Terminating Oral Farm Leases

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Farm leases are a common occurrence on land being developed for solar and wind energy projects, due to the size and rural nature of land sought for development. While title searches will discover written leases that are made of record with the county clerk, farm leases are often verbal “handshake” agreements, meaning they go undetected during a standard title search. It is always recommended to conduct a site visit and inquire as to the existence of any grazing or crop operations when entering into a real estate contract for land intended for development. If a farm tenant is leasing a portion of the project property, such lease may need to be terminated, particularly in the context of a solar energy project that will require more surface use of the land.

Consequences can be significant if development begins on a property subject to a farm tenancy that was not properly terminated. First, without evidence of termination, a year-to-year farm lease will often be deemed to have renewed automatically for another year. This renewal would allow the crop tenant to remain on the property for another term, causing potential delays in the intended development of the property subject to the lease. Furthermore, depending on state law, if a lease is breached or wrongfully terminated, farm tenants can normally recover their lost profits and be reimbursed for damaged crops, or the expenditures they incurred on cultivating their current year crop. While a tenant’s claim for breach of contract would be directed at the landowner as the landlord under the lease, oftentimes, energy developers are contractually obligated to reimburse the landowner for any claims pertaining to crop damage, and in such cases, liability could pass from the landowner to the developer. Additionally, if a developer begins construction and destroys or damages a lawful tenant’s crops, the tenant can likely bring a direct suit against the developer for damaging its property.

If the landlord agreed to rent the premises to the tenant for a specified period of time, or the time of lease expiration is otherwise specified in a written agreement, such agreement will control the date of termination. However, in the absence of a written agreement that sets out the lease term, confusion and disputes are more likely to arise regarding the lease’s end date and how much notice is required in order to effectuate a termination. Fortunately, many states provide legislative guidance as to when and how notice of termination must be delivered to a farm tenant. The following summaries represent a sampling of state-specific guidance. It is important to note that the default rules can often be set aside if the parties mutually agree to a different termination date under a written agreement.

Colorado:

In Colorado, a tenancy may be terminated by written notice, delivered to the tenant not less than 91 days before the end of the current lease term, for tenancies of one year or longer. This notice must describe the property, the particular time when the tenancy will terminate, and must be signed by the party giving such notice, or his/her agent or attorney. If the tenancy term is shorter, less notice is required. While the Colorado statutes do not set out the default term of an oral crop lease, crop leases are traditionally for an annual term. Facts such as how often rent is paid, and when the farm tenant took possession of the property are helpful in determining the length of the term and its end date.

The termination notice may be served by delivering a copy to the tenant, another person occupying the premises, or leaving the notice with a member of the tenant’s family that is at least 15 years old and residing on the premises. If no one is on the premises when service is attempted, the notice can be posted in a conspicuous place.

Indiana:

Like Colorado, a tenancy from year-to-year in Indiana must be terminated by giving notice to the tenant not less than three months prior to the expiration of the lease year. In Indiana, the annual lease term for farm tenants customarily ends on the last day of February, meaning the termination deadline for notifying farm tenants is by the end of November of the preceding year. However, if the lease is for the calendar year, notice must be provided before October 1. It is important to consider when and how often rent has been paid under the lease. For example, a yearly advance lease payment made by the tenant prior to January 1st each year would suggest that the lease is on a calendar-year term, rather than the traditional March to February “crop year” term.

The notification to terminate must be made in writing and include a description of the property. The Indiana Code provides a proposed form of notice. The notice can be served directly to the tenant, or if the tenant cannot be found, can be served on a person residing at the premises, provided the contents of the notice are explained. If a person does not reside on the premises, the notice can be served by affixing a copy of the notice to a conspicuous part of the premises. If the notice is mailed directly to the tenant, it is recommended it be done by certified mail, with return receipt requested. In some instances, sheriff delivery of notice is the best evidence of delivery.

Illinois:

Farm leases are given special attention under Illinois law. In order to terminate a year-to-year tenancy of farmland, notice to terminate must be given in writing at least four months prior to the end of the current lease year. This notice requirement cannot be waived verbally. In most regions of Illinois, the farm lease is presumed to begin on March 1, and end on the last day of February, meaning notice to terminate must be delivered by the end of October of the preceding year. Again, beware of evidence suggesting a different term date.

The Illinois statute provides example language that can be used in this written notice. The notice may be served by delivering a written copy to the tenant or by leaving it at the premises with a resident who is at least 13 years old, or by sending a copy by certified or registered mail, with return receipt requested. If no one is in possession of the premises, or the tenant cannot otherwise be located, notice can be posted conspicuously on the premises.

Iowa:

In Iowa, a farm tenancy will continue beyond an agreed term for the following crop year, unless written notice of termination is served.[1] If notice is served, the notice must provide that the termination will take place on March 1, except in the case of a “mere cropper,” whose farm tenancy will terminate when the crop is harvested. However, if the crop is corn, the termination will not be later than the first day of December, unless otherwise agreed upon. The Iowa Supreme Court describes a “cropper” as a party that has no leasehold interest in the land, but instead receives a portion of the crop as pay for labor.

The notice must be delivered before September 1, with acceptance of service signed by the receiving party. Notice can be served personally, or if that cannot be achieved, by publication. If notice is delivered by certified mail, the notice must be deposited in a U.S. postal service mail receptacle by September 1, in a sealed envelope with the proper postage and addressed to the tenant at the last known mailing address.

Kansas:

In Kansas, oral agricultural leases are treated as running from March 1 to March 1, and are presumed to renew each year for another one-year term, unless the landlord provides notice of termination. A landlord must provide written notice of termination at least 30 days before March 1, that specifies the lease will terminate on March 1. This rule applies to land used for crops, as well as livestock grazing and hay production. There is a caveat, however, for fall planting that has commenced prior to the tenant receiving proper notice. If a tenant planted its fall crop before receiving notice, the lease will instead end upon the earlier of (i) August 1, or (ii) the day following the last day of harvesting such crop, meaning the tenant may stay in possession for up to an additional 6 months past the March 1 termination date.[2]

Notice can be served by registered or certified mail, with return receipt requested, addressed to the tenant at its usual place of residence, or a copy of notice can be left at the tenant’s place of residence, or with a person over the age of 12 who resides there, if the tenant cannot be found. If no person is found at the premises, the notice can be posted in a conspicuous place on the premises.

Missouri:

Oral farm leases and tenancies at will for agricultural purposes are generally treated as year-to-year leases in Missouri. These leases require at least 60 days prior notice of termination, and such notice must be in writing, despite the original agreement being verbal. While not codified, farm leases in Missouri typically run from March 1 to the end of February, meaning notice of termination must be delivered by the end of December of the preceding year. Like other states, proof of delivery of termination is important, so notice of termination should either be delivered personally to the tenant, or sent by registered or certified mail, with return receipt requested.

Nebraska:

Oral leases are presumed to be year-to-year leases in Nebraska, and notice of termination is required at least six months in advance. The Nebraska Supreme Court has held that oral farm leases commence on March 1, meaning that notice to terminate must be received by the tenant prior to September 1 of the preceding year, causing the lease to terminate as of the last day of February. If the lease is not terminated on time, then the tenant will have leasehold rights to the property for another year. However, it is worth noting that this applies to crop leases, but not to pasture leases where the lease is for the customary five-month pasture season that runs from May 1 to October 1 each year, in which case the lease expires at the end of the season.

The notice to terminate should be made in writing. It is recommended the notice be sent via registered mail, with return receipt requested. The notice is deemed delivered when received by the tenant, rather than the date the notice is sent by the landowner.

Recommendations:

We encourage both early diligence in seeking out information as to whether a farm tenancy is in place, and early communication with any such tenant. Due to the cyclical nature of crop farming, early communication allows the farm tenant to plan for its future crops accordingly. Early communication is also beneficial in avoiding the possible implementation of the common law “doctrine of emblements” afforded by some states. This doctrine protects tenants who continue to farm in good faith and whose leases are terminated at no fault of the tenant before a growing crop is harvested. If the tenancy is terminated—even legally—before the crop matures, the tenant is entitled to either continue harvesting the crop, or be compensated for its expected profit.

Properly terminating a lease, especially an oral farm lease, requires the consideration of many factors. As shown above, different states implement different requirements, and only a sampling of states is described above. It is important to proactively seek advice on farm leases to ensure that either a termination is drafted and delivered properly and in a timely manner in accordance with the laws of the state in which the property is located, or a written agreement is otherwise negotiated with the farm tenant.

[1]  This does not apply to a farm tenant that is considered a “mere cropper,” or a person who holds a farm tenancy with an acreage of less than 40 acres where an animal feeding operation is the primary use. Many states set out different standards with respect to “croppers.”

[2] Similar protection is provided to a tenant that has worked the ground or prepared it in conformance with customary farming practices, but has not yet planted its fall crop, before receiving notice of termination.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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