Commentary and Analysis Regarding Colorado Law

With the ever-increasing development along the Northern Front Range, many of Lyons Gaddis’ irrigation company clients are asked to either permit a crossing of their ditch easement or to relocate their ditch to facilitate development. Both should result in an agreement. The difference between these two agreements is frequently not well understood but they are dramatically different legal agreements.

License Agreement for a Crossing

A license agreement for a crossing allows another party, frequently a developer, utility, telecommunication provider or a municipality, to install a crossing of their easement without affecting the easement. The license agreement does not grant an easement or other real property interest to the entity crossing. It simply allows or licenses the crossing on terms and conditions that protects the use of the ditch easement, covers all of the ditch company’s costs and almost always assesses a modest license or crossing fee, generally in the range of $1,000 - $5,000 per crossing. These license agreements for crossings utilize fairly standard forms and are relatively simple to draft once the necessary information is obtained. These license agreements for crossings are also used for bridges, road crossings, utilizing culverts, and sometimes for overhead powerlines. The guiding principle is that the irrigation company’s easement remains intact and unaffected.

Recently, the City of Aurora entered into a contract to purchase 119 shares in the Whitney Irrigation Company from BCI Waterco, LLC, an affiliate of the Broe Companies. Some are concerned that this purchase signals a renewal of water raids from the Denver metro area into northern Colorado water supplies. However, the Denver metro area water needs are on a scale that water providers want to purchase and assemble large blocks of water.

It is not efficient or economical for metropolitan water providers to purchase small amounts of water and then transport that water to the south. Economies of scale discourage such patchwork purchases where options to make a single purchase of a larger quantity of water exist. The Aurora purchase is for shares with an already quantified historic consumptive use of 1,629 acre feet for a purchase price of more than twenty-six million dollars. The shares historically irrigated approximately 1,100 acres.

Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on the Colorado “Stay-at-Home” Order and whether Ditch Companies qualify as “Essential.”

Since the passage of the 2007 Farm Bill, buyers and sellers of certain water rights have enjoyed the ability to use tax deferred exchanges under Section 1031 of the Internal Revenue Code.  Recent changes to the tax code, however, deleted any reference to mutual ditch or irrigation company stock from the definintion of qualifying “like kind property.”  None the less, the IRS will still allow exchanges involving ditch stock provided that your state’s laws consider such stock as real property.

Following the passage of the 2007 Farm Bill, Internal Revenue Code §1031(i) specifically provided that mutual ditch or irrigation company stock could be used for a tax deferred like kind exchange for real property used in a trade or business or held for investment purposes. As a result, the gain from the sale of eligible mutual ditch company stock could be deferred if the other requirements of §1031 were met.  Eligible stock was defined as any stock in a mutual ditch, reservoir, or irrigation company, as described in Code § 501(c)(12)(A). That section required at least 85% of the revenue into the company be from member assessments.

Submitted by Jeff Kahn

On November 19th, Longmont’s Sean Cronin testified before the Senate Committee on Finance, Subcommittee on Taxation and IRS Oversight’s hearing entitled “Tax Relief after Disaster: How Individuals, Small Businesses, and Communities Recover.”  Mr. Cronin is the Executive Director for the St. Vrain and Left Hand Water Conservancy District.  (Watch Mr. Cronin’s testimony) He spoke to the challenges faced by farmers and mutual ditch companies as they work to rebuild important water infrastructure damaged by the 2013 flooding and the benefits that would be offered by adoption of the National Disaster Tax Relief Act of 2014., currently under review in the House and Senate. The full text of Mr. Cronin’s testimony is available here.

Submitted by Jeffrey J. Kahn

Proposed Water Legislation and Ballot Initiative

Legislation:  The 2014 Colorado Legislative Session convened on January 8^th and several pending bills appear headed for enactment, including: