Can water entitlements be mortgaged separately from land?

In the Australian states that unbundled water from land, yes. The entitlement is an asset in its own right, and a lender records or registers its interest on the state water register, as well as or instead of a mortgage over the land. In New Zealand a water permit is not property, but its holder can charge it as if it were; since it leaves its site only with the plan's or the council's approval, a lender values it with the land. In England, an abstraction licence passes only to a holder with access to the abstraction point, and a lender reads it as part of the farm.

What is the difference between a water entitlement and a water allocation?

An entitlement is the continuing right to a portion of whatever water a resource can supply. An allocation is the volume that share actually yields in a given season, announced by the state authority as a percentage of the entitlement and depending on how much water is in storage. A farmer can hold an entitlement and receive little in a dry year; the entitlement is what the lender holds as security, the allocation is what the farm runs on.

How do banks value water entitlements?

Usually from recent trades of the same class of entitlement in the same water system, drawn from register and broker data, often by a valuer with water market experience. High-priority entitlements trade higher per megalitre than general or low-priority ones. Because prices move with allocations, drought and commodity values, and some markets are thin, a lender may apply a wider margin to the water than to the land and revalue it more often.

What happens to the water if a farm loan defaults?

Where the lender's security is recorded on the water register, it can enforce over the entitlement under its security, which may include selling it, alone or with the land. The choice matters: water sold separately can recover cash quickly, but leaves land that may be worth much less without it. In New Zealand and most Australian states, a lender enforcing a farm debt must first offer [farm debt mediation](/farm-debt-mediation), which adds weeks to the timetable.

// WORKED EXAMPLEWHERE THE RISK SITS

Water Entitlements as Security: a Worked Example

The land did not move. The water did.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-07

// THE SHORT ANSWER

Taking water entitlements as security means a lender holds a recorded interest in the farm's right to water, not only in its land, so that the water cannot be sold away from under the loan. It matters most in Australia, where water rights in the regulated systems were separated from land titles and trade on their own market. On an irrigated property the water can be worth as much as the dirt, its price moves on a different cycle, and an orchard that keeps its land but loses its water is a different business.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 03 — Kauri Dairy Holdings. The patriarch is retiring. The bank hears about the succession plan from the accountant first. Your call first, then the senior banker's.

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// 01 — WHY THE WATER IS A SEPARATE ASSET

Under the national water reforms, several Australian states, including New South Wales, Victoria and South Australia, split the old farm water licence into parts. The continuing right to a portion of whatever water a resource can supply, called a water access entitlement or, in Victoria, a water share, became an asset that can be held, sold and mortgaged without the land. The water actually delivered in a season, the allocation, is a separate right again. Both trade, and neither stays with the farm unless someone stops it leaving.

That is the lender's problem. A mortgage over the land of an irrigated farm, standing alone, does not catch the entitlement. A borrower in trouble could sell the water, pay creditors or living costs, and leave the bank secured over land that can no longer grow what it was valued for. So the lender records its security over the water on the state register and values the water as an asset of its own.

// 02 — HOW THE SECURITY IS TAKEN AND VALUED

Each state keeps its own register, and the Commonwealth Personal Property Securities Act does not apply to water rights, so the PPSR is not where this security is recorded. In New South Wales a mortgage or other security interest over a water access licence is recorded on the Water Access Licence Register, through NSW Land Registry Services; in Victoria a mortgagee that wants a right of sale over a water share records a mortgage of water share on the Victorian Water Register. The lender then reads three things.

Reliability: entitlements come in classes with different priority for allocation, such as high and general security in New South Wales, or high and low reliability in Victoria. A high-priority entitlement fills first and is worth more per megalitre. Market: the value is set by recent trades of the same class in the same system, and a thin market can leave two valuers far apart. Use: what the farm needs in an ordinary year and a dry one, because the business is serviced from the allocation, while the security is the entitlement.

// 03 — THE EXAMPLE

A citrus grower in the southern Murray-Darling Basin, constructed for this page like every figure in it, borrows US$6.0m. It holds two classes of entitlement and the trees need 1,400 megalitres a year. The prices, allocations and valuation movements are the example's, not market data.

ML US$ per ML US$m

High security 800 4,200 3.36

General security 1,200 1,800 2.16

Water, valued apart 5.52

Land, trees, sheds 4.48

Security value 10.00

Loan to value: 6.00 ÷ 10.00 = 60%

Then a dry season. The high-security water receives its full allocation and the general security 30% of its volume, so the grower must buy the rest on the allocation market:

Received: 800 × 100% + 1,200 × 30% = 1,160 ML

Shortfall: 1,400 − 1,160 = 240 ML

Bought at US$400 per ML: 240 × 400 = US$96,000

If entitlement prices then fall a quarter:

Water: 5.52 × 0.75 = 4.14

Loan to value: 6.00 ÷ (4.14 + 4.48) = 6.00 ÷ 8.62 = 70%

Two readings sit in one file. The cash-flow reading is the US$96,000 that comes out of this year's margin. The security reading is the ten-point move in loan to value with no change in the land, the trees or the loan. A lender that valued the farm as one block would have seen neither in time.

// 04 — NEW ZEALAND AND ENGLAND READ IT DIFFERENTLY

In New Zealand, farms take water under water permits granted by regional councils under the Resource Management Act 1991, which remains the governing law through the transition to the Planning Act and Natural Environment Act 2026. The Act says a resource consent is neither real nor personal property, but it lets the holder grant a charge over a consent as if it were personal property, with New Zealand's Personal Property Securities Act 1999 applying as if the consent were goods. A chargee can transfer the permit only as far as the holder could: a permit to take water can pass to an owner or occupier of the same site, but moving it to someone else's site, within the same catchment or aquifer, needs the regional plan to allow it or the council to approve. A lender there reads the permit's volume, conditions and expiry as part of the farm's value, and checks that it will pass with the land on a sale. Parliament has passed legislation to replace the Act, so the regime governing a permit is part of the reading while the transition runs.

In England, abstraction licences come from the Environment Agency. A licence can pass to a new holder who has, or expects to have, access to the place where the water is taken, but a temporary licence cannot pass at all. The lender's question is the same as in New Zealand: will the water still be there for whoever owns the farm after a sale.

DEFINED IN ONE PARAGRAPH → · AGRICULTURAL LENDING → · LOAN TO VALUE →

// 05 — WHERE IT DECIDES A FILE

It decides the lending value. A lender that can see the water separately can apply its own margin to an asset whose price moves on allocations and drought, and a different one to the land. It decides the covenants: a facility for an irrigated farm commonly restricts selling or leasing out entitlements without consent, because a sale for cash today can turn a serviceable farm into a dryland one. And it decides the annual review, where the questions are whether the water held still matches what the plantings need, and whether the grower has been buying allocation every season to cover a gap the security values do not show.

At enforcement, the water can be the fastest asset to sell, and its sale on its own may strip the land of much of its worth. Whether to sell water and land together or apart is a recovery decision the lender makes knowing both markets.

WHAT YOUR BANK HOLDS AS SECURITY → · FARM WORKING EXPENSES →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Government of South Australia, Department for Environment and Water, Unbundling Water Rights: frequently asked questions — Describes unbundling into a water access entitlement (an ongoing share) and a water allocation (a volume for up to 12 months), both transferable personal property, and notes the clarity this gives lenders providing mortgages over those rights — sections 01 and 02.
Environment Agency (GOV.UK), Transfer an abstraction or impounding licence: form WR165 — Sets out that a licence may be transferred to a new holder with access to the abstraction point, and that a temporary abstraction licence cannot be transferred — section 04.
Personal Property Securities Act 2009 (Cth), section 8(1)(i) (compilation of 14 October 2024) — Excludes from the Act any right, entitlement or authority granted under the general law or a Commonwealth, State or Territory law in relation to the control, use or flow of water — section 02.

// QUESTIONS PEOPLE ASK

Can water entitlements be mortgaged separately from land?: In the Australian states that unbundled water from land, yes. The entitlement is an asset in its own right, and a lender records or registers its interest on the state water register, as well as or instead of a mortgage over the land. In New Zealand a water permit is not property, but its holder can charge it as if it were; since it leaves its site only with the plan's or the council's approval, a lender values it with the land. In England, an abstraction licence passes only to a holder with access to the abstraction point, and a lender reads it as part of the farm.
What is the difference between a water entitlement and a water allocation?: An entitlement is the continuing right to a portion of whatever water a resource can supply. An allocation is the volume that share actually yields in a given season, announced by the state authority as a percentage of the entitlement and depending on how much water is in storage. A farmer can hold an entitlement and receive little in a dry year; the entitlement is what the lender holds as security, the allocation is what the farm runs on.
How do banks value water entitlements?: Usually from recent trades of the same class of entitlement in the same water system, drawn from register and broker data, often by a valuer with water market experience. High-priority entitlements trade higher per megalitre than general or low-priority ones. Because prices move with allocations, drought and commodity values, and some markets are thin, a lender may apply a wider margin to the water than to the land and revalue it more often.
What happens to the water if a farm loan defaults?: Where the lender's security is recorded on the water register, it can enforce over the entitlement under its security, which may include selling it, alone or with the land. The choice matters: water sold separately can recover cash quickly, but leaves land that may be worth much less without it. In New Zealand and most Australian states, a lender enforcing a farm debt must first offer [farm debt mediation](/farm-debt-mediation), which adds weeks to the timetable.

THE IN-TRAY · ONE MINUTE

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THE FIRST QUESTION · THE LOAN · PROTECTION

A term sheet offers three protections: a negative pledge, a quarterly leverage covenant, and monthly management accounts.

Which is likely to show deterioration first?

7 MORE ON THE LOAN · PROTECTION →WHERE DO YOU READ FROM? THE PLACEMENT →

THE GLOSSARYIN ONE PARAGRAPHWater entitlements (as security) Can water entitlements be used as security for a farm loan?