Colorado Water Rights

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Leasing water rights

Leasing lets water change hands for a season or a decade without changing hands permanently. For an owner it produces income while keeping the asset; for a user it supplies water without the capital cost of buying.

The catch is the same one that governs sales: if the lessee will use the water differently or somewhere else, the lease alone is not enough — that use still needs water court approval or an administrative approval, because the priority system does not care who signed what. C.R.S. § 37-92-305(3)(a)

Why owners lease instead of selling

Selling water off irrigated land is permanent and usually comes with dry-up covenants that prevent the ground being irrigated again. Leasing keeps the option open. It is the natural instrument when an owner wants income without retiring a farm, when a city needs supply in dry years but not every year, or when a buyer wants to test a supply before committing capital.

The abandonment question, answered by statute

The obvious worry is that letting someone else use your water — or not using it yourself — looks like giving it up. Colorado's abandonment definition turns on intent to permanently discontinue use C.R.S. § 37-92-103(2), and the legislature has expressly tolled several categories of non-use so conservation-minded owners are not punished:

Any period of nonuse of any portion of a water right shall be tolled, and no intent to discontinue permanent use shall be found for purposes of determining an abandonment of a water right for the duration that … the nonuse of a water right by its owner is a result of participation in: A water conservation program approved by a state agency, a water conservation district, or a water conservancy district; a water conservation program established through formal written action or ordinance by a municipality or its municipal water supplier; an approved land fallowing program as provided by law in order to conserve water; a water banking program as provided by law; a loan of water to the Colorado water conservation board for instream flow use under section 37-83-105 (2).
C.R.S. § 37-92-103(2)(b) — C.R.S. 2025 · Office of Legislative Legal Services C.R.S. 2025

That list is the practical charter for Colorado water leasing. If your arrangement fits inside one of those programs, the non-use is protected. If it does not, you are relying on the general intent test — and should document your intent to resume, in writing, contemporaneously.

The forms leasing takes

ArrangementWhat it does
Seasonal leaseA user takes the water for one or more irrigation seasons within the existing decreed use.
Dry-year optionA city pays annually for the right to call on the water only in dry years. Income every year, disruption occasionally.
Rotational fallowingOwners rotate which land goes unirrigated, defined by statute as a rotational crop management contract C.R.S. § 37-92-103(10.6).
Augmentation leaseWater leased annually into an augmentation plan as replacement supply.
Instream flow lease or loanWater left in the channel through the Colorado Water Conservation Board.
Ditch share leaseLeasing the delivery from shares rather than the underlying right — subject to company bylaws.

What still needs approval

A lease is a contract between two parties; the state administers water by priority regardless. So:

Terms worth getting right

  1. Exactly what is leased — decreed right or shares, and how much: a rate, a volume, or a share of what actually arrives.
  2. Who bears shortage risk when the right is out of priority. In a dry year this is the whole of the deal.
  3. Who obtains and pays for approvals, and what happens if they are refused.
  4. Measurement and accounting, and who reports to the division engineer.
  5. Ditch company consent, where shares are involved.
  6. Abandonment protection — recite which statutory program the arrangement fits, and keep the documentation.

The rest of buying and selling covers the market this sits inside.

Common questions

Can you lease water rights in Colorado?

Yes. Leasing is common, from seasonal agricultural leases between neighbors to dry-year options held by municipalities and annual leases into augmentation plans. If the lessee uses the water for the decreed use at the decreed place, no new approval is generally required; any change in use, place, time or point of diversion needs water court approval or an administrative substitute water supply plan.

Does leasing my water rights risk abandonment?

Not if the arrangement fits a protected category. C.R.S. § 37-92-103(2)(b) tolls non-use during participation in an approved water conservation program, a land fallowing program, a water banking program, or a loan of water to the Colorado Water Conservation Board for instream flow use. Outside those categories the general intent test applies, so document your intent to resume use.

What is a dry-year option?

An arrangement where a municipal provider pays annually for the right to call on an owner's water only in years when it needs it. The owner keeps farming in normal years and receives income every year, while the city secures drought supply without buying the right outright.

What is rotational fallowing?

An arrangement in which owners of irrigation rights agree to stop irrigating a portion of their historically irrigated land and rotate which parcels go unirrigated. C.R.S. § 37-92-103(10.6) defines it as a rotational crop management contract, and it requires water court approval to rotate the lands and must not cause injurious effect.

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