Utah Supreme Court underscores importance of recording interests in water rights
In Haik v. Sandy City, the Utah Supreme Court this month decided a case that, in its words, “illustrates the importance of promptly recording a deed to a property right.” Sandy City recorded an “Agreement of Sale” that included a water right in 1977, but did not record the deed conveying the water right until 27 years later (in 2004). The Haik Parties purchased the same water right in 2003 and recorded their deed that year. The question presented was whether the Agreement of Sale put the Haik Parties on record notice of Sandy City’s unrecorded interest in the disputed water right. Resolving an issue of first impression in Utah, the Court concluded the Haik Parties were placed on record notice that Sandy City had an equitable interest in the water right. But, the court held such notice would not subvert the Haik Parties’ after acquired interest because: (1) the Haik Parties reasonably believed they had a clear and inviolate chain of title to the disputed water right; (2) nearly 27 years had passed since the Agreement of Sale was recorded and Sandy City had still not recorded its deed to the water right; and (3) the Haik Parties’ predecessors-in-interest maintained the water right and filed a change application in 1999, yet Sandy City never contested ownership to the water right. Accordingly, the court held the Haik Parties purchased the water right in good faith and affirmed a lower court’s judgment in their favor. Notably, the court assumed without deciding that there are circumstances under which record notice of an equitable interest in property could subvert a subsequent purchaser’s claim to having purchased the property in good faith. But, those circumstances simply were not present.