Leasing

Leasing can be used to secure access to water entitlement for a specified period of time. Entitlement can be leased to receive the seasonal determinations and/or to access carryover capacity.

Summary

  • Leasing entitlement is a cost-effective way of accessing water entitlement
  • The Lessee receives complete access to the entitlement for the duration of the lease
  • The Lessee assumes all risks associated with seasonal determinations
  • The Lessee generally pays all outgoings associated with leasing an entitlement
  • It is possible to lease entitlement in different jurisdictions/trading zones

How it works

A lease is a long term formal arrangement whereby an entitlement owner (Lessor) transfers their water entitlement to a Lessee for a specified period. For the duration of the lease all the seasonal determinations and carryover functionality associated with the entitlement is granted to the Lessee in exchange for paying a fee to the Lessor and all outgoings associated with the entitlement.

The Lessee typically pays a dollar amount be ML to lease an entitlement regardless of what the seasonal determinations are. So for instance, if a Lessee has leased 100ML of water entitlement for $200 per ML per annum, they will be $200 per ML regardless of whether the entitlement receives 100% seasonal determinations or 20%.

Leases should all be established through a contractual arrangement which clearly specifies the rights and obligations of each party, the lease fees and the payment terms. In addition to the contract, application forms need to be submitted to the relevant water authority to formalise the arrangement. The time to establish a formal lease depends on the jurisdiction however it generally takes a minimum of 4 weeks.

Lessees can lease entitlements in different jurisdictions however they must understand the various trade barriers which may restrict them transferring the allocations. It is best to speak with someone who understands these restrictions and their potential implication to your application.

NSW

Water entitlement leases can be established in NSW. The process depends on how the entitlement is held.

If the entitlement is managed by Water NSW then a Term Transfer can be established through the Department of Industry – Water. The Lessee is required to have a Water Access Licence (WAL).

If the entitlement is held within a private irrigation corporation (Murrumbidgee Irrigation, Murray Irrigation or Western Murray Irrigation) different approaches are taken however the result is the same. The Lessee will require an account within the irrigation corporation.

Victoria

In Victoria leases are formalised through a Limited Term Transfer (LTT). For the term specified on the application form the entitlement will be associated with the Lessee’s Allocation Bank Account (ABA) allowing them to receiving all seasonal determinations and also use the entitlement for carryover. It is only possible to lease a complete water entitlement (WEE) in Victoria.

The Lessor (entitlement owner) will continue to receive invoices from the water authority for the outgoings which include entitlement storage fees and any above-entitlement storage fees incurred. Depending on the contractual arrangement, these fees are typically paid by the Lessee and therefore the Lessor (or their representative) must arrange an invoice for payment.

Establishing an LTT in Victoria requires a Form 10 to be lodged with the water authority. Pending approval by the water authority, transfer documentation needs to be submitted to the Victorian Water Register (VWR) where it is recorded against the water entitlement. The LTT will be visible on the certificate of record for the duration of the LTT.

An LTT can be cancelled prior to the end of the contracted dates under certain circumstances. This requires a Surrender of LTT, which needs to be signed by both the Lessor and Lessee and submitted to the VWR.

Pricing

The price to lease entitlement is highly dependent on the prevailing market price for allocation, prices of alternative products, water availability outlook for the following season, the type of entitlement being leased and the period of the lease.

As a general guide, prices start around $30 per ML per annum for leasing Victorian Low Reliability entitlement. Leases of High Reliability/Security entitlements can exceed $200 per ML per annum but are often lower.

H2OX exchange fees for Low Reliability leases is $1 per ML per annum with all other entitlement leases incurring a fee of 1% per ML per annum. H2OX does not charge any additional contract or setup fees for establishing and administering leases. All water authority fees associated with establishing the lease are paid by the Lessee.

Conclusion

Forwards are an alternative to leasing water entitlement if you are seeking to secure allocation in subsequent years. Parking is an alternative if you are looking to secure carryover capacity.

Before you start making decisions, ensure you have all the facts by calling H2OX on 1800 988 118 to discuss the available options.