GANJE: All is ‘well’ if agreements are written well | Opinion

Where access to governmental or municipal potable water is not possible, shared wells are a common tool used by property owners to access good water.

A shared well provides water to several adjacent landowners. A shared well agreement creates water rights for the use of the well. These agreements typically stipulate permissible uses of the water and describe limitations on uses by parties. While shared well agreements often govern the relationship between residential neighbors, agreements are also used for rural commercial properties, and may be used for agriculture water use such as irrigation.

Issues can arise if shared use agreements are not negotiated and drafted with some decent forethought.

A benefit of a shared well agreement is the financial savings to the parties involved. The costs of the installation, maintenance, repairs, and other expenses associated with the shared well are divided between parties. Shared well agreements allow access to water for parties who may otherwise not have independent access to water on their property, absent costly well installation of their own, or extensive property modification. Additionally, shared well agreements can also assure reasonable access to water to future landowners, allowing for easier sale of property.

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While benefits exist, shared well agreements can cause issues. Wells often have a maximum flow rate. This flow rate may not meet all the parties’ intended uses. Shared well agreements often allocate all the costs equally between the parties, which could be viewed as unfair if one party uses more water. Some agreements create a reliance on the shared well owner, and if the owner stops maintaining the well or does not pay for electricity for the well, the other parties could be denied water.

If problems arise in a shared well agreement, there should be mechanisms for resolution without complete termination of an agreement. For instance, if one party is using more water than another, the terms would be adjusted to allocate costs based on usage of water. A second solution would be installing a flow control device. This could prevent overuse and damage to the well. If an operational solution cannot be found, termination of the agreement or one party’s withdrawal is possible. The terminating party often pays costs associated with disconnecting their shared use, and also the costs to restore property which may be damaged from their withdrawal. Importantly, a shared well agreement between the remaining parties should be updated to reflect any new liability share between the remaining parties.

A first recommendation is to formally create and record the agreement while all the parties are in consensus on the terms. A handshake agreement between neighbors is always easier, but a formally recorded writing guarantees the benefits of the agreement for all current and subsequent parties. A formal shared well agreement can also be important in the case of major capital issues with the shared well. If the well needs immediate repair, a formal agreement concretely allocates costs and allows for easier restoration of the well.

A second recommendation is to include key provisions and features in the shared well agreement. First, the exact location and specifications of the shared well must be identified to allow future parties to understand their water situation prior to entering the agreement. The agreement should also include both permissible water uses, and limitations on water use. A shared well agreement should also outline the dispute resolution process relating to operations of or obligations arising under the shared well.

If a purchaser is looking to qualify for an FHA insured residential mortgage, several requirements exist relating to both the shared well, and the agreement. Some key FHA requirements relate to the number of properties served, the minimum flow rate, and the necessity of the well. Additional standards have also been released by the Department of Housing and Urban Development. Shared well agreements could play a role in your access to not only water but also a mortgage.

Some practical problems I see with shared wells are agreements not recorded with the land, and well share agreements not created under a separate limited liability company rather than an individual owner. Well share agreements are overlooked in many real estate transactions. To the point, the official South Dakota ‘Seller’s Property Condition Disclosure Statement’ requires inadequate disclosure information regarding the actual source and type of water located on a property. All’s well is not well unless well made.

David Ganje practices law in the area of natural resources, environmental and commercial law with Ganje Law Office. His website is Lexenergy.net.

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