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Arizona Water Rights Decoded: A Primer for Real Estate Developers

Arizona Water Rights Decoded: A Primer for Real Estate Developers 150 150 Gottlieb Law

In the rapidly evolving landscape of Arizona real estate, the importance of understanding water rights and usage cannot be overstated. Governed by the Arizona Department of Water Resources (ADWR), these rights are crucial for transactions and development projects. Arizona’s unique environment, characterized by its reliance on both the Colorado River and local groundwater sources, makes water rights a complex but indispensable asset. This complexity is further underscored by the distinction between riparian and appropriative rights, with the latter being more prevalent in Arizona’s real estate dealings.

As real estate developers navigate this intricate terrain, awareness of the Groundwater Management Act, water security measures, and the meticulous management plans needed to ensure sustainable development and use of water in Arizona are paramount. 

This guide aims to demystify the process of acquiring water rights, the impact of these rights on real estate values, and the future trends that could shape water policy in the state. With a focused look at underground storage, the Central Arizona Project, and the state’s approach to water risk, developers are equipped to make informed decisions in Arizona’s competitive landscape.

Understanding Arizona’s Water Rights Framework

Arizona’s water rights framework is a complex system designed to manage and regulate the use and distribution of this precious resource. It’s built on two main legal foundations: the doctrine of prior appropriation and the distinction between surface and groundwater rights. 

Prior Appropriation Doctrine:

  • The cornerstone of Arizona’s water rights, this doctrine operates on a “first in time, first in right” basis. It means that the first person to put water to beneficial use has the right to continue using that amount of water, which is crucial for developers to understand when planning projects.
  • Beneficial use includes irrigation, domestic, municipal, and industrial uses, among others. It’s essential to establish the date of water rights and understand any limitations on transferring those rights, as they may be tied to specific uses or geographic areas.

Types of Water Rights:

  • Surface Water Rights: Governed by A.R.S. sections 45-101, et seq., these rights are categorized into pre-1919 rights, post-1919 rights, stock pond rights, and decreed rights. A surface water right is specific to a parcel of land but can be altered in terms of point of diversion and uses through ADWR administrative proceedings.
  • Groundwater Rights: Particularly regulated within Active Management Areas (AMAs), where the state has identified critical levels of groundwater overdraft. Here, groundwater rights are quantified and regulated, and include irrigation grandfathered groundwater right, type I and II non-irrigation grandfathered groundwater rights, and withdrawal from a nonexempt well. Outside AMAs, the “reasonable use” doctrine applies, allowing more flexibility but also requiring careful management to avoid overdraft.

Management and Regulation:

  • Active Management Areas (AMAs): These are regions where groundwater use is heavily regulated to prevent overdraft. Each AMA has specific management goals, like achieving safe-yield, and developers must obtain a certificate of assured water supply, guaranteeing a 100-year supply of water.
  • Groundwater Management Act (GMA): Enacted in 1980, the GMA introduced a regulatory framework for groundwater management, including the establishment of AMAs and INAs (irrigation non-expansion areas), well measurement and reporting requirements, and conservation programs. The GMA mandates that new advancements in AMAs must showcase a guaranteed water supply for a minimum of 100 years.
  • Conservation Efforts: The ADWR is developing fifth management plans for each AMA, aiming to reduce groundwater withdrawals. These plans prescribe conservation requirements for different uses and allow for alternative conservation programs if they achieve equivalent water savings.

Understanding Arizona’s water rights framework is essential for real estate developers looking to navigate the complexities of water usage and regulation in the state. Engaging with legal counsel experienced in water law can provide a comprehensive understanding of these rights and help mitigate potential risks associated with water resource management.

The Role of Irrigation and Groundwater Management

In the state of Arizona, the stewardship and allocation of water resources, especially in relation to irrigation and agricultural needs, stand as a significant and pressing issue for those involved in the real estate development sector.

Distribution of Water Usage:

  • Agriculture: Consumes approximately 73% of the state’s water, with urban cities and communities using about 21%, and the industrial sector using roughly 5%.
  • Comparison: The majority of Arizona’s water use is attributed to agriculture, whereas municipal water use constitutes only 22% and industrial water use 6%.

Implications for Agriculture:

Water Restrictions: Agriculture is the largest consumer of water in Arizona and is expected to face the most significant cuts due to water restrictions. Such circumstances might precipitate various alterations in the agricultural scenery, such as:

  • Reduction in farmland
  • Shifts in crop choices favoring less water-intensive crops
  • Adoption of more water-efficient agricultural practices

Strategies for Adaptation:

  • Real estate developers and agricultural stakeholders are delving into a range of tactics to adjust to these transformations, including:
  • Innovative Water Management Practices: Implementing advanced irrigation techniques that minimize water waste, such as drip irrigation and soil moisture sensors.
  • Crop Rotation and Selection: Choosing crops that are less water-intensive and practicing crop rotation to maintain soil health and reduce water usage.
  • Water Reuse and Recycling: Investing in systems that allow for the reuse of wastewater for agricultural purposes, thus reducing the reliance on freshwater sources.

Understanding the role of irrigation and groundwater management in Arizona is crucial for real estate developers. The state’s reliance on agriculture as a major water consumer means that any changes in water policy or restrictions can have profound implications for land use and development. By staying informed about water usage trends and adapting to more sustainable practices, developers can mitigate risks and contribute to the state’s water security.

Navigating the Water Rights Acquisition Process

Navigating the water rights acquisition process in Arizona requires a thorough understanding of the state’s regulatory framework and proactive engagement with the Arizona Department of Water Resources (ADWR). 

Initial Steps for Water Rights Acquisition:

  • Identify the Water Source: Determine if the desired water source has available water rights. This could be surface water, groundwater, or a combination of both.
  • ADWR Programs: Familiarize yourself with the Assured Water Supply (AWS) and Adequate Water Supply (Adequate) programs. These initiatives assess the accessibility of a water supply lasting 100 years, taking into account existing and committed usage alongside growth forecasts.
  • Application Filing: File an application with the ADWR, providing detailed information about the proposed use, the water source, and the amount of water needed.

Due Diligence and Documentation:

  • Investigate Water Availability: Potential homebuyers and developers ought to conduct thorough research on water availability prior to acquiring real estate. Detailed information and maps regarding Active Management Areas (AMAs) can be accessed through the ADWR website.
  • Water Rights Ownership: Understand that water rights ownership in Arizona can be held separately from the land. Groundwater rights can be researched through ADWR records to determine title ownership.
  • Water Rights Due Diligence: Essential when purchasing property, whether it has a well or not. This includes understanding the property’s water rights and any restrictions or obligations.

City and Developer Specific Considerations:

  • Cities’ 100-Year Assured Water Designation: Urban areas have the option to secure a 100-year guaranteed water designation from the ADWR, a vital aspect for strategic long-range planning and urban development.
  • Maps and Resources: Utilize the ADWR’s resources, including maps of AMAs, to plan projects effectively and ensure compliance with state water regulations.

Adhering to these steps and conducting thorough due diligence enables real estate developers to navigate the complexities of water rights acquisition in Arizona. This procedure not only guarantees adherence to legal requirements but also promotes sustainable water governance within the state, ensuring the preservation of water assets for the benefit of future generations.

Impact of Water Rights on Real Estate Values and Development

In the state of Arizona, the intersection of real estate development and water rights plays a pivotal role, profoundly influencing both property values and the feasibility of new development projects. As these two critical factors intertwine, they create complex challenges and opportunities within the real estate market. The availability and rights to water resources are increasingly becoming a significant element in determining the value and potential success of property developments. 

This dynamic is particularly important in Arizona’s arid environment, where water scarcity can dictate the pace and scope of real estate ventures. Understanding and navigating the nuances of water rights is essential for developers and investors aiming to maximize their investments and ensure the sustainability of their development activities in the region.

Arizona-specific Real Estate Considerations:

  • Disclosure Requirements: Sellers must disclose water rights and environmental concerns, which can significantly affect transaction decisions.
  • Anti-Deficiency Legislation and the Arizona Residential Landlord and Tenant Act: Water rights can affect property values and tenant rights, and therefore, are indirectly impacted by anti-deficiency laws and the Residential Landlord and Tenant Act.
  • Title and Escrow Process: Water rights can affect the smooth transition of property ownership.

Impact on Property Values:

  • Rural Arizona Homes: Projected to decrease in value due to declining groundwater availability, with potential declines of up to 12% under severe drought conditions.
  • Water Availability: A significant factor in home buyers’ decisions, affecting property values. Areas with assured water supplies tend to have higher property values.
  • New Housing Restrictions: Groundwater shortages have led to restrictions on new housing, potentially ending rapid development in some regions. This scarcity of developable land is expected to drive up home prices.

Development Considerations:

  • Groundwater Regulations: New regulations limit the ability to sprawl outward, necessitating a shift towards denser, taller housing projects in areas with assured water supplies like Phoenix, Mesa, and Glendale.
  • Commercial Real Estate Market: Water is a critical factor, with properties having secure and ample water rights often commanding higher values.
  • Agriculture and Manufacturing: Industries that are particularly impacted by water rights, affecting their property value and usability.

The landscape of real estate development in Arizona is intricately linked to water rights and usage. As the state grapples with groundwater shortages and the need for sustainable water management, real estate developers must navigate these challenges with strategic planning and adaptation. Ensuring a sustainable and legally sound water supply is not just crucial for the viability of future projects but also for the long-term growth and development of Arizona’s real estate market.

Future Trends and Considerations in Arizona’s Water Policy

In the face of climate change, Arizona’s water policy is at a critical juncture, with the megadrought reducing water levels in the Colorado River, which is a vital source of water for the state, supplying about 36% of Arizona’s water needs. The future of Arizona’s water policy and management is contingent upon a collective willingness to make difficult decisions, encompassing everything from agricultural practices to urban water use. 

Climate Change and Water Scarcity:

  • The Colorado River’s diminishing water levels underscore the urgent need for sustainable water management practices.
  • Proposed solutions such as the $5 billion desalination plant in Mexico’s Sea of Cortez highlight the search for alternative water sources, despite concerns about their energy and infrastructure demands.

Agriculture and Urban Development:

  • Farmers, particularly in Arizona and California’s Imperial Valley, are seeking compensation for reducing water usage, indicating a shift towards more water-efficient agricultural practices.
  • Urban areas are under pressure to reduce outdoor water use, with about 93% of wastewater being reused, showcasing innovative approaches to water conservation.

Policy and Infrastructure:

  • The development of new guidelines for the long-term management of the Colorado River system by the end of 2026 represents a pivotal moment for Arizona’s water policy.
  • Groundwater management, particularly under the broad term of “beneficial use,” presents equity challenges for rural areas, highlighting the necessity for balanced and inclusive water policy frameworks.

What’s more, the role of recreational and tourism-related water use, such as golf courses, illustrates the complex trade-offs involved in water management. The future of such amenities will depend on the broader context of water choices, emphasizing the importance of integrated and holistic approaches to water policy. 

Ongoing negotiations over water supply and the impact on Arizona farmers underscore the interconnectedness of agricultural practices, real estate development, and water policy. As Arizona faces Tier 1 water shortage conditions in 2024, with an 18% cut from its total Colorado River water allocation, the state’s approach to managing its water resources will have far-reaching implications for its growth, sustainability, and quality of life.

Gottlieb Law Can Help!

Understanding the intricacies of real estate contracts and water rights in Arizona can be a daunting task for developers. Gottlieb Law provides thorough legal support to ensure meticulous handling of every facet of your real estate transaction. Speak to our firm today by calling 602-899-8188 or schedule an initial consultation by submitting your information on our Contact Us page.

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship.  You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.