Water rights can now be transferred

For many owners of water rights, the confusion over the last few years about whether you can or can't transfer these rights to another, has been quite frustrating. At last, the Constitutional Court has provided much-needed clarity and hopefully laid the issue finally to rest. In this article, we briefly review the position as it now stands.

Water remains a scarce resource in South Africa and as such is closely regulated by the National Water Act 36 of 1998 ("Act"), which also forms the basis of the contention around the permissibility or not of transferring water rights through trading.

Trading in water use rights was initially permissible, however, in 2018, the Department of Water and Sanitation ("Department") issued a circular declaring that section 25 of the Act does not allow trading in water use entitlements. The Department premised its decision on the contention that water use rights were predominantly traded by wealthy farmers and that the trading of such a scarce resource perpetuated the imbalances that the country was confronted with in the past. This led to an in-depth interpretation of the provisions of section 25 of the Act.

The matter initially came before the High Court after the Department refused applications for water use licenses as contemplated in section 25(2) in respect of private agreements concluded between the holders of water use rights and other persons. In terms of the agreements, water use rights were surrendered by the holders thereof to make provision for other persons to apply for water use licenses as contemplated in section 25(2) of the Act. The applications were subsequently refused by the Department which held that section 25(2) does not provide for the transfer of water use rights from one party to another, and which led to an application to the High Court for an order about the interpretation of sections 25(1) and 25(2) of the Act, respectively.

The application was dismissed by the High Court which agreed with the Department and held that, upon a proper interpretation, section 25 of the Act prohibits trading in water use rights. However, upon appeal, it was held by the majority in the Supreme Court of Appeal that the transfer of water use rights was allowed by the holder thereof to a third party for compensation, in terms of sections 25(1) and 25(2). 

The Department appealed, and the matter then proceeded to the Constitutional Court which had to consider the interpretation of the provisions of section 25. In this respect, the court was confronted with several important considerations.

The first issue before the court was whether section 25(1) allows water usage by a person who does not have water use rights. Section 25(1) of the Act provides that, "A water management institution may, at the request of a person authorised to use water for irrigation under the Act, allow that person temporarily and on such conditions as the water management institution may determine, to use some or all of that water for a different purpose, or to allow the use of some or all of that water on another property in the same vicinity for the same or similar purpose". The Constitutional Court held that the Act does not prohibit holders of water rights to transfer the use of some or all of that water to a third party temporarily.

Another issue that was in dispute was the provisions of section 25(2), in terms of which the holder of a water use right is allowed to surrender all or some of such rights for the facilitation of an application for a water licence in terms of section 41 of the Act to use water from the same resource in respect of other land and on condition that the surrender of the right shall only become effective if and when an application in terms of section 41 has been granted.

The court, upon interpretation, found that section 25(2) does not expressly make provision for a third party to apply for a water use licence in respect of an existing water use licence being transferred to another property. However, the court held that the Act should not be interpreted to preclude third parties from applying for water use licences. Therefore, a third party may apply for a water use licence to transfer an existing water use right from the property of the holder of such right to another person's property if an agreement to this effect has been reached between the parties.

Finally, the court had to consider if water use rights could be traded for compensation. The court found that the Act does not contain a provision in terms of which trading in water use rights was expressly prohibited. Section 29(2) seems to acknowledge that it is lawful in terms of the Water Act to enter into a private transaction relating to the use of water with another person and that, when this is done, it is for such an arrangement to include the payment of compensation. Therefore, the holder of a water use right may transfer such right to another person in exchange for compensation.

In this manner the Constitutional Court effectively ended the embargo placed by the Department on the transfer of water rights for compensation, and is such transfer now allowed, subject to the provisions of the Act. For assistance with transferring water rights, it is advisable to contact a commercial attorney to assist you with the necessary steps to transfer such rights.