Tips for Terminating or Renegotiating Farm Leases
March 21, 2008
Note: Farm leases require a consideration of law and facts unique to each case. Information noted here is for educational purposes only and is not a substitute for legal advice. Rising crop prices have led many landlords to renegotiate lease terms, particularly cash rents.
Many farm leases, especially those between family members, are verbal "handshake" agreements. Because nothing is in writing, each family member may recall the agreement differently, making lease disputes more difficult to resolve. The most common legal issue associated with a verbal lease is how to legally terminate it. In comparison, the termination of a written lease is usually spelled out in the lease terms. If nothing is specified, a written lease terminates automatically on the last day of the lease with no automatic renewal.
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 would renegotiate the lease with the landlord in order to keep the lease longer. If a tenant refuses to renegotiate, the tenant could lose the lease after the current crop year.
More about leases:
Oral (unwritten) leases are legally presumed to be year-to-year leases. For year-to-year leases, the Nebraska Supreme Court has ruled that the lease year begins March 1. Notice to a tenant to vacate, under an oral year-to-year lease, must be given six months in advance of the end of the lease, or no later than the preceding August 31. The six-month notice for oral leases applies to the date the notice is received by the tenant, not the date the notice is sent by the landlord.
Written leases are in effect only for the period specified in the lease. This could be for one year, five years, or more. Written leases that don't contain renewal clauses automatically terminate at the end of the lease period.
Notice to quit is a notice to a tenant or landlord that a lease is terminating. It should be written and possibly sent by registered mail. Keep a copy for your files. A verbal notice to quit may be adequate, but difficult to prove in court.
Renegotiation. Both parties to a lease can choose to renegotiate. For example, a landlordmight want to renegotiate the lease based on higher crop prices this year. Even though August 31 has passed, the savvy 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 to keep the current lease the same as the previous year, the tenant could end up losing the lease after the next crop year.
Written or Oral Leases. A written lease generally is preferable to a verbal lease because it provides a written record of the lease provisions. However, written leases for farmland under Nebraska law 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 more crop year.
Any questions about farm leases should be directed to an attorney.
J. David Aiken
Cornhusker Economics, February 27, 2008