2016 Iowa Farmland Leasing – Legal Issues

Welcome back to our series on Iowa farm
Land Leasing. I’m Kelvin Leibold, the area Farm Management Field Specialist in
North Central, Iowa and today we’d like to talk about our third issue, that’s legal
and written issues. This is third in our six-part series. Well, there’s a strong
preference for written leases, there are several reasons why, and amongst those is
the whole idea of lease termination notice. Iowa law requires you to send the
notice to the name and address on the lease. So again, that’s just part of the
basics of helping with communication. The other thing is, is that the lease really
provides the framework to your understanding of what each party agrees
to. Iowa does have some things as far as the Iowa Code and Leases. You can’t have
an oral lease that’s more than one year long. Yes, you can have an oral lease that
renews itself every year, but you can’t have a multi-year lease. We see some
leases that are longer, we see some beginning farmer tax credits up to five
years in length, we see others that involve tenants sharing the cost of tile
or lime, and that may result in a multi-year lease. The Iowa Code does
require a lease of five years or more to be recorded at the County Courthouse. And
again, like so many things, I mean why should we have a written lease? And I
would say is that well it helps us with selective memory and selective hearing. A
little bit like marriage perhaps. It’s sometimes you know and again and make
sure that all the different issues are covered that you want to try to cover.
Iowa courts have gone in and basically define what the meaning of different
terms are, so that we both have the same vocabulary, we both understand the same
things, and so hopefully if you have a good written lease it’ll allow you to
have a better relationship rather than worrying
about what the other party is agreed to do, and what you remember. You know some
of these things are that we deal with are like fencing, okay, and fencing law is
actually older than the state of Iowa. So those are issues that people need to
understand, and there’s some interest in hunting rights these days. Probably the
one that’s garnered the most attention is the crop residue or corn stalks, and
that relates to either corn stalks being used as bedding but, the really the big
one was the increase in the two ethanol plants, cellulosic ethanol plants, that
require thousands of tons of stover. So who owns that stover? Well the Iowa Code
says that the tenant owns the stover unless the lease says otherwise. Well
we’ve gone in, the Ag Decision Maker has two different leases that you can
download off of there, they’re actually fillable PDFs, and we went back in and
looked at the wording on those and went through line by line word by word, and so
now i think we’ve got a good job of matching up on the corn stover residue
issue. We simply state that that belongs to the landlord unless the landlord
gives permission for the tenant to do something with that. So help prevent
misunderstandings ahead of time is critical. Well as we’ve seen these rents
move along we want to make sure that these high rents get paid I guess.
There’s still some things that can happen along the way but again, trust is
a big thing and knowing your tenant is another. Make sure you know who you’re
actually renting to. That’d be another reason for having a written lease. Just
because you rent to Jim Smith doesn’t mean that you’re actually renting to Jim
Smith. You may be renting to Jim Smith’s limited liability company, or you may be
renting to one of his other organizations. So you know, you need to be
able to terminate the lease and so that makes you need to know who’s actually on
there, and again the lease termination notice has to be accurate as far as the
legal description. So those are all parts of the lease that should show up. We’ve
seen in Iowa a push towards more rents up front, I think we’re now
fifty percent of the rents require the cash rent be paid all upfront the first
to March. That hasn’t been that big of a challenge with low interest rates, but if
interest rates would rally, that again would add cost to the system because the
tenants got to borrow money. You’re a revocable letter of credit from the
lender is one way to go, but lenders tend to think about that as being a loan with
no interest rate, and lenders don’t like loans that don’t have an interest rate.
You can require the landlord’s name to be included on the on the payee, on the
checks, you need to go around and get a list from the tenant of all the places
going to sell crops and then you need to notify them, so that doesn’t work out so
well. Now one that really should consider, and I’m surprised at how often it is not
done, is the landlord gleam. Okay and so this is a way of recording a lien
against the tenets, the tenant doesn’t have to sign the form. Landlords Lien is
different than other liens in that is a priority lien. It allows you to jump
ahead of the bank, even though the bank was on first, they’re ahead of you and so
it’s a very powerful lien that allows you to jump ahead other creditors. So
might want to consult with your professional legal person in that regard.
Farmland Lease Termination Notice, we terminate a lot of leases but we also
renegotiate them. Average lease and Iowa is about 20 years. Now most of those are one
year at a time, but they get renewed. My farm in Franklin County, I’m approaching
close to 20 years with that one, but just recently we changed the lease over to
the my prior tenants son, so I’m running to the next generation at this time. So
just because you terminate the lease doesn’t mean you have to have it signed
by September 1, a lot of people go back and wait and roll it back. Also, if you’ve
got to assign lease it doesn’t mean you can’t renegotiate it anytime if both
parties don’t want to. We saw some leases that never really got signed this year.
Both parties just said well let’s wait and see what happened
with this Fall crop in this Fall price, but the Iowa Code says that if you don’t
properly have notice of termination prior to September one, that it extends
for the same terms as the current year. So that’s an issue here when we see
volatility where people need to pay attention. Farm Lease Termination is a
rather formal process in Iowa. It was amended in 2016 because of a court case. We had a situation where the landlord claimed that the lease was terminated by
a oral notice and the tenant agreed that was the case, and the judge actually
ruled, so we have one case where a lease was terminated by an oral agreement. That
got the notice of the legislature fairly quick, so we went back and amended the
legislation, and said no we’re not going to have any notices by oral methods,
we’re going to require one of the other ways, and so we’ve got several other ways
you can terminate a lease. And one of those that’s probably the most common is
the certified US Mail. So we really don’t often want to go out and terminate in
person. We may not want to publish that in the newspaper saying, that you know I
want to get a new tenant or I’m not going to rent the farm anymore. So
certified US Mail is probably the most common. Keep that little green receipt so
that you’ve got proof of when it was filed. Really good publications on Ag
Decision Maker website. We’ve also got some publications on the Center for Ag
Law and Taxation, that go into more detail about this type of publication. If
you go to the Ag Decision Maker webpage, do a search for “Improving Your Farm
Lease Contract”, that’s file C2-01. So just in the upper search box there
put in C as in Charlie, 2- 01, and that will pull up the
publication called “Improving Your Farm Lease Contract. That talks about
different types of leases and termination. Thank You, I look forward to
seeing on the next videos.

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