The Texas Real Estate Commission (TREC) added new contract language and created the Seller's Disclosure About Groundwater and Surface Water Rights following direction from the Sunset Advisory Commission's special-purpose review of TREC's disclosure requirements. This guide answers common questions from license holders about when the disclosure is required and how to complete it.

Why was this disclosure created?

TREC added new contract language and created the Seller's Disclosure About Groundwater and Surface Water Rights following direction from the Sunset Advisory Commission's special-purpose review of TREC's disclosure requirements.

As part of that review, the Sunset Advisory Commission directed TREC to add language to its contract forms to provide prospective buyers with relevant information about groundwater and surface water rights associated with a property.

To implement that recommendation, TREC:

• Added a new section to Paragraph 7 of most contract forms, excluding the Residential Condominium Contract (Resale).
• Created the Seller's Disclosure About Groundwater and Surface Water Rights.

When is the Seller's Disclosure About Groundwater and Surface Water Rights required?

If using any TREC contract (other than the Condominium contract), the default is that the disclosure is provided unless all of the statements listed in Paragraph 7I(3) of the One to Four Family Residential Contract (Resale) (or the corresponding paragraph in another TREC contract) are true.

If the disclosure is required to be provided under the contract, the seller should complete the form accurately, follow the instructions provided with the form, and avoid leaving required information incomplete.

Is this disclosure required in every transaction?

No. First, unlike many other disclosures referenced in TREC contracts, the Seller's Disclosure About Groundwater and Surface Water Rights is not required to be provided by another law. For instance, the Seller’s Disclosure Notice is required in most residential transactions under Texas Property Code Section 5.008.

The disclosure may be required to be provided, however, if parties are utilizing a TREC contract. Even so, there is an exception in which the disclosure would not need to be provided. Review Paragraph 7 of the applicable TREC contract to determine whether the exception applies.

The buyer and seller are using the One to Four Family Residential Contract (Resale). When is the disclosure not required under the contract?

The disclosure is not required when all of the statements listed in Paragraph 7I(3) of the contract are true. If this exception applies, don’t forget to complete the blank in (3)(e).

What should the seller do if the disclosure is required?

When providing the disclosure:

• Carefully read the questions and any instructions.
• Complete the form accurately.
• Do not leave required information incomplete.
• If you have questions, consult with a private attorney.

When making an offer using a TREC contract, how does a buyer know whether the seller is required to provide the disclosure?

If it’s not immediately clear (for instance, the MLS information mentions a well on the property meaning the exception does not apply), contact the seller’s agent and ask the question before submitting the offer. If that doesn’t resolve the issue, the buyer can consider submitting an offer with Box (2) checked. If needed, the seller can then make a counteroffer with Box (1) or Box (3) checked.

If the seller is exempt from providing the Seller's Disclosure Notice, is the seller also exempt from providing the seller's water disclosure?

No, not necessarily. The situations in which a seller is not required to provide the Seller’s Disclosure Notice—which is determined by Texas Property Code Section 5.008—are different from the situations in which a seller is not required to provide the water disclosure, which is determined by the TREC contract. There could be situations where neither is required, both are required, or one is required but not the other.

Does a property located in either a groundwater conservation district or a subsidence district automatically require seller to provide the disclosure, even if all of the statements listed in Paragraph 7I(3) of the One to Four Family Residential Contract (Resale) are true?

No. Regardless of whether a property is located within a groundwater conservation or subsidence district, a seller would not be required to provide the disclosure if all of the statements listed in Paragraph 7I(3) are true. This is true even though the disclosure itself specifically asks about groundwater districts, including groundwater conservation districts and subsidence districts.

Paragraph 7I(3)(b) of the One to Four Family Residential Contract (Resale) states “Seller is not aware of a pond, lake, or water tank on the Property.” What’s the definition of “pond”? Or “water tank”?

Neither the TREC contracts nor the disclosure itself includes a specific definition for these terms. This means that the seller and buyer should assume the “ordinary” meaning of the word applies. If a seller is unsure whether a property feature falls into one of these categories—say a rain barrel or a koi pond—the best practice may be to assume it is included in the term. Ultimately, it would be up to a court to determine the meaning of those terms in the event of a dispute. If parties have questions, they can consult with a private attorney.

The disclosure asks whether the seller owns any surface water rights associated with the property. What are surface water rights?

The disclosure itself provides the definition of “surface water rights.” In the TREC contract and disclosure, “surface water rights” mean a permit, certified filing, or certificate of adjudication administered by the Texas Commission on Environmental Quality (TCEQ) that authorizes the diversion, impoundment, or use of surface water. “Surface water” is also defined by the disclosure as water in lakes, rivers, creeks, streams, and in the bays, estuaries, and arms of the Gulf of Mexico.

How does a seller know whether they own a surface water right?

If a seller does own surface water rights, the disclosure specifically asks the seller to identify the applicable surface water right by its permit, filing, or certification of adjudication number, and if more than one person owns an interest, to identify that person and their interest. These questions should help tip off a seller if, in fact, a seller does own a surface water right.

Of course, a seller should always consult with a private attorney if they have any questions about what rights they may own.

How does a seller know whether groundwater rights have been severed, sold, or leased?

First, remember that neither the TREC contracts nor the disclosure itself definitively asks whether groundwater rights have been severed, sold, or leased. Instead, the language refers to whether the seller is aware (or not) that any groundwater rights have been severed, sold, or leased. Generally, however, a seller should always consult with a private attorney if they have any questions about these rights.

If the property borders a lake, is the disclosure required?

A lake that borders or is adjacent to a property is not the same as a lake located on the property, which is what the statement in Paragraph 7I(3)(b) provides. If the seller is not aware of a pond, lake, or water tank on the property and the remaining statements are also true, the seller would not be required to provide the disclosure under the TREC contracts.

What if a river or creek, including a seasonal or wet-weather creek, runs through the property? Is the disclosure required?

Under the language of the TREC contract, a river or creek running through the property is not relevant for purposes of determining whether the exception applies. If all of the statements listed in Paragraph 7I(3) of the One to Four Family Residential Contract (Resale) (or the corresponding paragraph in another TREC contract) are true, the seller is not required to provide the disclosure.

Will TREC make changes to the contract language and disclosure?

TREC’s Broker-Lawyer Committee (the committee charged with recommending new and updated contract forms to TREC) continuously reviews contract form language as a result of public comments, changes in the law, or industry changes. The language in the TREC contracts and the new disclosure are no different. In fact, the committee already plans to review several items based on questions received, including the definition of “water tank” and in the exception language, whether a “stream” should be addressed and what it means to “receive” water.

Therefore, it’s likely changes will be made at some point, but changing a TREC contract form is a slow, deliberate process. No changes are expected immediately.

Disclaimer

These questions and answers are intended to provide general information about TREC contract forms and disclosures. TREC cannot provide legal advice or determine whether a disclosure is required for a specific transaction. Questions regarding property rights or how the law applies to a particular transaction should be directed to a private attorney.