Editor’s Note: Kristine Tidgren is staff attorney at the Center for Agricultural Law & Taxation at Iowa State University. She writes an article each month in Wallaces Farmer magazine. You can contact her at [email protected].
As March 1 fast approaches, it’s time to focus on several important rights and obligations of landlords and tenants under Iowa farm leases. While these rights and obligations are primarily determined by the terms of a written lease, general legal principles apply to all Iowa leases. This article addresses several questions we frequently receive at the Center for Ag Law and Taxation at ISU. Those wondering about their specific legal rights should consult with an attorney. This article is not intended to provide legal advice.
My tenant and I signed a written lease for 2016 crop year. The lease provides that the rent is due, up front, on March 1. It’s March 5 and my tenant hasn’t paid. I’m afraid he doesn’t have the money, yet he is not willing to walk away. What can I do?
First, it’s important to note that requiring rent up front is a good idea for landlords wishing to minimize disputes and problems associated with a tenant’s nonpayment of rent. Nonetheless, this protective approach does not always guarantee smooth sailing. Sometimes, a landlord will be forced to confront a nonpayment situation early on in the lease term. It remains true that working with an existing tenant and attempting to reach an amicable solution is often the best approach to handling conflicts. Even so, landlords concerned about their tenants’ ability to pay are better off confronting the problem early on, rather than letting the matter simmer and the problems compound.
As most readers are aware, Iowa Code §562.6 generally provides that a farm lease will automatically renew under the existing terms for another crop year unless the landlord serves the tenant with a written notice for termination on or before September 1. This is true even when the parties have a written lease that specifies a certain time for the lease to expire. Iowa’s laws are very protective of tenants and were written decades ago to ensure that landlords would not oust tenants without giving them adequate time to find new farms to lease.
It’s important to note, however, that the written termination notice requirement does not apply where “there is default in the performance of the existing rental agreement.” Failing to pay rent when it is due is a default in performance that entitles the landlord to initiate termination proceedings, no matter when that default occurs. Although many leases provide that nonpayment of rent “terminates” the lease, Iowa courts have ruled that termination in such cases is not automatic, but an option the landlord can exercise. The courts have reasoned that without this interpretation, a tenant could take advantage of his own default and unilaterally terminate a lease by refusing to pay rent.
A landlord faced with a tenant whose rent is past due can initiate a “forcible entry and detainer” action under Iowa Code chapter 648. This is an action to formally evict the tenant from the premises. It is a requirement under that provision that the landlord first serve the tenant with a three-day “notice to quit.” This notice gives the tenant three days during which to pay the rent due or face ouster.
If no such payment is made, but the tenant leaves the property, the landlord is free to rent the premises to another tenant. If no payment is made, and the tenant remains on the property, the landlord may commence a formal eviction action. The landlord initiates the action by filing a “forcible entry and detainer” petition in court and personally serving the tenant with notice of the action. Once receiving the petition, the court will schedule a timely hearing to provide the parties an opportunity to be heard.
I served my tenant with a written notice of termination before September 1 of last year. He argues that the notice was not valid and refuses to vacate the premises. What can I do?
A landlord may seek to oust a tenant who has improperly stayed on the land after legal termination of the lease by following the same forcible entry and detainer procedures outlined above. The landlord first serves the tenant with a three-day notice to quit and then files a forcible entry and detainer petition in court. Upon receiving the petition, the court will hold a hearing to give the tenant an opportunity to respond.
My tenant is in his first year of a three-year lease. I’m not happy with the way my tenant is caring for my land. I believe his farming practices constitute a breach of the good husbandry provisions in our written lease. What can I do?
Good husbandry provisions are important components of well-written leases. These provisions are designed to ensure that tenants are good stewards of the land they are farming. Tenants who breach these provisions may be liable for damages to their landlords. Landlords cannot assume, however, that a violation of a good husbandry provision automatically entitles the landlord to terminate the lease.
Iowa courts have ruled that tenants are entitled to notice and a reasonable opportunity to cure alleged breaches of such provisions. Termination is a harsh remedy that will not be imposed where the tenant has cured even a “material breach” of the lease. Therefore, if a landlord provides the tenant with notice of the specific ways the good husbandry provisions are being violated, the tenant will be given a reasonable period of time during which to cure the breaches. If the tenant does not cure the problems, the court will likely allow the termination.
In a 1963 case, the Iowa Supreme Court allowed the landlord to terminate a multiyear lease for breach of the good husbandry provisions. The termination, however, was effective at the beginning of the following crop year. The landlord did not attempt to terminate the lease mid-year. The court noted the same conduct by the tenant may not have justified a landlord in terminating the lease “in the middle of a crop year and ousting the tenant with the hardships and difficulties resulting from such action.” Nonetheless, the court found that the landlord “should not be required to put up with [the tenant’s poor land management practices] for two more crop years.”
Final thoughts. Landlords or tenants facing the above situations are encouraged to consult with legal counsel. Landlords who attempt to oust a tenant improperly can be found liable to the tenant for damages for interfering with the tenant’s “quiet use and enjoyment” of the property. Landlords are also reminded that the deadline for perfecting their landlord’s lien is 20 days from the date the tenant takes possession of the property. Without filing the UCC-1, the landlord has no priority over other creditors in the event of a default.
Why landlords need to perfect their liens
This is the right time of year to remind landlords to perfect their landlords’ liens. Iowa Code §570.1 states that a landlord shall have a lien for the rent upon all crops grown on the leased premises. This means that a lien automatically attaches to farm products grown on the leased property. This does not mean, however, that the lien is perfected. A perfected landlord’s lien has priority over most other earlier perfected creditors, including the bank providing the operating loan and an ag supply dealer. Only a properly perfected landlord's lien, however, receives this special priority. Without perfection, the landlord falls to the bottom of the priority list.
How do you perfect a lien? Iowa Code §554.9308(2) requires a landlord to file a financing statement (UCC-1) with the Iowa Secretary of State to perfect the landlord’s lien. This filing must be completed within 20 days of the tenant taking possession of the property (or by March 20). The statement must say that it’s being filed “for the purpose of perfecting a landlord’s lien.” If these requirements are not followed, the landlord still has a lien. The lien, however, is unperfected. And unperfected liens have little power.
Filing a UCC-1 with the Iowa Secretary of State’s office requires no signatures. At $10 (the cost of filing a UCC-1), the UCC-1 is a pretty wise investment. UCC-1 filing information is available here: sos.iowa.gov/business/pdf/UCC1.pdf.
Tidgren is staff attorney for the Center for Agricultural Law and Taxation at Iowa State University. Visit the website calt.iastate.edu for more ag law information.