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Trading in water rights & agricultural land transactions

In the commercial agricultural sector, there existed a longstanding practice in which the holder of water rights who was not utilising the rights, or only using part of the quota, could sell or trade such rights with a third party. However, in a 2018 circular, the Department of Water & Sanitation stated that such transfer of (or ‘trading in’) water rights is prohibited in terms of the National Water Act and should no longer be entertained.

In a recent judgment of the Supreme Court of Appeal (Lotter NO and Others v Minister of Water and Sanitation and Others), the Court concluded that a proper interpretation of the provisions of the Act indeed allows for the transfer of water use entitlements. Two specific scenarios are envisaged in section 25 where water use entitlements may be transferred, as follows:

  1. a water user association may allow a holder of a water use entitlement for irrigation to use it temporarily for another purpose or allow it to be used on another property by another person; and

  2. a water use entitlement may be (permanently) transferred to a third party, with the approval of the relevant water authority.

In reaching this conclusion the Court disagreed with the Department’s stance that the practice of allowing the transfer of water use entitlements has been abused by larger commercial farmers, most often to the exclusion and/or detriment of emerging, smaller-scale farmers. It noted that the regulatory framework established by virtue of the Act ensures that transfers of water use entitlements do not have this effect. This is precisely why no transfer of a water use entitlement may occur without the approval of the responsible authority after the authority has weighed up certain considerations stipulated in the Act. If a particular application for transfer is offensive to the purposes of the Act, the responsible authority will not grant its approval for the transfer.

In addition, the effect of water use transactions is not to exclude anyone from access to water. It has to do with the transfer of rights that were already allocated to the rights holder by virtue of the Act. When the entitlement-holder surrenders the entitlement to facilitate a transfer application, the entitlement goes to the transferee if the transfer is approved by the responsible authority, or remains with the entitlement-holder if the transfer is not approved. At no stage in the process is the water use entitlement available for allocation to anyone else and no water becomes available for re-distribution. As a result, the transaction, whether successful or not, deprives no-one of access to water.

Contact our professionals on 041 363 6044 or for sound legal advice.

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This article is not intended to constitute legal advice and is produced for information purposes only and to provide a general understanding of the legal position relating to the topic. It is recommended that advice relating to the specific circumstances of your situation be sought from our attorneys before acting upon the content of this article. This article was written at a particular point in time and accordingly may not always reflect the most recent legal developments, if any, applicable to the relevant topic. Kaplan Blumberg and its partners and/or employees, are not responsible for any consequences which may follow upon any decision taken to act upon the information provided in this article.

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