Water Licence Trading Notes

If you would like to Sell or Lease out Water Abstraction Rights email DCFM

Background

Under the Water Resources Act 1991, a licence from the Environment Agency will usually be needed if you want to abstract water from a surface or underground source either temporarily or permanently.

In each region, there is a maximum amount of water that the Environment Agency can allow to be abstracted. In some areas, the water resources are all fully committed due to rights granted under existing licences, meaning that new licences are unable to be granted.

In these regions, the only way of acquiring water abstraction rights is often to "purchase" existing rights from those who already have a licence to abstract water. The rights themselves therefore have a value. The value of this "right to abstract" will obviously depend upon how short the supply of water is compared with the demand for it.

How does the Trade Take Place?

At present it is not possible for water rights to be traded without the trade being approved by the Environment Agency. For the trade to be carried out, the person holding the water abstraction licence will need to make an application to reduce the amount of water that he is permitted to abstract. At the same time, the purchaser will need to submit an application applying for a new or varied licence to enable him to have additional rights equivalent to those surrendered by the Vendor.

Requirements for the Trade

There are various criteria which will need to be satisfied to enable the proposed trade to go ahead:

Requirements of the Vendor

The Vendor must have the right to sell the abstraction rights. This means that if the Vendor is a Tenant he must ensure that he is not prevented from trading the rights under any agreement with the Landlord.

An individual acting on behalf of a company or partnership must be duly authorised to consent to the trade.

If the Purchaser does not occupy land adjacent to the inland waters or underground strata from which the abstraction will be made, the Vendor may need to give a right of access to such land to the Purchaser if he is unable to secure a right of access to an abstraction point by any other means. If this is the case, the Vendor must obviously have the right to grant such access.

Requirements of the Purchaser

The Purchaser must be authorised to purchase abstraction rights and therefore an individual acting on behalf of a company or partnership must be duly authorised to consent to the trade.

The Purchaser must occupy land adjacent to the inland waters or underground strata from which the abstraction will be made. If the Purchaser does not currently occupy such land, he will need to have a right of access to such land at the time the licence is due to take effect. The Purchaser will need to demonstrate to the Environment Agency at the time of making the application that either he occupies such land or will have a right of access to it.

Hydrological factors

A water abstraction licence trade can only take place between two parties who are located within the same catchment or groundwater unit. Although the abstraction will not necessarily need to take place at the same point, there must be a hydrological link between the two abstraction points. This is due to the fact that a reduction in abstraction at one point must result in more water being available at the other. DCFM is able to check whether the Vendor's current abstraction point/s and the purchaser's proposed abstraction points fall within the same catchment/groundwater unit.

Environmental Factors

The Environment Agency must ensure that the trading of water rights does not result in environmental damage. If the Agency considers that the proposed new abstraction will result in environmental damage it may refuse the application, or impose conditions on the new/modified licence in order to prevent such damage from occurring. The Purchaser will therefore have to provide detailed information concerning its proposed use of the water to enable the Environment Agency to make its assessment.

Temporary Transfers

In addition to permanent transfers of abstraction rights, it will also be possible for a Vendor to sell its water abstraction rights for a limited period only.

Generally speaking, when abstraction rights are surrendered by the holder of an abstraction licence, that person must make a fresh application to the Environment Agency in order to get them back. In these circumstances there is no guarantee that  the Environment Agency will accept such an application.

However, if a trade is to be made on a temporary basis, with the Vendor wishing to have an automatic right to regain the rights traded at the end of the relevant period, the Vendor will need to apply for a temporary variation to his/her licence. It should be noted that in these circumstances the Environment Agency may impose conditions upon the Vendor's varied licence, for example by limiting its duration.

DCFM cannot accept liability for any reduction in the value of a licence which may arise as a result of such conditions being imposed. Vendors are recommended to take legal advice as to the consequences of a trade. In most cases it is anticipated that the Environment Agency will specify any conditions which it is likely to impose prior to a formal application being made, which should assist the Vendor in deciding whether to proceed with the trade. However, the Environment Agency will maintain a discretion to impose such conditions as it considers appropriate.

How Long Will the Trade Take?

Unfortunately it is not possible to accurately predict how long it will take for the trade to go through since this will depend upon how long the Environment Agency takes to consider the application. This period is likely to vary from region to region.

The Environment Agency is unable to consider the application for at least 28 days after the application has been advertised in the London Gazette and one another regional newspaper. The general guidance from the Environment Agency is that it aims to determine each application within 3 months of receipt.

Conditions Imposed by the Environment Agency

The Environment Agency may accept the trade subject to certain conditions being imposed upon the Purchaser's use of the water.

The Environment Agency may decide not to issue a new/modified licence in respect of the full amount surrendered by the Vendor if it considers that to do so may harm the environment. For example, if the Environment Agency considers that the Purchaser's proposed use will result in less water returning to the supply then the total volume of water permitted to be abstracted may be lowered. There can therefore be no guarantee that the Vendor will be able to transfer the same volume of rights as he is giving up. This may impact upon the price that the Vendor is able to obtain for the rights surrendered. 

In general, it is hoped that the Environment Agency will indicate in advance of the application being submitted what conditions are likely to be imposed. However, it should be noted that the Environment Agency has a discretion to impose additional conditions if it sees fit.

How much will it Cost?

In addition to the fees charged by DCFM, the following costs will be incurred in connection with the trade:

• The Purchaser will have to pay for his/her application to be advertised in the London Gazette and twice in a regional newspaper. DCFM will handle the advertisement requirements.

• The Purchaser will also need to pay an application charge of £110 to the Environment Agency when the application is made. No application charge will be payable by the Vendor so long as he/she is only applying to reduce his/her authorised abstraction quantity.

• When the application is granted, the Purchaser will have to pay an annual fee to the Environment Agency based upon the amount of water he/she is permitted to abstract.

DCFM's Role

In addition to identifying and setting up potential trades of water abstraction rights, DCFM will use its experience in this field to act as the intermediary between the trading parties and the Environment Agency in order to help the transaction progress as smoothly and as quickly as possible. The procedures that DCFM will follow are set out in more detail in our Terms of Business.