and had a letter sent to Del Rio ordering that it cease production from the well and demanding $500,000 in damages.  When this demand was rejected, the Trust filed suit claiming that it owned the groundwater beneath the 15 acre property and seeking monetary damages for an unconstitutional taking of private property and for trespass.  In response, Del Rio argued that the deed did not leave the trust with a valid interest in the groundwater and, alternatively, if the Trust did have such rights the City asserted condemnation of the rights.

The trial court held that the water rights reservation in the deed was enforceable, and that ownership of the groundwater rights beneath the 15 acres belonged to the Trust.

Court of Appeals Opinion

The Court of Appeals affirmed the trial court, also siding with the Trust.

First, the Court held that a party may reserve groundwater rights even if the water has not yet been reduced to possession.  “The Trust was entitled to sever the groundwater from the surface estate by reservation when it conveyed the surface estate to the City of Del Rio.”  Thus, because the City of Del Rio had now ownership rights in the water beneath the 15 acre tract, it had no right to drill a well and produce such water.

Second, the Court held that even though the Trust agreed to give up any rights to use the surface of the 15 acres to produce the groundwater, it was still a valid conveyance.  The Court easily rejected this argument, explaining that the Trust did not need use of the surface of the 15 acres to produce the water beneath it, as it owned the adjacent 3,200 acre ranch, upon which it could drill water wells to pump from beneath the 15 acres.

Key Considerations

This case offers several key considerations for anyone interested in Texas water law, for landowners, and for those seeking to purchase property in Texas.

First, remember that unless expressly reserved in a deed, a conveyance of land is deemed to include all rights held by the seller.  This means that if a seller wishes to reserve any portion of groundwater rights, that must be expressly stated in the deed.  In this case, the Court held that the Trust’s reservation of “all water rights” in the deed was sufficient.  Had the deed been silent on this issue, however, all water rights held by the Trust would have passed with the land to the City.

Second, this case illustrates the principal that anyone reserving water rights must consider how he or she will access the water.  Unlike oil and gas, where Texas law imposes an implied right to use as much of the surface as reasonably necessary to produce the mineral estate, no such implied right has been found to exist for groundwater.  For example, even if an oil and gas lease is silent, the lessee has the right to drill a well on the surface of the land based upon this implied right.  For groundwater, the same is not true.  There is no implied right to drill wells or make any other use of the surface to obtain groundwater.  Thus, anyone reserving water rights should carefully consider whether they, like the Trust here, are able to produce the groundwater without using the surface of the land being sold, or whether they need to include detailed provisions allowing them use of the surface to produce groundwater in the future.

Third, it should be noted that by reserving groundwater rights, a seller may decrease the market value of his or her property.  Additionally, purchasers should carefully consider the limitations that this type of reservation could put on their use of the land they are buying.  For example, assume that someone purchased property on which to build a house, but the seller reserved all water rights.  Could the new surface owner drill a well to provide water to his or her house?  Purchasers of land should be careful to ensure that any deed specifically lays out their rights in the event the seller seeks to reserve groundwater ownership.