Know your rights when dealing with the termination of an oral farm lease
If I did not farm or was oblivious to grain prices, there would be one barometer that I could rely on to know what the price of grain is doing and that is how many phone calls I get regarding oral farm leases and the timing necessary to terminate them. Every time grain prices go up, I get numerous calls from farmers who have been farming a piece of land under an oral lease, only to find out that the landlord has decided to lease to someone who will pay a higher price. Because oral leases are somewhat akin to the wild, wild west, the question always asked is whether or not termination was timely given, properly given and if either did not occur, what are the farmer’s rights.
In spite of the mantra of “get it in writing” that we are all told, I would venture to guess that at least a quarter, maybe upwards of half, of farm rental agreements are oral. Most times, farmers have been farming the same land for many years and things have gone fine with the landowner. One of the things that upsets the relationship is the death of the landowner or a transfer of the land. I’ve seen cases where a farm transfers and the new owner has no idea an oral lease is even in place.
In many states, if not a majority, there is a following of the common law statute of frauds (SOF). In short, the SOF requires certain agreements be in writing. One agreement subject to the SOF are “contracts that cannot be completed in less than one year.” In other words, any contract where the performance could not occur within a year, needs to be in writing. Thus, in most states, since a multi-year lease could not be “completed in less than one year,” it would not be valid. However, a single year oral lease can surely be performed upon in less than a year, so in the majority of farm states, oral leases are valid. Most states view that if an oral lease is not terminated property or timely, then the lease renews for another year under the same terms.
Let us look at Indiana’s oral farm lease law. Indiana’s oral lease farm law statute says that termination needs to occur with three months from the end of year and the termination notice has to be in writing, which is somewhat strange in that to terminate an oral lease a writing giving the termination notice must be given. However, confusion has always arisen as to what is the “end of the year.” Are we talking calendar year or crop year?
Prior to modern farming practices, corn, wheat and other crops were shocked and stored in the field to dry. History tells us that the farmer had to remove the crops prior to March when the ground began to thaw or it was impossible to remove the crops. So, many have taken the position that the crop year actually ends on March 1. Meaning, written termination must be given before December 1 of the year in order to timely meet the statute. Others have taken the position that it is the end of the calendar year that sets the deadline. Thus, three months prior to the end of the year would be September 30. The main Indiana appellate case on this matter states that it is the end of the crop year (i.e. March 1) that sets the deadline. In that court case, the court looked at the historical farming practices in the particular county (Marshall County) and determined that farmers would shock the crops, need to remove by March and thus the crop year ended on March 1. The court noted that the deadline would thus vary by county depending on the farming practice. However, it is hard to imagine that farming practices of old varied much across all of Indiana’s 92 counties.
The takeaway is that unless written termination is received by the farmer by November 30, in Indiana the farmer has the legal right to farm the land for the next year. If the landowner refuses to recognize the lease automatically renewing, then either a lawsuit for specific performance (i.e. an order to lease to the famer) or a suit for damages for lost profits are the available remedies. Most times, the case comes down to a lawsuit for lost profits either because the new farmer has already entered the land to do fall tillage, fertilizer or the farmer decides it is not worth trying to farm someone’s land that they had to haul to court to enforce the lease. The good news is that I would be hard pressed to recall any case I’ve had where a farmer’s lease was untimely terminated and the farmer did not either get paid for lost profits through settlement or a court determination. This is because the statute is very clear cut in that if termination notice is not given in writing, the lease renews. The bottom line is if termination is not timely given in writing, then you’ve either farming again the next year or entitled to damages.
Numerous other states have varying termination time frames for oral farm lease. Ohio recently changed its law where if the farm lease does not establish a date or method for terminating the lease, the law requires a landlord who wants to terminate the lease to do so in writing by September 1 or four months from the end of the calendar year. Kentucky appears to have a six-month requirement from the end of the year making the deadline July 1. Like Indiana, Illinois follows the “crop year” method, but gives four months for termination, which would be before October 31. Michigan takes the cake when it comes to the length of time for giving termination in that an oral year to year farm lease may be terminated by either party by a notice to quit, given at any time to the other party. However, the notice only terminates the lease at the expiration of one year from the time of the service of the notice. Thus, termination does not occur until a year after the notice is given.
In closing, no matter what state you are in, if you have an oral lease, it is important to know by what date termination notice must be given to you. These rules draw a very hard line in that if notification is not timely, then your legal right to farm the land renews for another year. Most times, this enables a farmer to seek enforcement of the lease or damages for not being able to farm. Thus, legal options should be considered when faced with an untimely or defective termination notice of an oral farm lease.