When Wells Run Dry: Liability Theories Against Sellers and Developers in Texas Groundwater Transactions
By Trey Wilson, San Antonio Real Estate Attorney and Texas Water Lawyer
The Deal Looks Fine—Until the Water Stops
In Texas, groundwater is often assumed. If there is a well on the property, buyers tend to believe it is lawful, produces water and will continue to produce. Sellers and developers frequently reinforce that assumption, sometimes directly and sometimes by saying nothing at all.
That assumption is becoming a liability trap.
Across Central and South Texas, declining aquifer levels and increased pumping are exposing a basic problem: not every well is reliable, and not every property has sustainable or even legal access to groundwater. When that reality surfaces after closing, the dispute shifts from geology to legal exposure.
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The Legal Framework: What Texas Law Protects—and What It Does Not
Texas follows the rule of capture, subject to regulation by groundwater conservation districts under Chapter 36 of the Texas Water Code. This scheme of regulation is frequently referred to as a “modified Rule of Capture” under which a landowner generally has the right to pump groundwater beneath their land.
The Rule of Capture recognizes a right to attempt to produce water. It does not create a guarantee that water will be available, sufficient, or sustainable. Nor does it establish that the party that desires to produce groundwater from a property has the ownership interests necessary to pump the water.
Because of that distinction, most post-closing disputes are not “water rights” cases. They are fraud, misrepresentation, and nondisclosure cases tied to the transaction.
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Fraud and Misrepresentation: What Was Said
Under Texas law, fraud requires proof of a material false representation made with knowledge or recklessness, intended to be relied upon, and actually relied upon to the buyer’s detriment.
In groundwater transactions, exposure typically arises from statements like:
- You have a right to drill your own well on the property
- “Water is not a concern in this area”
- “The well produces plenty of water for residential use”
- “There have been no issues with the well
- Providing production data without disclosing decline or instability
These statements do not need to be technical. If they create a false impression about water availability, they can support a fraud or misrepresentation claim. Under Texas law, statements made about the characteristics of land without a reasonable basis can be treated as reckless and actionable.
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Statutory Fraud in Real Estate Transactions
Texas also recognizes statutory fraud under Section 27.01 of the Texas Business and Commerce Code, which applies specifically to real estate transactions.
This statute creates liability for false representations of past or existing material facts made to induce a transaction, even where actual knowledge of falsity is not always required.
Representations about existing well performance or known groundwater conditions fall squarely within this framework.
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Nondisclosure: What Was Not Said
Texas law imposes liability for nondisclosure in defined circumstances. Stated differently, silence can lead to liability when there is a duty to speak up. A seller may be liable where:
- The seller knows of a material fact;
- The fact is not readily discoverable by the buyer;
- The seller knows the buyer is unaware of the fact;
- The seller fails to disclose with the intent to induce the transaction; and
- The buyer suffers injury as a result.
Partial disclosures also create risk. Once a seller speaks on a subject, there is a duty to tell the whole truth.
Groundwater-related facts that commonly trigger liability include:
- Declining well production
- Prior dry periods or failures
- Water quality problems
- Regulatory limits imposed by groundwater conservation districts
- Known interference from nearby wells
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Disclosure Boundaries
The Texas Supreme Court has made clear that Texas does not impose a general duty to disclose all material facts in every transaction. Instead, a duty arises in specific situations, including where a party voluntarily discloses partial information but fails to disclose the whole truth, or where one party has superior knowledge and knows the other is acting on mistaken assumptions.
This framework seemingly applies directly to groundwater transactions.
If a seller discusses a well’s performance but omits known decline, or represents that water is “not an issue” while aware of production problems or regulatory constraints, that conduct may well fall within the type of partial disclosure Courts identify as actionable.
The takeaway is straightforward: silence alone is not always actionable, but selective silence can be.
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Reliance: The Deciding Factor
Even where misrepresentation or nondisclosure is established, the case will turn on reliance.
The buyer must show actual and justifiable reliance on the representation or omission.
Courts evaluate:
- Contract terms, including “as-is” provisions
- Seller’s disclosure notices
- Inspection and due diligence efforts
- The buyer’s experience and sophistication
An “as-is” clause can limit claims, but it will not bar recovery where the buyer was induced by fraud or where material facts were concealed.
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Developers: Exposure at Scale?
Developers face amplified risk when subdividing groundwater-dependent property. The issue is not just whether water exists at the time of sale, but rather whether the aquifer can support long-term cumulative demand.
Failure and liability points could possibly include:
- Reliance on exempt wells without planning
- Lack of hydrogeologic analysis
- Overstatements in marketing materials
When those assumptions fail, disputes expand– sometimes into multi-party litigation.
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The Regulatory Overlay
Groundwater conservation districts regulate spacing, production, and permitting. These rules directly affect a property’s ability to produce water.
A property that appears viable at closing may later be constrained by regulatory limits or enforcement actions. Failure to account for those constraints can become central to liability analysis.
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The Bottom Line
Texas law allows a landowner to attempt to produce groundwater. It does not guarantee that water will be there.
When a well runs dry, the dispute turns on what was said, what was withheld, and what the buyer relied upon.
Those facts—not the aquifer—determine liability.
