Terminating a lease? Do it right

This month we focus on farm lease termination. This is a timely topic because, in Iowa, if a landlord wants to terminate a farm lease, state law requires the landlord issue a written notice of termination to the tenant by Sept. 1 for the following crop year.

This issue always generates confusion, especially because different states have different notice-of-termination statutes. For example, Kansas farm lease termination law requires only a 30-day notice be given. Since there are an increasing amount of out-of-state owners of Iowa farmland, it is important for all landowners to understand the Iowa-specific law.

A notice of termination can be served personally, by certified mail or by publication. (See Iowa Code §562.7 for specific requirements.) Many landlords routinely send a notice of termination to every tenant prior to Sept. 1 with the intent of renegotiating the terms of the lease.

Keep in mind that many farm leases in Iowa are still oral. An oral lease is only valid for one year. If the oral lease is not properly terminated, the leasing arrangement continues under the same terms and conditions for the next crop year. Leases over one year must be in writing to be enforceable between landlord and tenant. Leases of five years or longer must also be recorded.

Here are a few of the questions we’ve received from readers on this issue:

We’ve seen an increase in longer-term or multiyear leases for farmland being used the last few years. Can Iowa’s Sept. 1 deadline law for termination of farm tenancies be used by a landlord who wants to cancel the lease before the time is up? For example, a landlord has a five-year lease for $200-per-acre cash rent, and there are three years left on that lease with the current farm operator. Other landlords in the area are now getting $300 or more an acre cash rent since grain prices have increased. Can you terminate the lease early to force the current tenant-operator to renegotiate?

Answer: A farm lease is a contractual agreement between landlord and tenant and is binding on both parties for the agreed-upon term. A landlord cannot terminate the lease early in order to force a tenant to renegotiate, unless the tenant agrees to an early termination or renegotiation of the lease terms. Executing a long-term leasing agreement may be risky because of fluctuating markets and farming conditions, but this does not mean that a landlord can force a change in the terms without the agreement of the tenant.

What if the tenant refuses to leave?

Answer: In the event that a properly terminated tenant “holds over” or remains on the land after March 1, a landlord has a few options. A landlord may file an action for forcible entry and detainer, giving the tenants notice of their transgression and asking the court to order them off the property. Another option for the landowner is to demand in court “double rental” for a willful holdover under Iowa Code §562.2. However, the landlord must prove that the holdover was intentional to make such a demand.

I understand that Sept. 1 is the date by which I should terminate a farm lease. Are there other reasons to terminate a farm lease? I had a tenant who decided to change his operation and farm the land he rented from me using organic farming practices. We had problems with weed control. Our lease required that he use conventional farming practices on the land. Can I terminate his lease?

Answer: Under Iowa law you must give the tenant an opportunity to correct any deficiencies if the tenant fails to follow the terms of the lease. However, if the conduct continues, it is permissible to terminate a lease if the tenant is violating the terms of the lease even if the violation happens after Sept. 1.

My tenant and I negotiated a one-year cash-rent farm lease, which required payment of the full amount of rent on March 1 of this year. My tenant never paid me. What are my options? Can I terminate his lease?

Answer: Payment of rent promised is an important covenant in every farm lease. Failure to pay is a breach of the lease and may excuse a landlord from giving notice of termination by Sept. 1 if the landlord gives the tenant notice of nonpayment and an opportunity to “cure the defect” and make the required payments.

Many landlords are now asking for the full payment up front by March 1 to avoid nonpayment in the fall. As always, landlords should protect their interests by filing a landlord’s lien even if they are demanding payment up front.

How do I file a landlord’s lien?

Answer: Iowa Code Ch. 570 allows a landlord to have a lien for the rent upon all crops grown on the leased property and upon “any other personal property of the tenant,” which has been kept on the property during the term of the lease to ensure payment of rent. To “perfect” the lien, the landlord must file a financing statement called a UCC-1 with the Iowa secretary of state within 20 days after the tenant takes possession of the property. (Forms are at sos.iowa.gov/
business/UCCInfo.html
.)

The landlord must specify on the UCC-1 that the financing statement is filed for the purpose of perfecting a landlord’s lien. As a practical point, it is a good idea to cancel the lien with the secretary of state when the tenant has paid the agreed-upon rent.

Herbold-Swalwell is an attorney with Beving, Swanson & Forrest in Des Moines. Reach her at eherbold@bevinglaw.com.

This article published in the August, 2012 edition of WALLACES FARMER.

All rights reserved. Copyright Farm Progress Cos. 2012.