WATER RIGHTS – THE CINDERELLA OF PROPERTY SALES – BY CLAIRE TUCKER, PARTNER AND KERRY LIEBENBERG, ASSOCIATE
The property boom, particularly in the Western Cape, has seen an unprecedented rise in property transactions including transfers of agricultural property. Water is of course pivotal to any agricultural or recreational undertaking, but in many cases water rights are neglected during negotiations over price and, like Cinderella, only get to the party at the last minute! This is partly because the change in the water regime in South Africa since the promulgation of the National Water Act in 1998, has created uncertainty about the nature and security of water rights. Many property lawyers are unaware of these changes and fail to properly advise their clients of the nature of the risk involved - and fail to draft appropriate provisions to cater for new position.
Added to this, the system of water use licencing introduced by the new Act has suffered an administrative shutdown, with only a tiny fraction of the required water use licences having being issued to date. Because of this a purchaser should always be wary of water registration certificates which are produced as proof of water rights. These are in effect nothing more than an unconfirmed statement by the property owner him or herself of the quantities of water available for use at the property in question, which has not been confirmed or approved by the Department of Water Affairs and Forestry (DWAF).
THE OLD REGIME
Under the previous water regime in South Africa, which was regulated by the Water Act, 1956, water was deemed a commodity which a person could “own”. The right to water was a real right meaning that it attached to the land, and as such would pass to a successor in title when land was transferred. This meant that there was no reason to deal separately with water in a property sale agreement.
In terms of the Water Act, 1956, there was a distinction between “public water” (that is water which flowed in rivers and larger streams and which was for the common use of riparian owners) and “private water” (that is spring water, rain water, and certain streams and underground water). A person could own private water and in addition, riparian owners enjoyed a preferential right to public water. In this regard the riparian system was geared towards serving agricultural interests, and access to water was by necessary implication inextricably linked with the ownership of land. As a result, water rights were determined by apartheid patterns of land ownership.
THE NEW REGIME
In line with our new constitutional democracy, the National Water Act, 1998, which repealed the Water Act, 1956, did away with a century of riparianism, abolished the distinction between public and private water and introduced a radical and fundamental change to the water regime in South Africa. In terms of the National Water Act, no person can “own” water. The State became the custodian of all water in South Africa and an individual’s water rights are limited to the right to use such water. As the public trustee of the nation’s water resources, the National Government must ensure that water is protected, used, developed, conserved, managed and controlled in a sustainable and equitable manner, for the benefit of all and in accordance with its constitutional mandate. As such, one is no longer guaranteed the right to use water flowing adjacent to or over ones property.
In terms of the National Water Act, a “water use” includes activities such as, amongst others, taking or abstracting water from a water resource; storing water; disposing of waste in a manner which may detrimentally impact on a water resource; and altering the bed, banks, course or characteristics of a watercourse. The right to these uses of water is regulated in terms of the National Water Act primarily through a licensing system, administered by DWAF. To use water, a person must be issued with a licence by DWAF. A water use licence will specify the water user, the property or area where the water will be used, the specific use authorized, and in most instances, conditions of use.
A person may only use water without such a licence, for certain limited purposes specified in the Act, such as reasonable domestic use, domestic gardening, animal watering, fire fighting and recreational use. In addition, a person (or their successor in title) is permitted to continue with an “existing lawful water use” (basically a lawful water use which took place at any time during a period of two years immediately before 1 October 1998). No licence is required to continue with an existing lawful water use until DWAF requires a person claiming such an entitlement to apply for a licence. However as a with other water uses, a person who uses water in terms of an existing lawful water use must register such use with DWAF, and be issued with a registration certificate by DWAF. This registration certificate will reflect the information as submitted by the applicant, and is not independently confirmed by DWAF at the time the registration certificate is issued. As stated at the outset, this is not a guaranteed “right” to that water.
If a licence is subsequently issued, it becomes the source of authority for the water use. If a licence is not granted the use is no longer permissible. In issuing a licence for the use of water, DWAF is obliged to take into account all relevant factors, including but not limited to other existing lawful water uses, the need to redress the results of the past racial and gender discrimination, the socio economic impacts of the water use, and the effect of the water use on other users (including the environment). A licence is not transferable and if the property is sold the new owner needs to secure the water rights with the cooperation of the seller.
Prior to DWAF replacing the registration certificate with a licence in respect of an existing lawful water use, DWAF may verify the lawfulness or extent of the water use registered. This is to ensure that people have in fact registered the correct amount of water which they were using on the property, rather than an inflated quantity which would in turn increase the value of the property. DWAF verifies the information using various GIS and infra-red tracking systems. To date, only a negligible percentage of registered water uses have been verified by DWAF or issued with a licence.
If the verification application is refused by DWAF, the water use may not be exercised.
CONFUSION OVER WATER RIGHTS There are three real water issues to be considered when concluding a property transaction involving the transfer of agricultural land. Firstly, that the purchaser must reapply for the water rights on any registration certificate or water use licence. This should be dealt with in the agreement of sale. The National Water Act does provide that a successor-in-title to any person to whom a water use licence has been issued may continue with the water-use, subject to the same conditions, but must “promptly inform the responsible authority of the succession”, for the substitution of the name of the licensee, for the remainder of the term of the license. However, there is no automatic transfer of the licence.
Secondly, a water use registration, prior to its verification by DWAF, does not guarantee that the water user is entitled to use the quantities of water specified in the registration certificate. Sellers of agricultural properties are holding out these registration certificates to be a guarantee of the water use rights which have been registered over the property, and thus demanding higher property prices. However, until such time as DWAF has verified the water use and issued the water user with a licence to use water at the property, the purchaser has no was of knowing the actual amount of water which will be authorised by DWAF. This has left many purchasers of agricultural property in a rather precarious position. DWAF has indicated that a huge percentage of the properties which have been subject to the verification procedure to date, have found to have over inflated the water use registered over the property by up to 40%.
Lastly, this is further complicated by the continued existence of “Irrigation Board” allocations in agricultural areas. The transfer of these rights must be separately dealt with between the seller, the purchaser and the Irrigation Board, and this transfer does not involve DWAF.
Whilst the new water regime revolutionized the legal nature of water rights, in that such rights no longer run with the land, this (long overdue) shift in paradigm has brought with it a great deal of uncertainty and risk with regards to the rights to water on the sale of land.
It is now five years post the enactment of the National Water Act, and in general there still seems to be a lack of appreciation for the new water regime, even by lawyers involved in drafting property transaction documents. This issue must be resolved before negations regarding price and other conditions for the transfer of the property in question are finalised. However, all too often when it comes to the matter of water use rights, reference is still carelessly made to the automatic transfer of water rights as endorsed in the property deeds!
There is no substitute for the involvement of environmental lawyers with the requisite experience and knowledge at an early stage in the transaction.
Claire Tucker is the head of the environmental law practice area at Bowman Gilfillan, Kerry Liebenberg is also in the practice area.