Securing Water Rights: Analyzing The Water Act, Case Law And Lessons For Lenders In Alberta

Water rights vary from province to province; in Alberta water rights are primarily covered by the Water Act (the "Act ").1 Under the Act, there are three primary ways that an agricultural business may divert water:

Water License Exempted Agriculture User Traditional Agriculture User The Act also establishes a system of priority referred to as "First-in-Time, First-in-Right" or FITFIR. A license or registration's priority is determined by its priority number, which are assigned at the time of issuance, in ascending order. The older the entitlement, the lower its priority number will be. Generally speaking, in times of water shortage, those with numerically lower priority numbers (and thus an older license or registration) will take the full allocation of water allotted to them by their entitlement, as they were the "First-in-Time”. Those with later registration may be forced to go without. As such, the lower the entitlement's priority number, the earlier the entitlement was established and the potentially more valuable the allocation.

1. Rights

   Water License A water license stipulates a volume of water permitted to be diverted for a prescribed purpose. Pursuant to s. 58 of the Act, the license will specify either land or an undertaking to which it is appurtenant (pertaining). The license is inseparable from that land or undertaking, and thus runs with them on disposition (unless the Governor in Council orders otherwise).2

   The allocations made under these licenses can be transferred. Further, despite s.58 of the Act, the Court of Queen's Bench of Alberta has found that a water license can be severed from the land.

   In Royal Bank v Hirsche Herefords (Hirsche), a receiver was empowered to sell the assets of a debtor, which included certain lands, and the water license appurtenant to said lands.3 The receiver listed these lands, including a statement which specified that the water rights would be sold separately, which was acknowledged by the purchaser in the purchase contract. The question of whether these rights run with the land was not fully settled, however Justice Strekaf found that the water license was an asset of the receivership. It was also held that a transfer of the allocation under the license was for the Director under the Act to approve.

   Despite any presumptions that a mortgage over the lands would contemplate the water license appurtenant to such land, it is possible, where a transfer is approved by the Director, for those rights...