Using a clean 17.04 install, I could observe the same problem.

Against convention, our company is using .local as the internal DNS TLD.

As mentioned in #8 and #13 above, /etc/resolv.conf was symlinked to

root@dell-e5470:~# ls -l /etc/resolv.conf
lrwxrwxrwx 1 root root 29 Apr  5 09:19 /etc/resolv.conf -> 
../run/resolvconf/resolv.conf

which contains

---
# cat /run/resolvconf/resolv.conf 
# Dynamic resolv.conf(5) file for glibc resolver(3) generated by resolvconf(8)
#     DO NOT EDIT THIS FILE BY HAND -- YOUR CHANGES WILL BE OVERWRITTEN
# 127.0.0.53 is the systemd-resolved stub resolver.
# run "systemd-resolve --status" to see details about the actual nameservers.

nameserver 127.0.0.53
---

After removing the symlink /etc/resolv.conf and linking like this:

# ln -s /run/systemd/resolve/resolv.conf /etc/resolv.conf

...thinks started working again. Now the file contains the DNS received
via DHCP:

-----
# cat /etc/resolv.conf 
# This file is managed by systemd-resolved(8). Do not edit.
#
# This is a dynamic resolv.conf file for connecting local clients directly to
# all known DNS servers.
#
# Third party programs must not access this file directly, but only through the
# symlink at /etc/resolv.conf. To manage resolv.conf(5) in a different way,
# replace this symlink by a static file or a different symlink.
#
# See systemd-resolved.service(8) for details about the supported modes of
# operation for /etc/resolv.conf.

nameserver 1.2.3.4
search local.example.com example.local
-----

** Changed in: systemd (Ubuntu)
       Status: Incomplete => Confirmed

-- 
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https://bugs.launchpad.net/bugs/1624320

Title:
  systemd-resolved appends 127.0.0.53 to resolv.conf alongside existing
  entries

Status in systemd package in Ubuntu:
  Confirmed

Bug description:
  systemd-resolved, or more precisely the hook script
  /lib/systemd/system/systemd-resolved.service.d/resolvconf.conf, causes
  resolvconf to add 127.0.0.53 to the set of nameservers in
  /etc/resolv.conf alongside the other nameservers.  That makes no sense
  because systemd-resolved sets up 127.0.0.53 as a proxy for those other
  nameservers.  The effect is similar to bug 1624071 but for
  applications doing their own DNS lookups.  It breaks any DNSSEC
  validation that systemd-resolved tries to do; applications will
  failover to the other nameservers, bypassing validation failures.  And
  it makes failing queries take twice as long.

  /etc/resolv.conf should have only 127.0.0.53 when systemd-resolved is
  active.

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https://bugs.launchpad.net/ubuntu/+source/systemd/+bug/1624320/+subscriptions

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