January 5, 1977
Mr. George D. Kane
Commissioner of School
and Public Lands
State Capitol
Pierre, South Dakota 57501
Official Opinion No. 77-4
Appraisals of improvements on school and public lands
Dear Mr. Kane:
You have requested an official opinion from this office based upon the following factual situation.
FACTS:
Public land leased by Mr. A, and purchased by Mr. B, carried a permit to place certain improvements on said land. Mr. A and Mr. B could not agree on a settlement for the improvements, so Mr. A subsequently made application for a board of appraisal to appraise the above-mentioned improvements and made the required deposit with the county treasurer to pay for the appraisal board. (This deposit was returned to Mr. A after members of the appraisal board said they did not want to be paid.) The appraisal board made an appraisal based on the cost of replacing improvements today and did not consider the cost to Mr. A at the time said improvements were placed on the land. Mr. B refuses to pay 1976 prices for improvements placed on state land prior to 1955. Because of the failure of Mr. B to settle the improvements at 1976 prices, a stalemate has developed on how to handle the problem.
Based on the above facts, you ask:
QUESTIONS:
(1) In appraising the value of improvements on public land in the above factual situation, is it appropriate for the board of appraisal to determine the value of such improvements on the basis of replacement cost?
(2) What criteria should be used by a board of appraisal in such a situation to determine a fair value of improvements placed on school and endowment lands, for which improvement permits were granted?
(3) Can an inflated appraisal of improvements fixed by a board of appraisal, that is rejected by the purchaser of school and endowment land, ultimately stop a sale of such lands from being completed?
(4) When an owner of improvements on school and public land rejects the board of appraisal valuation under SDCL 5-5-32, does such rejection constitute a bar to the conveyance being issued by the state to the purchaser of such public lands?
IN RE QUESTION NO. 1:
In regard to your first question, it is my opinion that boards of appraisal appointed pursuant to SDCL 5-5-31 are first of all required to give a fair and disinterested appraisal of authorized improvements to the real estate involved. SDCL 5-5-31 specifically refers to the board of appraisal being composed of “disinterested freeholders who shall be residents of the county wherein the property is situated.” Accordingly, the board of appraisal cannot properly adopt a formula of appraisal which gives an inflated or unrealistic value to the authorized improvements on such property.
In my judgment, it is not appropriate for a board of appraisal to use “replacement value” as the sole criteria for making appraisals of authorized improvements pursuant to SDCL 5-5-31 and 5-5-32. Obviously, if a barbed- wire fence were placed on the property involved several years ago, the value of that fence for purposes of appraisal should not be set at present replacement costs. During the intervening years, the fence would have been exposed to the wear and tear of the elements and usage so that the value of the fence today cannot be fairly said to be what it would cost to replace that fence with new materials today.
In my opinion, a similar line of reasoning exists with respect to improvements such as dugouts and dams on such property. Obviously, these improvements are not the sort of improvements which can be removed such as fences can. Nonetheless, in appraising the value of these improvements, I believe the board of appraisal is required to give fair and disinterested consideration to the value of the improvement, taking into account such factors as wear and tear, depreciation, replacement value, and the reasonable costs of these improvements as of the time the permit to place them on the land was granted.
SDCL 5-5-22 grants authority to the Commissioner of School and Public Lands to grant permits for the erection of improvements on School and Public Lands which are being leased. Certainly, one of the obvious purposes of this legislation is to enable the Commissioner to put reasonable restrictions on the placing of improvements on such lands so that the lessee does not unreasonably abuse the land or the rights of the State to be able to dispose of such lands. If a lessee can add expensive improvements to leased land, without limitation, the lessee would be in a position to make the sale of such lands almost prohibitive from a standpoint of cost. SDCL 5-5-22 indicates that the Legislature intended the permit system as a means of avoiding this improvident situation.
IN RE QUESTION NO. 2:
In regard to your second question, it appears to me that the board of appraisal should begin from the standpoint of the owner's cost or “basis” in the improvements. From this original basis, I believe the board must consider what effect depreciation and wear and tear have had on the improvements. As stated above, a fence which has been out in a pasture for 20 years is not fairly appraised at present-day replacement cost only.
In making their appraisals, the board may also take into consideration other matters such as replacement cost. In doing so, however, the appraisal should be made with a view toward making the owner of the improvements whole, to compensate him for his improvements, not to place an inflated value which would require the purchaser to pay more than the improvements are reasonably worth.
IN RE QUESTION NO. 3:
In response to your third question, it is my opinion that if a board of appraisal is appointed pursuant to SDCL 5-5-30, and the board makes an appraisal, and that appraisal is then rejected by the purchaser, the rejection of the appraisal is sufficient to ultimately stop a sale of school and public lands. Under our present statutory structure, the assessment of the value of improvements is made after the “sale” of such land. If a lawful appraisal of the improvements to that land is made, and the successful bidder decides that the cost of such improvements, as fixed by the appraisal, is more than he wants to pay, then the sale of the land is never completely consummated. This is true, however, only in the event that the improvements involved were placed there initially with the approval of the Commissioner pursuant to SDCL 5-5- 22 and that the “owner” of such improvements has met all the requirements of law so as to avoid the improvements becoming the property of the State.
Your third question, however, refers to “an inflated appraisal of improvements.” If a purchaser in fact believes the appraisal of improvements to be “inflated” and refuses to pay for the same as appraised by the board, it is my judgment that the sale is incomplete, and is in effect “stopped.”
IN RE QUESTION NO. 4:
SDCL 5-5-32 provides:
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 the lease or conveyance shall issue.
SDCL 5-5-23 provides:
If such improvements are not removed in the manner and within the time specified in section 5-5-22 or within such further period as may be granted by the commissioner for good cause shown, or unless such improvements are disposed of as 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 his lease, re-leases such tracts of land at the letting, and a 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.
It is elementary, I believe, that the owner of improvements on school and public lands does not have the capacity, by rejecting the board of appraisal's appraisement of improvements, to stop the sale of those lands to one who has lawfully purchased such lands. SDCL 5-5-32 recognized that rejection by the owner of the improvements of the board of appraisal's appraisal, is not a bar to the conveyance being issued. In fact, SDCL 5-5-32 clearly states that if the appraisal is not accepted or rejected within five days of the appraisal, the appraisal shall be deemed rejected and a conveyance shall issue.
SDCL 5-5-23 is consistent with this position. If the owner of the improvements cannot or does not choose to remove the improvements and cannot privately agree on a price for the improvements with the purchaser of such lands, there is a procedure set up whereby a board of appraisal is appointed to make an appraisal of the value of the improvements (SDCL 5-5-30). This procedure provides for an impartial appraisement of the improvements. If the owner of the improvements believes the appraisal of the board to be too low, he can: (1) try to negotiate a higher price with the purchaser; (2) accept the appraisal price of the board; or (3) lose his interest in the improvements pursuant to SDCL 5-5-23. If the parties cannot agree, the board of appraisal procedure is available to break up the “logjam” and get a price set so that the sale can be completed.
The owner of improvements in school and public lands which have been sold does not, in my opinion, have the right to reject the board of appraisal's appraisal and thereby block the sale of the public lands from being completed. The lessees of such school and public lands are often opposed to the public lands being sold out from under them and any system which would give such lessees veto power over the sales of this public land, under the guise of any procedure such as the right to reject improvement appraisal and thereby block the sale, would not only be contrary to public policy, but would also, in my opinion, be contrary to the laws of the State of South Dakota as discussed above. Accordingly, the answer to your fourth question is no.
Respectfully submitted,
William J. Janklow
Attorney General
WJJ:DOC:mhb
