October 22, 2002
Ag law specialist: Now's the time to review farmland leases
WEST LAFAYETTE, Ind. Farmland owners and the producers who lease their land might want to examine their rental agreements in light of crop income and support payment changes within the 2002 Farm Bill.
Producers cannot receive government payments on rented land until they've submitted a valid lease to their local office of the U.S. Department of Agriculture's Farm Service Agency (FSA), said Gerald Harrison, a Purdue University Cooperative Extension Service agricultural law specialist.
Although the deadline is April 1, 2003, for selecting base acre and yield options and reporting them to the FSA, landowners should now be evaluating program options so that any changes in leases can be made and tenants can begin planning for the next crop season, Harrison said. Landowners might need to gather production data on leased acres from previous crop years in order to make informed decisions.
"Many leases are reevaluated every calendar year," Harrison said. "This year we have some special information to look at in the new farm bill. There may be some differences between the landlord and tenant on what the rent ought to be in the future, and that may take some time to evaluate with respect to the data on a given farm. The program data will vary by farm.
"Many landowners will need help finding that data. They may be hard-pressed to come up with data from prior years, particularly if they're cash renting and only the current or former tenant has that information."
Indiana law requires landlords to notify tenants of lease termination three months before leases expire. However, the law protects tenants from landlords who wish to break existing leases, Harrison said.
State law recognizes oral lease agreements as binding, although the law can be a bit fuzzy on lease termination notification, Harrison said.
With oral leases the law usually requires the three-month notification, based on the end of the crop year. The Indiana statute does not say when a crop year ends, although in most communities it is considered the end of February.
"Tenants and landlords have to be very careful about the notice situation and whether there is a right to, or a requirement for, a notice," Harrison said. "'Term leases' may not require a notice, whether the lease is oral or written. However, it's a good idea to give a notice, particularly from the management point of view. Producers, tenants and landlords need to know where they stand with their farm operations."
New farmland owners often are unaware of a tenant's rights, Harrison said.
"Disputes that come up every year in Indiana and, I'm sure, across the country, are that new farmland owners think they bought a farm free of the lease or the farm goes into an estate and maybe the heirs don't want the current tenant," he said. "The fact of the matter is, a lease is good against a decedent's estate or a new owner, if indeed a tenant has a valid lease. Many times, particularly in oral leases, a tenant has a right to a termination notice, and December or January of a current crop year is probably too late for a timely notice."
Most farmland leases are in writing and are term leases, Harrison said. Term leases specify the beginning and end of the lease period. Usually, no termination notice is required since the ending date is in the lease.
But "you have to take a look at where you are in your own arrangements," Harrison said. "It may vary from farmer to farmer in terms of how you've got your lease set up."
Above all, Harrison recommends getting the lease on paper and consulting an attorney. Landlords also might need a farm manager's help to evaluate their land under the new farm bill and/or find the right rent or lease arrangement.
Additional information on farmland lease law is available in Purdue Extension publication EC-713, "Legal Aspects of Indiana Farmland Leases and Federal Tax Considerations," by Harrison. The publication can be downloaded online.
For more information on the 2002 Farm Bill, Indiana farmland values and cash rents, check out the June, August and September issues of the Purdue Agricultural Economics Report. The report is available online.
Questions about lease laws can be directed to Harrison at (765) 494-4216 or by e-mail at firstname.lastname@example.org.
Writer: Steve Leer, (765) 494-8415, email@example.com
Source: Gerald Harrison, (765) 494-4216 or (765) 463-2740, firstname.lastname@example.org
Ag Communications: (765) 494-2722; Beth Forbes, email@example.com; http://www.agriculture.purdue.edu/AgComm/public/agnews/
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Purdue News Service: (765) 494-2096; firstname.lastname@example.org