Feb. 18, 2011

With rising crop prices many landlords are trying to renegotiate the terms of their land leases, particularly cash rents.

Most Nebraska leases are unwritten, which means that notice of termination must be given six months in advance, usually by September 1. If the landlord cannot terminate the lease, the landlord cannot require the tenant to renegotiate the lease in order to avoid lease termination. However, smart tenants will want to think of the longer term implications and renegotiate the lease. Tenants who refuse to renegotiate could lose the lease after the current crop year.

Many farm leases, especially those between family members, are not written but are verbal "handshake" agreements. Because nothing is in writing, the parties may have different recollections of their agreement, making lease disputes more difficult to resolve. The most common legal issue associated with verbal farm leases is how a lease may legally be terminated.

• For unwritten leases, six months advance notice must be given to legally terminate the lease.
• For written leases, the terms of termination are outlined in the lease. If nothing is specified, a written lease terminates automatically on the last day of the lease. There is no automatic renewal.

Oral (Unwritten) Year to Year Leases

Oral (i.e. unwritten) leases are legally presumed to be year to year leases. A year to year lease has no fixed duration and is automatically renewed for another year until proper notice has been given to the tenant by the landowner (or vice versa) that the lease is terminated. Most farm leases in Nebraska are unwritten year-to-year leases.

Terminating oral year to year leases. The Nebraska Supreme Court has ruled that the lease year begins on March 1 for oral year-to-year leases (Moudry v. Parkos, 217 Neb. 521 [1984]). Notice to a tenant to vacate under an oral year to year lease (legally referred to as a "notice to quit") must be given six months in advance of the end of the lease, or no later than the preceding September 1.

For example, for the lease year beginning March 1, 2006 and ending February 28, 2007, notice from the landlord that the lease will be terminated would have to be given to (and received by) the tenant no later than September 1, 2006. The lease would then expire February 28, 2007 with the new tenant (or new buyer) able to take over the lease March 1, 2007. If, however, the notice to quit were given (or received) after September 1, 2006, the existing tenant would have the lease until February 28, 2008.

Written Leases

Written leases are in effect only for the period specified in the lease itself, for example, one year, five years, or more. For written leases, no notice is required from the landlord to the tenant that the lease will not be renewed unless the lease specifically states that notice of termination is required. Unless it contains a renewal clause, the lease automatically terminates at the end of the lease period.

The tenant generally has no right to have a written lease renewed unless the lease contains a renewal clause. A written lease could, however, state that the lease was automatically renewed unless either party notified the other (usually by a certain date) that the lease would not be renewed.

Notice to quit. The notice to a tenant (or landlord) that a lease is terminated should be written and possibly sent delivered by registered mail (consult your attorney). A copy of the written notice also should be kept. A verbal notice to quit might be adequate, but could be difficult to prove in court if litigation were necessary to enforce the lease termination. The six month prior notice deadline for oral leases applies to the date the notice is received by the tenant, not the date the notice is sent by the landlord.

Voluntary Modifications

All of these legal rules about lease termination may be changed through negotiation and voluntary agreement of the parties. For example, a landlord might want to renegotiate the lease based on higher crop prices. Even though Aug 31 is past, the savy tenant would negotiate with the landlord in order to keep the lease over the long term. If the tenant relies on a short-term legal advantage (the six-month termination notice requirement) to keep the current lease the same as the previous year, the tenant could end up losing the lease after the next crop year ended.

Conclusion

A written lease generally is preferable to a verbal lease because it provides a written record of the lease provisions. However, under Nebraska law written leases for farmland are not required to contain advance notice of termination, as is required in Iowa. Because a verbal lease does require six months advance notice of lease termination, it may provide more legal protection for the tenant than a written lease, at least for one additional crop year.

If you have legal questions regarding a farm lease, contact an attorney.

J. David Aiken
Water and Agricultural Law Specialist