Oral Notice of Termination of a Farm Lease

This blog post is not a substitute for legal advice.

Photo by Edwin Remsberg

Photo by Edwin Remsberg

            As many of you will notice reading the Delmarva Farmer this week that I’m on a lease termination theme this week.  In many of my presentations on leasing, I often discuss with you the importance of putting things in writing and how when things are done orally between the two parties and a dispute arises then the court will have to look at the credibility of the two parties.  A recent farm lease case out of Iowa highlights the importance of not only putting agreements into writing but also the importance of opening your mail (Although this case would not be binding on a Maryland court it does highlight some issues you should be aware of).

            Before we start, I need to point out that Iowa requires notice of termination to be given by September 1 and requires that the notice be serviced unless there is an oral agreement between the two parties.  In Auen v. Auen, the Iowa Court of Appeals considered whether a grandson, Todd, and his step-grandmother, Phyllis, had reached a valid oral agreement to terminate the grandson’s farm lease.  Phyllis was in a nursing home in bad health and her grandson Merlin was handling her finances and business affairs.  Merlin and Todd met around the middle of August to discuss renewing the lease and Merlin let Todd know the rent would have to go up.  Both Todd and Merlin could never come to agreement on the new rent and from a third party in the room while the discussion was going on both parties agreed to terminate the lease.  Shortly after the meeting, Merlin had his attorney send Todd a notice of termination by the mail – well before the Sept. 1 deadline.  When Todd received the letter, he never opened it, and continued to farm the land for another year.

Photo by Edwin Remsberg

Photo by Edwin Remsberg

            On appeal, the issue was simply did the parties reach an oral agreement to terminate the farm lease.  The Iowa Court of Appeals found that there was evidence and the testimony of Merlin was more credible than that of Todd.  Merlin had no personal interest in getting a higher rent price in 2013; he was simply looking out for his grandmother’s best interests.  The court did not buy that Todd after meeting with Merlin would simply not open the letter with the notice to terminate till after Sept. 1.  Todd also had a lot to gain in keeping the rent at $27,600 and not letting it rise to $75,000 – that fact weighed on Todd’s credibility.  The Court of Appeals for Iowa agreed with the lower court’s decision that there had been an oral notice to terminate.

            Cases like the one above are bound to pop up from time-to-time, and even the best preparation will not always prevent them.  Merlin followed a good course by following up an oral notice of termination with written notice.  Todd in his testimony did point out that Merlin’s attorney was the same attorney representing Todd’s wife in their divorce and he assumed it was just a letter related to the divorce.  That could be true, but opening the envelope, reading the notice, and talking with an attorney early on about Todd’s options and plotted out a better course of action than the course of action he chose.  These are things to keep in mind as you consider how to handle your farm leases this year.

For resources to utilize when developing your own farm lease or terminating a farm lease, see the UME's Grain Marketing's Ag Leasing section and you will find average cash rents, the Ag Leasing booklet, and fillable leases and notice to terminate letter.

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