July 19, 2017
August is almost here. Now is a good time to consider the legal requirements for terminating an Iowa farm lease. Whether you’re a landlord or a tenant, Iowa law requires that you formally notify the other party by Sept. 1 if you don’t wish to continue the current lease under its existing terms for another year.
Iowa farm leases automatically renew for another year under the same terms and conditions as the original lease unless either party provides written termination on or before Sept. 1. This provision, which is somewhat unique to Iowa, can surprise an unwary landlord or tenant. The auto-renewal provision applies equally to oral leases or written leases and to one-year leases or multiyear leases.
How does auto-renewal work?
Regardless of length of term of the original lease, the auto-renewal provision extends the existing lease for just one additional year. However, a lease continues to auto-renew every year under the statute, unless either party issues a notice of termination. In other words, absent statutory notice, an automatically renewed lease will renew again.
The auto-renewal provisions apply equally to landlords and tenants. For example, if a tenant does not wish the current lease to automatically renew for the following crop year under the same price and terms, the tenant must send statutory notice to the landlord before Sept. 1. If this notice is not sent, the tenant is obligated to rent the ground for another year at the current price.
The auto-renewal provision applies only to farm tenancies. A farm tenancy is defined under the statute as “a leasehold interest in land held by a person who produces crops or provides for the care and feeding of livestock on the land, including by grazing or supplying feed to the livestock.”
In 2016, the Iowa Court of Appeals ruled that the definition of farm tenancy was broad enough to include a small residential acreage where a single, 38-year-old horse was grazing. In 2017, however, the Iowa Supreme Court vacated that decision, ruling that the land must be “mostly or primarily devoted to crops or livestock” before a farm tenancy is created. The term livestock means “an animal belonging to the bovine, caprine, equine, ovine, or porcine species, ostriches, rheas, emus; farm deer; or poultry.” It remains to be seen how courts will apply this new “primary purpose” test.
Exceptions to auto-renewal
There are several exceptions to the auto-renewal of a farm lease.
• Written agreement to terminate. The parties can enter into a written agreement specifying the time the farm tenancy will end. If such an agreement is executed, the lease will terminate without statutory notice. It is important to note, however, that such an agreement must be separate and subsequent to the actual lease, not a part of it. A lease providing for a specific termination date, even stating that the parties wish to terminate the lease on the stated date and waive the right to statutory notice, will still be subject to the statutory auto-renewal provisions.
The law provides that a written agreement will cause the lease to terminate on the agreed date. On the other hand, a party terminating a lease by issuing termination notice must, by statute, set the termination date at March 1.
• Less than 40-acre animal feeding operation. The auto-renewal statute also states that it does not apply to a farm tenancy with an acreage of less than 40 acres where an animal feeding operation is the primary use. Before 2013, the exception included all farm tenancies that were less than 40 acres. Under the current law, all farm tenancies less than 40 acres are subject to auto-renewal unless they fall within the narrow animal feeding operation exception.
An "animal feeding operation" means a lot, yard, corral, building or other area in which animals are confined and fed and maintained for 45 days or more in any 12-month period, and all structures used for the storage of manure from animals in the operation.” Under this definition, it would seem that only animal feeding operations such as feedlots and confinements fall under the statutory exception.
• “Mere Cropper” provision. The auto-renewal statute also excludes from its reach arrangements involving mere croppers, meaning that arrangement involving a cropper may be canceled without statutory termination notice. A cropper is "one who, having no interest in the land, works it in consideration of receiving a portion of the crop for his labor.” By contrast, a tenant has an estate in the land for a term, and consequently, has a right of property in the crop.
How to serve termination notice
Iowa law provides three alternative methods for serving statutory notice. Any of the following are acceptable:
• Delivery of the notice, on or before Sept. 1, with acceptance of service to be signed by the party to the lease or a successor of the party.
• Serving the notice, on or before Sept. 1, personally, or if personal service has been tried and cannot be achieved, by publication, on the same conditions, and in the same manner as is provided for the service of process in a lawsuit.
• Mailing notice before Sept. 1 by certified mail to the last known mailing address.
The most common and usually the most efficient way to serve statutory notice is option three: mailing the notice by certified mail before Sept. 1. Under this method, the service is completed “when the notice is enclosed in a sealed envelope, with the proper postage on the envelope, addressed to the party or a successor of the party at the last known mailing address and deposited in a mail receptacle provided by the United States Postal Service.”
The courts construe the notice statute requirements very strictly. Notice will not be sufficient, for example, if it is sent via regular, instead of certified, mail. It doesn’t matter if the intended recipient actually receives the notice and admits that he or she read it. The notice will be deemed invalid and the lease will auto-renew unless all statutory requirements are followed. It is therefore important that the sender of the notice retain the certified mailing receipt. Without such receipt, he or she will be unable to prove proper service if a dispute arises.
More resources available
In August, review your farm lease and determine whether you’re comfortable continuing it for another year without modification. If you wish to change the terms, you must either reach a written agreement with the other party or send termination notice before Sept. 1. More information about Iowa farm leases can be found at the Center for Agricultural Law and Taxation.
Tidgren is staff attorney and assistant director for the Center for Ag Law and Taxation at Iowa State University. Contact her at [email protected].
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