When the South Dakota Department of Transportation sells state-owned railroad property, the law gives the lessees and abutting landowners 60 days' notice and a right to purchase at appraised value, except for sales 'for railroad purposes.' What does 'railroad purposes' mean, and when does a buyer get to skip the notice-and-purchase-right requirement?
Plain-English summary
In the late 1970s and 1980s, after the Milwaukee Road railroad bankruptcy and other rail-industry contractions, SD acquired substantial railroad property to keep some lines viable and to manage what was left of the rest. Much of that property was leased to active rail operators, farmers using rail-side parcels, and other users. As the State began evaluating sales of surplus rail property in the early 1990s, the lessees and abutting landowners were anxious about what would happen to their interests.
SDCL 1-44-28 protected them. The statute requires the State (acting through the DOT's Division of Railroads) to give 60 days' written notice of any proposed sale to lessees of affected property, or if no lessee, to owners of abutting property. The lessees or abutting owners then have 60 days to purchase the property at not less than appraised value. The protection rule has one exception: a "sale for railroad purposes."
Representative Wagner asked the AG to define "railroad purposes." His constituents wanted assurance that they could not be cut out of the notice and purchase rights through a sale to a third party for some non-railroad use.
The 1991 AG (Mark Barnett) gave a tight reading of the exception. A "sale for railroad purposes" means a sale to a buyer who will continue to operate a railroad on the right-of-way being sold. If the line has been abandoned and the prospective buyer plans to use the right-of-way for any other purpose (recreational trail, agricultural conversion, utility corridor, residential subdivision, anything other than rail operations), the State has to comply with the notice and right-of-purchase requirements.
The opinion's reading is functional. The "railroad purposes" carve-out makes sense because if the State sells a working rail line to another rail operator, the existing leases and rail-side uses stay in place and the lessee/abutting-owner protections are not really needed (the buyer just continues the railroad). But if the line is being repurposed, the existing uses are at risk and the protections become essential. The exception fits the case where the protections are unnecessary; it does not extend to cases where the protections are most needed.
In other words: the notice-and-purchase-right rule is the default; the railroad-purposes exception is narrow; ambiguous cases go to the lessees and abutting owners, not to third-party buyers.
Currency note
This opinion was issued in 1991. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The SDCL provision was renumbered (from 1-44-28 to a current section in SDCL Title 49 chapter 16A or similar) when SD reorganized its transportation statutes. Anyone working with state-owned rail property today should locate the current statutory framework and check for any modern AG opinions or court decisions on the railroad-purposes exception.
What the opinion meant at the time
For SD lessees of state-owned railroad property in 1991, the opinion was reassuring. The State could not bypass their notice and purchase rights by selling to a third party for non-railroad use. Their statutory protections covered any sale that was not a continuation of railroad operations.
For SD landowners abutting state-owned rail lines, the opinion meant the same. Where there was no lessee, abutting owners got the notice and purchase right unless the buyer was continuing the railroad.
For the SD DOT's Division of Railroads (the operational unit managing the rail property), the opinion meant the notice and purchase-right process had to be the default in any non-rail sale. Skipping that process was lawful only for true railroad-to-railroad transactions.
For rail-to-trail advocates and other re-use planners working in SD in the early 1990s, the opinion meant their proposed acquisitions of abandoned rail rights-of-way would go through the lessee/abutting-owner notice and right-of-purchase process. They could still acquire the property, but only after giving the lessee or abutting owner a chance to buy at appraised value first.
For state legislators considering rail-property policy changes, the opinion identified the policy structure as a default-of-protection arrangement that the Legislature could adjust if it wanted to. SDCL 1-44-28 protected existing users; amending it would require an explicit legislative decision to weaken that protection.
Common questions
Q: What is SDCL 1-44-28?
A: The 1991-vintage statute governing sale of state-owned railroad property. It required notice to lessees (or abutting owners if no lessee) of any proposed sale, plus a 60-day right to purchase at appraised value. The "sale for railroad purposes" exception bypassed the notice and purchase rights for sales that continued rail operations on the same right-of-way.
Q: Why did SD own railroad property in 1991?
A: After the Milwaukee Road bankruptcy (1980) and other railroad contractions in the late 1970s and 1980s, SD acquired surplus rail lines and rail property to preserve service where possible and to manage the abandoned lines. The state ran a Division of Railroads to manage the property and operate or lease lines.
Q: What does "for railroad purposes" mean?
A: Per the 1991 AG, the buyer must continue to run a railroad on the right-of-way being sold. Continued rail operations is the only use that qualifies. Anything else (trail, agriculture, utility, development) triggers the notice and purchase-right rule.
Q: What if the buyer might run a railroad eventually but not immediately?
A: The opinion does not address that scenario directly. The statute's bypass requires that "it can be shown in advance of the sale that the use after sale will still be to 'run a railroad.'" An indefinite future intention probably would not meet that standard; the sale would proceed under the notice and purchase-right rule.
Q: What rights do lessees and abutting owners have?
A: 60 days from the notice of proposed sale to purchase the property "at not less than its appraised value." If they exercise the right, they buy at appraised value. If they decline, the State can complete the sale to the third party.
Q: What if there is both a lessee and an abutting owner?
A: Under the statute, the lessee gets the notice and purchase right. The abutting owner gets the rights only if there is no lessee.
Q: What about public utilities on rail corridors?
A: The statute's last sentence preserves "any existing right of use enjoyed by any public utility, municipally-owned utility or cooperative utility which provides electricity, gas, water or telephone service." So utility easements on rail corridors survive any sale, vacation, change, or relocation.
Q: Does this opinion still apply to current SD rail property?
A: The opinion interprets a statute that has since been renumbered or modified. The general principle (narrow reading of bypass exceptions to protective statutes) likely survives, but anyone working with current state-owned rail property should look up the current statutory framework and any modern AG or court interpretations.
Background and statutory framework
The Milwaukee Road's bankruptcy in 1980 and the broader collapse of regional rail systems in the late 1970s and 1980s left several Plains states, including SD, with thousands of miles of rail corridor that private operators no longer wanted. Some states (Iowa, Nebraska, Minnesota) created state rail authorities to acquire and operate the orphaned lines. SD took a hybrid approach: the state acquired key lines to preserve service to agricultural shippers, transferred operating rights to short-line operators where possible, and held title to corridors where active rail was no longer viable but the right-of-way had value for utilities, trails, or other public uses.
SDCL 1-44-28 was part of that framework. The Division of Railroads within the Department of Transportation managed state-owned rail property. SDCL 1-44-28 directed the Division to "manage all real and personal property acquired by the state for railroad purposes" and to "secure all income available from those properties." The Division could lease the property, license it, grant easements, or "execute and issue ... other agreements" for property not used directly in rail operations. Active lessees ranged from agricultural users (using rail-side parcels for storage or operations) to short-line rail operators (using the right-of-way to run trains) to industrial users (using rail-served sites for manufacturing and processing).
When the State decided to sell rail property, the statute imposed the protective process. Notice had to go to lessees of the affected property; if no lessee, notice went to owners of property abutting the railroad property. The lessee or abutting owner had 60 days from notice to purchase the property "at not less than its appraised value." Only a "sale for railroad purposes" was exempt from those requirements.
The protective process reflected a policy judgment. Lessees had built operations dependent on the leased rail-side property; abutting owners had developed adjacent land assuming the rail corridor would continue to function in some way. A sale to a third party for an unrelated use could disrupt those settled arrangements. The 60-day notice and right of purchase gave them a meaningful chance to buy out the corridor and preserve their adjacent use.
The "railroad purposes" carve-out preserved efficiency for true rail-to-rail transactions. If SD was selling a working short-line corridor to another railroad operator, the lessees (often other rail-related businesses) and abutting owners (often grain elevators and other rail-served businesses) would benefit from continued rail service, not be threatened by it. The notice and purchase right was unnecessary, and the statute removed the procedural burden.
But the carve-out had to be narrow to make the broader scheme work. If "railroad purposes" were read broadly, any plausible future rail-related use could justify bypass. The 1991 AG reads it strictly: the buyer must actually continue to run a railroad on the right-of-way being sold. Speculative future rail use, conversion to trail with an option to revert to rail, or sale to a holding entity does not qualify.
The opinion is short and structured around the statutory text. The closing line ("the notice and opportunity requirements of the statute apply to protect lessees and abutting landowners, in all cases, except in that narrow circumstance where it can be shown in advance of the sale that the use after sale will still be to 'run a railroad'") is the operational rule: the bypass requires concrete advance demonstration of continuing railroad operation. Anything less goes through the protective process.
Citations and references
Statutes:
- SDCL 1-44-28 (state-owned railroad property sale; notice and purchase rights; railroad-purposes exception)
Source
Original opinion text
Railroad Property
Dear Representative Wagner:
You have requested an official opinion of this Office concerning the following factual situation:
FACTS:
Certain constituents in my legislative district have a vital interest regarding the future sale of state-owned railroad property and state-owned property adjacent to rail lines. Many of the constituents lease this property from the state and need to be guaranteed that a third party could not buy the land they are leasing and then force them out of business.
In researching this concern, the LRC staff directed me to SDCL 1-48-28. This section provides strong safeguards in line with my concerns and those of my constituents. I believe, however, that one phrase included in the section is unclear. I therefore request an opinion on the meaning of the following:
SDCL 1-44-28. The division of railroads shall manage all real and personal property acquired by the state for railroad purposes and shall secure all income available from those properties. The director of the division may negotiate, enter into, execute and issue leases, licenses, easements or other agreements as may be necessary to provide for the use of any property or facility not used directly in rail operations. Prior to any sale, except a sale for railroad purposes, of state-owned railroad property, the state shall provide the lessee of any railroad property affected by the sale and, if there is no lessee, the owner of any property abutting railroad property with written notice of the proposed sale. The state shall give the lessee or abutting owner sixty days from the notice to purchase the property at not less than its appraised value. No vacation, change, relocation or sale of state-owned railway property as provided in this chapter shall diminish any existing right of use enjoyed by any public utility, municipally-owned utility or cooperative utility which provides electricity, gas, water or telephone service. [Emphasis supplied.]
Based upon the above factual situation, you ask the following question:
QUESTION:
The exclusion to the notice requirement in the above referenced statute is "a sale for railroad purposes." You would like a definition of what the term "railroad purposes" in the statute might mean.
IN RE QUESTION:
In examining SDCL 1-44-28, it is my opinion that the phrase that you emphasize, "except a sale for railroad purposes," anticipates a sale for the purpose of running a railroad on the right-of-way sold. Thus, if the line were abandoned and the prospective buyer sought to do something with the right-of-way other than run a railroad on it, the State would need to comply with the notification and property purchase requirements set forth in the statute.
In other words, the notice and opportunity requirements of the statute apply to protect lessees and abutting landowners, in all cases, except in that narrow circumstance where it can be shown in advance of the sale that the use after sale will still be to "run a railroad."
MWB:CME:ss