Tom, a buyer relocating from Georgia, is under contract to purchase a 320-acre irrigated farm in South Dakota. His buyer's agent, Sandra, is also originally from Georgia and assumes that, as in her home state, water rights automatically follow the land. Sandra does not investigate or disclose the status of the seller's water appropriation permit, and the purchase agreement makes no mention of water rights. At closing, Tom discovers the seller has not transferred the water permit and plans to retain it for use on adjacent property he is keeping. Which of the following most accurately describes the legal and professional consequences of this situation under South Dakota law?
Correct Answer
A) Sandra has committed a material omission and may face disciplinary action under SDCL Chapter 36-21A, because water rights are a separate property interest that must be addressed in South Dakota agricultural transactions
Under South Dakota's prior appropriation doctrine (SDCL Chapter 46-1 through 46-6), surface water rights are a separate property interest that does not automatically transfer with the land. Sandra's failure to investigate and disclose the status of the seller's water appropriation permit — particularly on an irrigated farm where water access is essential to the property's utility and value — constitutes a material omission. This exposes Sandra to disciplinary action under SDCL Chapter 36-21A, which governs licensee conduct and prohibits misrepresentation and material omissions. The fact that Sandra was unfamiliar with South Dakota's prior appropriation system because of her Georgia background does not excuse the violation — licensees are expected to know the laws of the state in which they practice.
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