Farm scene

How to properly terminate a farm lease

By law in Iowa, Sept. 1 is deadline to serve notice to terminate your present lease agreement.

Editor’s note: Tidgren is assistant director for the Center for Ag Law and Taxation at Iowa State University.

With September 1 fast approaching, now is a good time to review the Iowa law requiring nearly all farm leases to automatically renew, absent proper termination notice served by either the landlord or the tenant by September 1. In an article in the August 2016 Wallaces Farmer magazine, we will review several other important legal issues impacting Iowa farm leases. But here’s what you need to know if you are a landlord or a tenant, regarding how to properly terminate a lease.

Iowa Code § 562.6 generally provides that Iowa leases for a farm tenancy 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 September 1. This provision, which is unique to Iowa, can surprise an unwary landlord or tenant. The auto-renewal provision applies equally to oral leases or written leases. It applies equally to one-year leases or multiyear leases.

Regardless of the length of the term of the original lease, the auto-renewal provision extends the existing lease for one additional year. However, a lease will continue to yearly auto-renew under the statute, unless notice of termination is issued. In other words, without statutory notice, an automatically renewed lease will renew again.

Iowa’s automatic renewal provisions apply to landlords and tenants
These 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 by September 1. 

What is meant by “farm tenancy”? The auto-renewal provision applies to a “farm tenancy,” defined 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.”  Interestingly, the Iowa Court of Appeals recently 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. The term livestock means “an animal belonging to the bovine, caprine, equine, ovine, or porcine species, ostriches, rheas, emus, farm deer or poultry.”

Consequently, under the reasoning of the recent Iowa Court of Appeals decision, a residential lease where the tenant raises backyard chickens or a pet ostrich could potentially be subject to auto-renewal, absent statutory termination notice.

There are several exceptions to the auto-renewal law
The auto-renewal statute does include several exceptions as to its reach.

1) Written agreement to terminate. The statute states, “If a written agreement is made fixing the time of termination of a tenancy, the tenancy shall terminate at the time agreed upon, without notice.” The Legislature recently modified this exception to its current form. Effective July 1, 2016, the provision requires that an agreement to terminate a farm tenancy be in writing.

The written agreement must be separate and subsequent to the actual lease (not 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 auto-renewal requirement. Thus, parties wishing to execute an agreement to terminate the lease must execute a separate written contract to accomplish this result. The statute provides that the written agreement will cause the lease to terminate on the agreed date. Conversely, a party terminating a lease by issuing termination notice must set the termination date at March 1.

2) Less than 40-acre animal feeding operation. The auto-renewal statute states that it does not apply to a farm tenancy with 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. It is likely that the exception for “animal feeding operations” applies only to feedlots and confinements. Landlords or tenants should send statutory notice of termination for the lease of a small pasture.

3) Mere cropper. The auto-renewal statute also excludes from its reach arrangements involving mere croppers. As such, a cropper is not entitled to 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.

4) Default in performance. The statute provides that “the tenancy shall not continue because of an absence of notice if there is default in the performance of the existing rental agreement.” This means that if a party breaches the terms of the lease and the other party wishes to terminate the lease due to the breach, the auto-renewal provision will not supersede the non-breaching party’s right to terminate. 

Example: A landlord can terminate a lease for a tenant’s non-payment in March, even if that landlord did not give statutory termination notice the prior September 1.

5) Termination notice procedures. To serve proper statutory termination notice to avoid auto-renewal of a farm lease, the party wishing to terminate the lease must serve notice in one of the following ways:

•Delivery of the notice, on or before September 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 September 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 most efficient—way to serve statutory notice is option three: mailing the notice by certified mail before September 1. 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 does not matter if the intended recipient receives the notice and admits to having read it. The notice will be deemed invalid and the lease will auto-renew unless all statutory requirements are followed.

Note: It’s important that the sender of the notice retain the certified mailing receipt. Without such receipt, he or she will be unable to prove proper serving of the notice if a dispute arises.

Landlords and tenants should openly discuss their wishes for the 2017 crop year—and do it now. If there is a desire by either party to renegotiate their lease terms, that party should send termination notice. Such notice should not be viewed as adversarial, but simply an effort to comply with the statute. A sample termination notice form can be found at extension.iastatse.edu/agdm/wholefarm/pdf/c2-19.pdf.

Tidgren is assistant director for the Center for Ag Law and Taxation at Iowa State University. Visit the CALT website calt.iastate.edu.

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