Which farm lease is the best option? How do I properly Terminate a LEase?
These are all questions we hear often! That's why we talked to Attorney Adam Ullrich on our Facebook Live session to get everything answered by a true expert. While farm leases can be fairly simple, they can also be very technical. We believe it is best to hire a professional who deals with leases and terminations on a daily basis to help assist you and keep you out of possible legal trouble. However, if you watch our video our keep reading, we cover some of the basics so you can learn more about this topic!
Why should I have a farm lease?
Did you know - a farm lease is not required to be in writing in order to be enforceable? But, it is a legally binding contract, regardless of whether or not it's in writing! Written farm leases prevent confusion, miscommunication, misunderstandings, and a whole slew of other bad feelings. They provide a framework that is easily referenced and details the agreement of the Landlord and Tenant. It can also provide evidence of the agreement if either party dies. Lastly, written leases can be helpful in the event of an income tax audit, or during the administration of an estate.
Basically, while you can agree on terms in an oral lease, it doesn't hurt to write one out (and SIGN IT!) so you have a hard-copy to reference if needed in the future.
Three common types of leases in Iowa
1. Fixed Cash Lease
In a fixed-cash lease, the Tenant pays a fixed amount of cash rent per acre per year. The Landlord can retain a wide range of control with this type of lease. In our experience, this is the most common lease in Iowa.
2. Flexible Cash Lease
This type of lease is similar to the fixed cash lease, but allows for variation in the amount of rent paid based on that year's yields and/or market prices. With this type of lease, the Landlord shares a portion of the risk of low yields but also participates in increased profitability in the event of a good year!
3. Crop-Share Lease
Crop-share leases are less common today, but are still a traditional option. In this type of lease, the Landlord receives a share of the crop and any government payments in return for the use of land. The Landlord will typically pay for half the costs associated with the crop's inputs, and the Tenant typically provides the labor and equipment. Each party is typically responsible for marketing their share of the crop, insuring their crop, and other terms.
How Long Should my lease be?
Your lease can be any length of time you want! However, there are a few considerations you should know. Typical leases range anywhere from 1 to 3 years. Oral leases are only valid for 1 year! In Iowa, leases that have been written for 5 years or more must be recorded in the county recorder's office within 180 days of execution. A lease exceeding 20 years is invalid in Iowa! However, such a lease could auto-renew on a year-to-year basis after the 20th year. Also, there are income tax credits available to Landlords who rent to beginning farmers and enter into 2-5 year leases. More info on that at www.iowafinance.com.
how to terminate a farm lease in Iowa
This is important - every word counts! Farm leases automatically renew for another crop year under the same terms and conditions as the original lease unless either party provides written termination notice on or before Sept 1. Did you get that? While it may seem simple, many people miss the technicalities of this law! We'll explain them below.
A lease termination must be properly served in writing by Sept 1 prior to the end of a lease term. This deadline applies to both cash AND crop-share leases. Now, a written lease can require a termination date earlier than Sept 1 if it is agreed upon in the lease by both parties. Oral leases must be terminated by a proper termination notice, just like a written lease. The auto-renewal law extends the existing lease for one additional year, regardless of the term of the original lease.
It is also important to note another date: March 1. This is the date that must be set forth in a termination notice. If the parties desire a different date for the termination to be effective, they would need to enter into a written termination agreement.
Basically, if a farmer gets sent a notice of termination by their Landlord before Sept 1, they have until March 1 to terminate.
How to give proper lease termination notice in iowa
There are three options for terminating farm tenancies:
1. By 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 receiving the notice.
2. By 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 original notices, except that when the notice is served by publication no affidavit is required. Service by publication is completed on the day of the last publication.
3. The most common option. By mailing the notice before Sept 1 by certified mail. Notice is served by certified mail is made and completed when the notice in 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.
Even if the lease sets a specific termination date and states that the parties wish to terminate the lease on that date and waive the right to notice, Iowa law's auto-renewal provision will still apply. Courts construe the notice requirement VERY strictly! For example, notice is not sufficient if it is sent by regular mail rather than certified mail!
For this reason, we suggest hiring a professional to help with this process. For a small fee, you can be ensured that you are doing everything correctly in the eyes of the law!
What happens when a landlord or tenant dies?
When a Tenant or Landlord dies, the lease does NOT automatically terminate. So, if no notice to terminate was given before Sept 1, and the Tenant or Landlord dies during the term of the lease, the lease still stands.
Selling a farm with a tenant
DreamDirt has hosted hundred of auctions that dealt with tenancy. As a seller, you have many options on how to approach a farm sale with a tenant. Let us be your guide through it all! We discuss this topic at length in our E-books.