Its that time of year again when we are down to just 3 weeks to go before farm leases must be terminated (September 1st in Iowa) (August 29 in Nebraska) to clear the way for the sale of farmland in Iowa this Winter. Farm tenancy terminations must be in writing, text messages, emails and other electronic communications will not suffice. We get calls every year from landlords or new owners that have inherited farms wondering how to terminate farm leases in Iowa and we'll cover the details here.
(Download the Farmland Tenancy Termination Form)
First lets talk about why its important to sell your farm without a farmland lease in place if possible because many times its not possible. The time of year that you offer your farm for sale tends to dictate if you will terminate the tenancy of the farmer before or after the auction. Because Iowa law is set in stone for tenancy the particular part of year we are in makes it an issue. In Iowa Farm tenancy starts on March 1 every year and ends the last day of February but to terminate a lease you must service notice prior to September 1. Why is it important? When selling a farm you want to attract the most money to bid on your farm and there are typically 2 types of bidders for farms. First there are farmers and next there are investors that buy farms. The farmer is buying it because he wants to farm it, he doesn't want to wait a year to farm it and be a landlord for the first year. The investor, depending on return is going to bid on your farm based on the current lease in place rather than what they feel is possible. Realize the farmer buying it with a tenant on it has to be a landlord and pay interest payments on the note from the rent he receives from the other farmer for up to 18 months prior to getting to farm it. We've found when selling farms this time of year depending on a few factors they typically bid best when the farm isn't rented by another person. Its not always the case, farms can still achieve top of market prices with a tenant on them, but some mediocre quality and low quality farms can struggle and be limited to only investor buyers.
Serving a notice August 31st of 2017 means you will get possession of your farm back from the tenant on March 1, 2018. This follows the cropping cycle to ensure farmers are not taken advantage of and they have ample opportunity to harvest crops, move machinery, bale stalks or other things that may be necessary to stop farming at a particular location. If you miss the September 1 deadline and say you served the notice on September 2, 2017 that would be effective for March 1, 2019. It would allow the farmer 1 more cropping season on the farm before they must relinquish tenancy. Sometimes in situations like that you can often negotiate a buy out of that lease from the farmer to get it back early, but sometimes you can not and it will be up to the two of you to agree to something different, in writing and best with legal or professional guidance if you are not very familiar with the process.
So lets talk about selling farms in Iowa for a minute. Many people know right now they will offer a farm for sale this Winter but have never mentioned it to anybody and often subscribe to the thought they would prefer to let the farmer harvest the crops first before saving anything or some decide it will be best to wait for Thanksgiving dinner to discuss it with family. While that makes it to late to serve a notice for the following year but its not an impossible situation there are still options to #1 Negotiate with the tenant for possession #2 Offer the buyer a cash rent credit where necessary to equalize the 1st year return with market conditions.
Want to read more about How to Terminate a Farm Lease in Iowa? Wallace Farmer has a great article just click the link.
If you are considering selling a Iowa Farm Real Estate its always best to contact us sooner than later so you don't miss any of the important deadlines or so that we can help direct you to the best position you can be in. We offer free market analysis of your farms and can help you spot potential issues before its to late. Send me an email using the form on this page or all me at 712-592-8965 or click the FREE FARM MARKET ANALYSIS link at the top of this page.