April 18, 1985
Mr. Sheldon E. Cotton
Commissioner
Department of School and Public Lands
State Capitol Building
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 85-19
Improvements on leased school land
Dear Mr. Cotton:
You have requested an official opinion from this Office based upon the following factual situation.
FACTS:
Certain school land was leased in March. Mr. A had the previous lease of this land. During his lease-hold, he placed certain improvements on the school land. A permit from the Department was obtained only for some of the improvements.
Mr. A was the unsuccessful bidder at the March leasing, and Mr. B obtained the lease. Mr. A and Mr. B have been unable to agree on a settlement for the improvements, so Mr. A has made application to the County Auditor for a Board of Appraisal to appraise the improvements. He has made the required deposit with the County Treasurer. The Board of Appraisal is being organized to make an appraisal of the improvements. Telephone conversations with Mr. A and Mr. B indicate an agreement on the valuation of the improvements most likely will not be reached.
Mr. B thinks Mr. A's suggested valuation of the improvements, which were placed on the land in the 1950's and 1960's, is too high. Mr. B also points out that the permit on file with the Department only covers some of the improvements.
Based upon the above facts, you have asked:
QUESTIONS:
1. In appraising the value of improvements placed on school land pursuant to a Department permit, is it appropriate to use the guidelines set forth in Attorney General Official Opinion 77-04?
2. Should the amount of cost share payments from the Agricultural Stabilization and Conservation Service be a factor to consider in the appraisal of improvements placed on school land pursuant to a Department permit?
3. Who determines the fairness of the appraisal made by the Board of Appraisal?
4. If the owner of the improvements rejects the Board of Appraisal's valuation under SDCL 5-5-32, does such rejection constitute a block to the conveyance of the lease to Mr. B?
5. If Mr. B rejects the Board of Appraisal's valuation under SDCL 5-5-32, does such rejection constitute a block to the conveyance of the lease to Mr. B?
6. When there has been competitive bidding on a tract upon which permanent improvements have been placed and the appraisal of the improvements is rejected, at what price and to whom is the lease conveyed?
7. Since dams cannot be removed, how is the owner of the improvements protected from the successful bidding by someone who has made up his mind not to accept the appraised value of the improvements?
8. What action can or should the Department take in any litigation on improvements for which a permit is not on file?
9. What does the twenty-five hundred dollar limitation on improvements, as appears in SDCL 5-5-22, cover? Is this per improvement or for all improvements? (This limitation will no longer apply after July 1, 1985, due to an amendment by the 1985 Legislature.)
10. Permits for improvements on school lands currently do not require the signature of the adjoining landowner or land user. Should this signature be required for fencing improvements so the Commissioner ensures that the cost of the fencing improvement is entirely that of the lessee of the school land?
11. If Mr. A placed improvements on the school land without obtaining a permit therefor, and an agreement between Mr. A and Mr. B on the value of these improvements is not reached, can Mr. A remove these improvements? How long does he have to remove them?
12. What steps must the Commissioner take to gain possession of improvements?
13. How can the Commissioner sell the improvements?
14. Should the Commissioner require a letter or other document from Mr. A which assigns Mr. A's improvements to Mr. B?
15. Should the Commissioner require that Mr. B file a permit for the improvements placed on the school land by Mr. A.?
There are several statutes which are involved in the issues you raise.
SDCL 5-1-7 gives the Commissioner extensive authority over the management and control of school lands, stating in part: 'The commissioner shall have the direction, management, and control of all lands heretofore granted or which may hereafter be granted to this state by the United States, or otherwise acquired, . . .'
SDCL 5-5-22 through 24 concern the placement of improvements upon leased school land. SDCL 5-5-22 states as follows:
In offering any land for leasing or at any time after the lease has been made, the commissioner of school and public lands may grant to any lessee of land under the provisions of this chapter a permit to erect thereon such buildings, corrals, fences, and well apparatus as may be necessary to fully carry out the purpose of the lease, and such lessee shall have the right to remove such improvements as are capable of removal without damage to the land at any time before the expiration of the term or upon cancellation of the lease, and during a period of sixty days from the date upon which such land is offered for releasing or sale, and may sink such wells and construct such dams thereon as may be necessary, the cost of which shall not exceed twenty- five hundred dollars. In addition, the commissioner of school and public lands shall have the authority to grant in like manner a permit to prepare the ground and to plant shelter belts on such land, and to perform government-approved ripping, furrowing, contouring, and reseeding. Provided that the lessee shall notify the county auditor and the commissioner of school and public lands in writing whenever any such improvements are placed upon such land. In no event shall the state become liable for any material furnished for, nor any labor performed on, such improvements.
SDCL 5-5-23:
If such improvements are not removed in the manner and within the time specified in § 5-5-22 or within such further period as may be granted by the commissioner for good cause shown, or unless the improvements are disposed as of hereinafter provided, then such improvements shall become the property of the state without further consideration. In the event that any lessee, who, upon the expiration of the lease, re-leases such tract of land at the letting, any permit for improvements previously issued and his rights to the same shall be automatically renewed for the period of time covered by such new lease without any further action on the part of such lessee.
SDCL 5-5-24:
After the first day of September of the third and last year of such lease on land for agricultural purposes the lessee may apply for and may receive a permit from the commissioner of school and public lands in the same manner as other permits for improvements are granted for fall plowing for the planting of crops the following spring, and in addition thereto the cost of the planting of a crop in the fall.
In no case shall the permit exceed the actual cost of plowing the land, and in case the land is seeded in the fall, not more than the actual additional cost of the seed and the seeding of the same.
Such permit shall have the full force and effect of permits for other improvements and shall be handled in like manner.
In the event a board of appraisal as hereinafter provided shall be required to appraise the value of such improvements, they shall not take into consideration the value of any crop growing on the lands covered by a permit but shall appraise only the cost of preparing the land and seeding the same.
SDCL 5-5-29:
When improvements are shown to be located on any school or endowment lands which have been under lease, and which have been offered for re-leasing or sale, and a person other than the owner of the improvements thereon is the highest bidder therefor, such bidder, before a lease or conveyance shall issue, shall deposit with the county auditor his receipt showing payment of the amount of rental due, and in addition thereto a receipt showing that he has deposited with the county treasurer an amount equal to the appraised value of such improvements, as shown by the report of the board of appraisal hereinafter provided for, or an amount agreed upon between such successful bidder and the owner of such improvements, or proof that the owner elects to remove all of such improvements.
SDCL 5-5-30:
If the owner of the improvements described in § 5-5-29 elects not to remove them and he cannot agree with the successful bidder on the value of such improvements, he shall within 5 days from the date on which the land is offered for re-leasing or sale make application to the county auditor asking for the appraisement of such improvements by a board of appraisal appointed by the county auditor in the manner hereinafter provided. Such owner shall be required to make a deposit sufficient to cover the costs of appraisal as determined by the county auditor, the board of appraisal to be paid by the county auditor out of such deposit.
SDCL 5-5-31:
All improvements on any school or endowment lands shall be appraised by a board of three disinterested free-holders who shall be residents of the county wherein the property is situated. The board shall be constituted as follows: The owner of the improvements shall nominate a person to represent him; the new lessee or purchaser shall nominate a person to represent him; these two shall nominate a person to serve with them. The county auditor shall appoint these three persons as a board of appraisal. The board shall file with the county auditor an itemized report of the appraisal, signed by at least two members of the board. The county auditor shall keep a record of the appraisement. The board of appraisal shall be paid at the state rate established pursuant to chapter 3-9 for per diem and mileage necessarily traveled in making the appraisal.
SDCL 5-5-32:
In case such improvements are so appraised, the owner of such improvements shall accept or reject such appraisement by written notice to the county auditor within five days from the date of appraisement or such appraisal shall be deemed rejected and a lease or conveyance shall issue.
and SDCL 5-5-12:
It shall be optional with the commissioner of school and public lands to accept a bid for a lease covering a period of one year or more, not exceeding five years, and in case no bids or proposals are made for any term, under the publication required in § 5-5-5, or in case of a failure from any cause to complete the leasing of any tract offered, it shall within six months thereafter be lawful to lease such lands under the provisions of this chapter without a readvertisement.
A number of Attorney General Official Opinions deal with the leasing of school land upon which improvements have been placed. 1919-20 Official Opinion 499 states:
If there has been an appraisement of the (improvements), a complete report thereof should be sent to the commissioner with the lease and this report should show whether the owner of the improvements elects to remove them; whether he has agreed with the new lessee of their value; or whether the new lessee has deposited with the county treasurer an amount equal to the appraised value of such improvements. This report is provided for so that the commissioner and the governor may act intelligently upon the question of improvements in approving or disapproving the lease. No lease should be executed or delivered until the matter of the disposition of the improvements has been settled. The new lessee is obligated to pay the appraised value of the improvements before a lease shall issue to him unless the owner rejects the appraisement, in which case the latter has the right of removal. Such failure on the part of the new lessee to make payments for the improvements when he is obliged to do so, leaves the commissioner in the position to offer the property again to other persons, in which case the defaulting lessee would be disqualified as a bidder. (Emphasis added.)
1933-34 Official Opinion 655 states:
The lease may not be issued to the new lessee until he pays for the appraised value of the improvements. If he so refuses, SDCL 5-5-12 comes into effect, to wit that, in case of a failure from any cause to complete the leasing of any tract offered, it shall within six months thereafter be lawful to lease such lands under the provisions of this chapter without a readvertisement. (Emphasis added.)
1941-42 Official Opinion 152 and 1943-44 Official Opinion 361 both reiterate this same theme:
The new lessee must comply with SDCL 5-5-29, and deposit with the county treasurer an amount equal to the amount of the appraised value of the improvements as determined by the Board of Appraisal before a lease issues. If the new lessee fails to do so, the Department may re-lease the land pursuant to SDCL 5-5-12, excluding the previous lessee from the bidding.
Official Opinion No. 77-04 dealt with improvements which had been placed upon leased school lands, when that land had been sold to another individual. Two of the issues discussed in that Opinion specifically concerned the appraisal of the improvements; the Opinion indicates that the Board of Appraisal is required to give fair and disinterested consideration to the value of the improvements on the involved school land, considering such factors as wear and tear, depreciation, replacement value, and the reasonable cost of these improvements at the time the Department's permit to place the improvements on the land was granted. The purpose of the appraisal is to make the owner of the improvements whole, not to grant him a windfall by requiring the new lessee to pay more than the improvements are worth.
As described further herein, I concur in these Official Opinions.
IN RE QUESTION NO. 1:
Attorney General Official Opinion No. 77-04, described above, dealt precisely with the issue of the valuation of improvements placed upon leased school land. Although the factual situation in the Opinion differed slightly from that presented herein (the involved school land had been sold rather than leased), the statutes determining the method by which improvements on school land are to be appraised are the same. See SDCL 5-5-22 through 5-5-24, inclusive.
Therefore, the answer to your question is, Yes: The guidelines set forth in Official Opinion No. 77-04 are to be used by the Board of Appraisal in determining the value of improvements placed by authority of a Department permit upon leased school land.
IN RE QUESTION NO. 2:
I understand that the cost share payments to which you refer are payments made to a lessee to partially reimburse him for the cost of the placement of certain improvements on the leased land. As stated in Official Opinion No. 77- 04, the purpose of SDCL 5-5-22 through 5-5-24 inclusive, and the method of appraisal established thereby, is to make the owner of the improvements whole, not to grant him a windfall at the expense of the new lessee. Therefore, it is my opinion that such payments should be considered in determining the real cost to the owner of the improvements.
The answer to your question is therefore, Yes. The amount of cost share payments from the Agricultural Stabilization and Conservation Service for improvements should be a factor considered by the Board of Appraisal in the appraisal of improvements placed upon the school land pursuant to a Department permit.
IN RE QUESTION NO. 3:
SDCL 5-5-31 requires that a Board of Appraisal give a fair and disinterested appraisal of improvements placed upon school land.
As discussed above, the Board's appraisal is to consider the guidelines set forth in Official Opinion No. 77-04. That appraisal is final; see 1965-66 Official Opinion 45, in which it is stated with direct reference to your question, that neither the State nor the Commissioner of School and Public Lands has jurisdiction or responsibility over the settlement of a dispute (occurring after an appraisal) between two individuals concerning improvements owned by one of them and in which the State has no interest.
The answer to your question, then, is that the appraisal made by the Board of Appraisal is final. If the new lessee does not think the appraisal is fair, he can refuse to make the required payment and thereby waive his right to the lease. If the owner of the improvements does not think the appraisal is fair, he can remove the improvements. (It might be well to remember that he placed the improvements upon the leased land with full knowledge of the risk that he might, at the next leasing, lose the lease, and with full knowledge of the procedures established by SDCL 5-5-22 through 5-5-24, inclusive, for the appraisal of such improvements.)
IN RE QUESTION NO. 4:
SDCL 5-5-32 states that if the owner of the improvements rejects an appraisal of a Board by written notice, or fails to convey any written notice, a lease or conveyance shall be issued. Therefore, the answer to your question is, No: The lease may be conveyed to Mr. B. Mr. A's rejection of the appraisal does not block the conveyance of the lease, although Mr. A does have the right to remove the improvements from the school land within the time period imposed by SDCL 5-5-22 and 5-5-23.
IN RE QUESTION NO. 5:
As discussed above with reference to the previous Official Opinions, the answer to your question is, Yes: The rejection by Mr. B of the Board of Appraisal's valuation blocks the conveyance of the lease to Mr. B. See SDCL 5-5-29, which requires the bidder to deposit both the rental due and the appraised value of the improvements before a lease issues. Upon Mr. B's failure to deposit both of these amounts due, the Department may proceed under SDCL 5-5-12 to reoffer the land for leasing with the defaulting lessee disqualified as a bidder.
IN RE QUESTION NO. 6:
As indicated in my response to Question No. 5, the Department may reoffer the land for leasing pursuant to SDCL 5-5-12.
IN RE QUESTION NO. 7:
In light of the answers to Questions Nos. 5 and 6, above, the owner of the improvements is protected from bidding by someone who has made up his mind not to accept the appraised value of the improvements. The lease does not issue to a new lessee who will not pay the appraised value of the improvements. SDCL 5-5-29. Instead, the Department may reoffer the lease of the land pursuant to SDCL 5-5-12. The owner of the improvements is allowed to bid at this reoffer, while the defaulting lessee is disqualified as a bidder.
IN RE QUESTION NO. 8:
A lessee is not authorized to put improvements on leased school and public lands unless the Department issues a permit therefor. See SDCL 5-5-22. If improvements are placed upon the land without a permit from the Department, they must be removed from the involved school land within a reasonable time. The Commissioner, upon discovering improvements placed upon leased school land without a permit, should order the lessee to remove them from the property within a reasonable time, e.g. thirty or sixty days.
The owner of improvements placed upon leased school land without a permit is not entitled to receive the appraised value of improvements from a new lessee (see Official Opinion No. 77-04).
If improvements placed on school land without benefit of a permit are not removed within a reasonable time, they become property of the State without further consideration. SDCL 5-5-23.
In answer to your question, then, the Commissioner's involvement in litigation concerning improvements placed on school land should be limited to situations wherein the State has an interest in the improvements, i.e., when the involved improvements have become property of the State by virtue of SDCL 5-5-23. See also 1945-1946 Official Opinion 402, wherein it is stated that the State is not concerned with the ownership of improvements which have been placed on leased school land pursuant to a Departmental permit, it having no interest in these improvements.
IN RE QUESTION NO. 9:
The interpretation of a statute is subject to certain rules, the most basic of which is that the statute is to be accepted as written and the meaning of the statute, and the legislative intent in enacting it, is to be determined from what the Legislature has expressly said. Elk Point Independent School District No. 3 v. State Commission on Elementary and Secondary Education, 85 SD 600, 187 N.W.2d 666 (1971); In the Matter of Sales Tax Refund Applications, 298 N.W.2d 799 (S.D. 1980). The legislative intent must be ascertained primarily from the language of the statute itself, without resort to extraneous devices. State Theatre Co. v. Smith, 276 N.W.2d 259 (S.D. 1979).
SDCL 5-5-22 was enacted in 1917 (SL 1917, ch. 339, § 18). In 1941, the statute read virtually the same as today, except that the monetary limitation, the interpretation of which you raise, was five hundred dollars. SL 1941, ch. 52. In 1957, the limitation was raised to twenty-five hundred dollars (1957 Session Laws, Chapter 44.) Thus, the legislative history of the statute provides no hints regarding to what the monetary limitation applies, and the interpretation of SDCL 5-5-22 must be based upon the language of the statute itself.
In my opinion SDCL 5-5-22 allows the Commissioner to grant an improvement permit for two things:
(1) To erect buildings, corrals, fences and well apparatus, for which the owner has the right to remove during specified periods; and
(2) To sink wells and construct dams, the cost of which shall not exceed twenty-five hundred dollars.
Under this interpretation, the cost limitation applies only to the sinking of wells and the construction of dams. This interpretation is supported by the perceived legislative intent of the statute: the cost of buildings, fences and well apparatus is not important because the owner of these improvements can remove them from the leased school land. Wells and dams however, once sunk or constructed, remain on the leased land. If the costs of such improvements were not limited, the future leasing of the land might be in peril because a new lessee must pay the appraised value of the improvement in order to obtain the lease. SDCL 5-5-29.
This interpretation is also supported by the phrasing and independent clauses used in the statute itself.
Therefore, in answer to your question, it is my opinion that the cost limitation in SDCL 5-5-22 applies only to the sinking of wells and construction of dams.
You have also asked whether this limitation is 'per improvements'; in my opinion it is not. The language used in SDCL 5-5-22 reflects no intent that the limitation is to be per improvement; indeed, the 'which' utilized in the statute refers to 'wells and . . . dams.' Therefore, the limitation applies to all wells and dams placed upon the leased school land.
IN RE QUESTION NO. 10:
The question of whether the costs of a fencing improvement are entirely that of the lessee or partially that of an adjoining landowner, is a question that must be dealt with by the Board of Appraisal when it appraises improvements. The Board is in the position, being in the local area, to ascertain whether the lessee paid the entire cost of the fence or whether the cost of the fence was divided between the adjoining landowner and the lessee. Therefore, it is my opinion that this matter is a consideration to be made by the Board of Appraisal in determining the cost of the fencing improvement at the time the permit to place the fence on the land was granted.
The Commissioner, having no interest in the improvements on leased school land, should not become involved in ascertaining the costs of such improvements. See 1965-1966 Official Opinion 45. Therefore, it would seem to serve little purpose to require a signature of an adjoining landowner or land user before a fencing improvement permit was issued by the Commissioner.
IN RE QUESTION NO. 11:
See response to Question No. 8, above. See also 1943-1944 Official Opinion 316.
IN RE QUESTION NO. 12:
SDCL 5-5-23 specifically states that improvements which have not been removed or for which the owner has not initiated the statutory appraisal procedure, become the property of the State without further consideration. 1943-1944 Official Opinion 316 dealt precisely with this issue, stating that the statutes herein involved do not contemplate that the Commissioner shall establish title to what are, in essence, abandoned improvements by an action in court. Title simply vests in the State when the owner of the improvements fails to remove them, as provided at SDCL 5-5-22, or fails to initiate the appraisal compensation procedures provided for in SDCL 5-5-30.
IN RE QUESTION NO. 13:
The procedure to sell improvements acquired by the State appear at SDCL 5-9-36 through 38, inclusive.
IN RE QUESTION NO. 14:
In light of the answers to your previous questions, a letter assigning improvements to a new lessee does not appear to be necessary. A lease would not issue to a new lessee unless that lessee paid the appraised value of the improvements; therefore, the new lessee, by virtue of the lease itself, owns the improvements.
IN RE QUESTION NO. 15:
SDCL 5-5-22 establishes the requirement that the Commissioner issue a permit for the placement of improvements on leased school land. The purpose of this requirement is to ensure that the Commissioner is aware of and, as it is the State that actually owns the land, approves of all alterations made to that land. Once a permit for an improvement is issued, the placement of the improvement on school land is authorized. No further permits are required by law to maintain the improvement on the land. Indeed, there would seen to be no purpose in requiring further permitting: the purpose of the permit is to authorize the existence of the improvement, not to determine the ownership of the improvement. Therefore, in light of this as well as the answer to Question No. 14 above, it is not necessary that Mr. B file a permit for improvements placed on school and land pursuant to a Department permit by Mr. A.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
