It is that time of year — the Sept. 1 notice of termination deadline is quickly approaching, and it's time to review lease terms and look to the next crop year. Remember, if a one-year, year-to-year lease or a multiyear lease whose term ends on March 1, 2022, is not terminated prior to Sept. 1, 2021, the lease "auto-renews" or continues under the same terms and conditions for the next crop year. That is, unless both parties choose to renegotiate the terms at a later time or agree in writing to a termination.
As with any contractual agreement, the terms of a farm lease are always negotiable if both parties consent to the change in the terms. As we have talked about before, a farm lease is a contract, oral or in writing, between a landowner and tenant. Even in the most amicable of situations, many leasing parties have chosen to enter into written contracts to make a record of the key terms of the lease, so misunderstandings do not occur. While some landlords and tenants continue to enter into oral agreements for farm leasing, it is highly preferable from a legal standpoint to reduce the terms of the agreement for farm leasing into writing. As always, farm leases over one year must be in writing to be enforceable in the Iowa courts.
This year, because of the increase in cash rental rates, due to increased commodity prices, the proper process for farm lease termination needs to be addressed. According to the most recent Iowa State University Cash Rent Survey, rates increased, on average, by 4.5% in 2021 to a statewide average of $232 per acre. Alejandro Plastina, an ISU Extension economist and professor, remarked that this is the first substantial increase in cash rents since 2013. Many Iowa landowners and tenants will be attending the ISU Extension Farmland Leasing workshops in August and will gain valuable information on farm leasing, termination and new trends.
Terminating a farm lease in Iowa
Remember, there have been a few changes in farm leasing laws in the last 10 years. In 2013, Iowa Code Chapter 562 was amended, eliminating the long-standing exemption to the Sept. 1 termination notice requirements for farms of less than 40 acres, except for farms of less than 40 acres where the primary use is an animal feeding operation as defined by Iowa Code. Thus, written notice must be given by Sept. 1 to terminate the lease for the following crop year for all farm tenancies, except for farms of less than 40 acres where the primary use is an animal feeding operation. If there is no timely termination notice, the farm tenancy automatically continues under the same terms and conditions for the next year. Additionally, Iowa Code Ch. 562.6 was also amended by stating that one of the ways to terminate a farm lease is for both parties to enter into a written agreement to terminate the lease if after the Sept. 1 deadline. Although the Iowa Code does allow for an agreement to terminate, it is quite costly and difficult to prove an oral agreement to terminate in the event of a dispute without compelling evidence.
The best policy for a landowner or tenant is to strictly comply with the farm lease termination provisions of Iowa Code chapters 562.6 and 562.7 and serve the party being terminated with written notice of termination prior to Sept. 1. There are several alternative methods of termination that may be used. One is by delivery of the notice (through the sheriff, process server or by personal service), with acceptance of service to be signed by the party receiving the notice. Another is by serving the notice by publication (which is used only in the case if personal service cannot be achieved). The most common method, and probably the easiest, is by mailing the notice by certified mail (preferably return receipt requested). Certified mail uses a receipt that can be used to prove proper service. Service is complete when the notice is "enclosed in a sealed envelope, with 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 U.S. Postal Service." Courts in Iowa take lease termination very seriously and interpret the statute very strictly.
Properly terminating a farm lease is an important tool to renegotiate a farm lease, whether you plan to continue a relationship with an existing tenant or landowner, or are making a change. Landowners who are selling property prior to or during the next crop year will want to be sure to properly notify tenants of a lease termination to ensure a smooth sale.
In next month’s Legal Issues column, with increased funding of the Conservation Reserve Program proposed and an increased emphasis on carbon credits, renewable energy and other environmental matters, we'll talk about a landowner's duties with respect to farm programs, CRP, and conservation compliance in general. It is important for landowners to understand that with the rewards of enrolling in the program, there are risks and requirements landowners must keep in mind.
Herbold-Swalwell is an attorney with Brick-Gentry in Des Moines, Iowa. Email her at [email protected].