Dry-Year Option Leases: How Cities Pay You Every Year for Water They Take Only in Drought
Of all the ways to lease water, the dry-year option is the one most owners have never heard of and most utilities most want to sign. The city pays you a standby fee every year, in wet years and dry, for the right to call your water in a declared shortage. When it calls, it pays a second, larger amount and you fallow or reduce for that season. Otherwise you farm as usual.
This guide explains why the structure exists, how Colorado has written it into statute, and what to negotiate.
What is the right way to lease YOUR water?
Two quick questions. We name the leasing path that fits what you hold, and what it should earn, before anyone calls you.
What do you hold?
The asset type decides which leasing doors are open to you.
Why cities want an option instead of a purchase
A municipality planning for drought has three choices: build storage, buy senior agricultural rights permanently, or contract for water it can call when it needs it. Permanent supply is expensive and politically fraught: Colorado-Big ThompsonCBT unitOne allotment unit of Colorado-Big Thompson Project water administered by Northern Water. CBT units transfer by contract inside the district, making them the most liquid water asset in Colorado. units traded between $52,000 and $85,000 per unit in early 2026, and buying farms outright carries the buy-and-dry stigma. A dry-year option delivers drought reliability at a fraction of purchase cost while the land stays in production.
For the utility it is insurance with a known premium. For the owner it is recurring income on water they would otherwise use themselves, without giving up the asset.
The two payments
Every dry-year option has two economic legs, and both should be priced:
| Payment | When it is paid | What it compensates |
|---|---|---|
| Standby (option) fee | Every year of the term, called or not | Holding the water available; the city’s insurance premium |
| Exercise payment | Only in years the option is called | The crop or use you give up that season, plus the water’s market value |
How Colorado writes it into law
Colorado gives the structure a name and a process. Interruptible water supply agreements are approved administratively by the State Engineer rather than through a full water courtWater courtColorado’s dedicated court system for water matters. Permanent changes of use generally require a water court decree, which is why Colorado leases are the faster path. change case, which is what makes them fast enough to be practical. The statute limits how frequently the option may be exercised within the approved term, and the agreement must show that exercising it will not injure other rights.
The same idea appears elsewhere under different names: split-season and dry-year arrangements in Oregon and Montana instream programs, and municipal option contracts on the Rio Grande and in Arizona. Colorado’s version is simply the most formalized.
The clauses that decide the deal
Beyond the two prices, four terms determine whether the option works for you:
- Trigger definition. What counts as a shortage year: a reservoir elevation, a declared drought stage, an index reading, or the city’s discretion. The more objective the trigger, the less room for surprise.
- Call cap. How many years out of the term the option may be exercised, and whether calls can be consecutive. This bounds your worst case.
- Notice. How far ahead of the irrigation season the city must declare, so you can plan the fallow.
- Curtailment in a called year. If the state curtails your right during a year the city has called it, who bears the loss. Tie the exercise payment to delivered water, not paper water.
Who this fits
The structure fits senior agricultural rights within reach of a growing city or utility, especially where the owner wants to keep operating. It fits inherited rights whose heirs want income without a sale. It does not fit water the owner needs every year, or junior rights the state would curtail in exactly the years the city wants to call.
If a utility has already approached you, that is the signal that your water solves their reliability problem. The valuation question is what that reliability is worth to them, which is a number they know and you should too before the first call.
How WaterLeases helps
We run the first steps for you: a records check on what you hold and a confidential valuation bracketed against sourced comparables and real demand in your basin. Then you decide, lease, bank, sell, or wait, with the numbers in hand.
Article Sources
WaterLeases requires every market figure to trace to a public primary source: state agencies, published indices, official notices, or named reporting. Read our data and methodology standards.
- Water Education Colorado, Fresh Water News. CBT unit trades of $52,000 to $85,000 in early 2026; 2022 peak of $101,000.
- The Colorado Sun. "Though water is scarce right now, its price in parts of Colorado has dropped." April 24, 2026.
- Colorado Division of Water Resources (State Engineer), administrative approvals including interruptible water supply agreements.