SEBASTIAN SACCUZZO, PRINCIPAL

KRYSTAL BEDGGOOD, ARTICLED CLERK

FROM WATER RIGHTS TO WATER SHARES

Recent amendments to the Water Act 1989 (Vic) (“Act”) have seen the unbundling of land and water rights for declared water systems and the replacement of water rights with water shares. Registering a transfer of land in the Victorian Land Registry (“Land Register”) after 1 July 2007 is therefore no longer effective to transfer the land and the water share simultaneously in a declared water system, namely Goulburn Murray Water, Lower Murray Water and First Mildura Irrigation Trust.

Transitional arrangements

Transitional arrangements under the Act deem a mortgage registered over land prior to 1 July 2007 to be a mortgage over the water share where the proprietor of the land is deemed to be the proprietor of a water share which is over 5 megalitres in volume.

Notwithstanding the protection afforded to mortgagees for pre 1 July 2007 transactions, any mortgagee who takes security over land and water interests post 1 July 2007, must lodge a mortgage in the Victorian Water Register (“Water Register”), in addition to lodging a mortgage in the Land Register, to adequately protect their security interests over a water share in a declared water system. Mortgages over a water share can be transferred, discharged or varied as to terms or priority and are therefore not dissimilar to mortgages over land. 

The recent legislative amendments have practical implications for mortgagees. Mortgagees must revise their mortgage terms, security contracts and powers of attorney to adequately protect their security interests with respect to water shares.

PRACTICAL IMPLICATIONS FOR MORTGAGEES

Does your Memorandum of Common Provisions (“MCP”) adequately protect your security interests?

An unrevised MCP currently lodged in the Land Register will not adequately protect a mortgagee’s security arrangements with respect to water shares because an unrevised MCP:

·         cannot be incorporated into a mortgage over a water share;

·         will primarily relate to dealings with land, and

·         will fail to respond to the legislative amendments.

A mortgage over a water share must therefore refer to an MCP which has been lodged in the Water Register and contain terms relevant to securities over a water share.

An unrevised MCP will not protect mortgagees in relation to dealings with a water share, including any variation, surrender, assignment, transfer, division or consolidation of a water share; or any surrender, variation, transfer or assignment of any water allocation, temporary transfer of a water share (limited term transfer) or any licence or registration to use the water share; or any non-compliance with conditions on any licence or registration or any failure to obtain ministerial approval under the Act.

There are two practical ways in which mortgagees could revise their mortgage terms to ensure that their security interests are adequately protected:

1.     Retain the unrevised MCP lodged in the Land Register and have a separate MCP lodged in the Water Register, comprising mortgage terms relevant to securities over water shares only;  or

2.     Convert an MCP lodged in the Land Register to a “dual” MCP by incorporating provisions specific to water shares in addition to those provisions specific to land. A dual MCP would then be registered in the Land Register and separately registered in the Water Register, each being allocated separate numbers by the respective registers.

Do your security arrangements allow sufficient time to obtain ministerial approval for a transfer?

A person wishing to transfer a water share must obtain ministerial consent to transfer a water share by applying to the Water Corporation. Although mortgagees are not required to obtain ministerial consent to mortgage a water share, security documents should provide for sufficient time in which to obtain ministerial consent for the transfer of a water share.

A pre-approved transfer must be lodged with the Water Register within two calendar months from the date of Water Corporation approval of the transaction. If the transaction is not recorded within the two calendar months, the Water Corporation approval lapses and the Water Registrar will not record the transfer and a new application would need to be lodged with the Water Corporation together with an additional application fee. 

Given the strict time frame in which a pre-approved transfer is to be registered, mortgagees should lodge the pre-approved transfer with the Water Register as soon as possible after settlement because caveats cannot be lodged in the Water Register to protect a mortgagee’s interests in the water share pending further ministerial approval.  

Does your Power of Attorney authorize an attorney to execute documents with respect to Water Shares?

Mortgagees should review all current powers of attorney they seek to rely on in relation to dealings with the Water Register as a document executed under an unrevised power of attorney may be rejected for registration by the Water Register if the power of attorney does not clearly provide the requisite powers in relation to dealings with the Act, the Water Register and securities in relation to water shares. 

For example, the Water Register may not accept a discharge of mortgage over a water share because a power of attorney, which primarily authorizes dealings with respect to land, does not authorize the attorney to execute a discharge of mortgage over a water share, whether it be a water share which was the subject of a separate mortgage post 1 July 2007 or whether the mortgage was deemed to apply to a water share for pre 1 July 2007 dealings.

We have seen a recent example where an attorney who, pursuant to an unrevised power of attorney, executed a discharge of mortgage over land and a discharge of mortgage over a water share, the former document was accepted by the Land Register but the latter document was rejected by the Water Register on the basis that the power of attorney did not authorize the attorney to execute a discharge of mortgage over the water share.  

If you require assistance or advice in relation to the recent changes, please telephone Sebastian Saccuzzo, Astrid Di Carlo, Joseph Monaghan, Krystal Bedggood or Andrew Sherman of Russell Kennedy Solicitors.