Legal notes
Seeking to obtain a no action letter from the SEC
Re: Request for No-Action Letter – Sale of Tenancy-in-Common Fractional Ownership of Water Rights
Dear Sir or Madam,
I am writing on behalf of CGH Land Holdings, LLLP to respectfully request a no-action letter from the Division of Corporation Finance regarding our proposed sale of fractional ownership interests in water rights, structured as a Tenancy-in-Common ("TIC") arrangement.
1. Overview of the Proposed Transaction
We intend to offer fractional interests in the water rights associated with the real property located at 10 Farr Road in Pittsburg, NH 03592. These TIC interests will be sold to multiple investors, each acquiring an undivided share in the water rights. Importantly, there is no current intention to engage in extraction, development, or commercialization activities. The water rights will be held solely for potential future use, with no immediate or planned extraction or profit-generating activities.
2. Background and Business Context
Under New Hampshire law, property owners are permitted to extract water from a well on their property for commercial purposes, subject to state regulatory approval, similar to other mineral rights such as oil, gas, or precious metals. The previous owner of the property obtained a state license permitting the extraction of up to 360,000 gallons of spring water per day, making this well the largest approved water source in New Hampshire.
However, due to substantial excess capacity among approved wells in the state, approximately half of these sources are currently non-operational. Given the current lack of demand, we chose not to acquire the existing license from the previous owner. Instead, we negotiated a reduced purchase price for the property, as the existing license was set to expire due to non-use.
As a result, we have no immediate plans for water extraction, and it is possible that such extraction may never occur. Should demand for water increase in the future, we would apply for the appropriate state approvals to resume extraction and undertake any necessary securities registration processes. Until such time, no extraction or commercialization activities are anticipated.
3. Legal Analysis
We believe that the TIC arrangement, under the present circumstances, does not constitute a "security" as defined under the Howey Test. Specifically:
Investment of Money: Investors will provide capital in exchange for fractional ownership interests.
Common Enterprise: The success of the investment is tied to the overall water rights associated with the property.
Expectation of Profit: There is no expectation of profit based on the efforts of others, as no extraction or commercialization activities are planned.
Efforts of Others: The value of these TIC interests is currently dependent solely on market demand for water, which remains uncertain and outside our active efforts to generate profit.
Furthermore, we confirm our commitment to re-evaluate and comply with registration requirements under the Securities Act of 1933 should any extraction or commercial development activities become feasible in the future.
4. Request for No-Action Assurance
In light of the foregoing, we respectfully request that the Division of Corporation Finance provide a no-action letter confirming that it will not recommend enforcement action to the Securities and Exchange Commission if the TIC fractional ownership interests are sold without registration under the Securities Act of 1933. This request is contingent upon the condition that no extraction, commercialization, or profit-generating activities are pursued until appropriate registration or exemption compliance is achieved.
5. Conclusion
We appreciate your attention to this matter and are committed to full transparency and compliance with all relevant securities laws and regulations. Should you require any additional information or clarification, please do not hesitate to contact me directly at 561-827-6948 or joe@hh-research.com.
Thank you for your consideration.