Time to Check Those Rental Agreements

Time to Check Those Rental Agreements

lease agreement

In recent years there has been a trend toward using cash rental agreements to lease Nebraska farmland. While many of these transactions have been negotiated and recorded in a contract format, there are still a number of landowners that continue to rely on oral agreements to lease their land.

In the State of Nebraska, oral leases are presumed to run from year-to-year with an automatic renewal unless proper notice of termination is given. The Nebraska Supreme Court has ruled through case law that while tenancy on farmland runs from March 1st to March 1st, notice of change to an oral lease agreement must be given 6 months in advance. This means that if you currently have an oral contract with a land tenant, notice of change in the terms of tenancy must be provided by September 1st of the year proceeding the cropping year. Thus, if you wish to terminate an oral contract for farmland to be rented in 2011, notice of the termination must be given to the current tenant by September 1, 2010. In legal terms, if there is a need to renegotiate the rental price for a parcel of ground held under an oral lease, then the old lease must be terminated and a new agreement constructed. If proper notice of termination is not given by the September 1st deadline, then the lease is considered valid for the next cropping year under the previously agreed upon terms. Notice of termination may be given verbally; however if there is a disagreement, verbal notices are hard to prove; therefore, it is recommended that notices of termination be sent via registered mail. Case law has not defined what a notice of termination must include; however if you need help in drafting one, please contact an attorney.

For those using written contracts, the termination date will be the last effective day of the agreement and requires no advance notice of termination; even if the contract is for one year or even five years. Many landowners or tenants will place a renewal clause into their contracts that states if a notice of termination is not given within so many days of the expiration of the contract, then it automatically renews for one year under the previous terms and conditions. If a written contract expires without renewal and the producer maintains tenancy, then the producer is technically trespassing on the land. Removal of the tenant from the ground requires that the landowner initiates eviction proceedings. If the tenant incurs any expenses on the land pursuant to the next crop and the landowner has failed to complete the eviction process, then the courts have ruled that a hold-over lease is in play. A hold-over lease allows the tenant to farm the ground with the terms previously identified in the expired contract. The landowner still maintains the burden of issuing a notice of termination 6 months prior to the termination date of the hold-over lease. The hold-over lease termination date will be one year beyond the contract's original termination date. For example, if your written contract expires on March 1, 2011, then the hold-over lease will expire on March 1, 2012. If you are using a written contract, make sure to check to see if you have a renewal clause in place, or if you need to begin the process of renegotiating a new contract.

Even though an oral agreement ends on September 1st of the year proceeding the cropping year and a written lease expires on the last day of the effective agreement, changes may still be made so long as they are agreed to by both parties. Thus, with an oral or written contract, changes may be made to the agreement at any time so long as both sides agree, even if the termination date has passed. For the tenant with an oral agreement, it is often in their best interest to at least enter into negotiations with a landowner to modify the terms of the contract after September 1st, otherwise they may find they have no chance of renewal the following year. It is recommended that any and all contract changes, whether they are written or oral, be recorded in writing and signatures from all parties involved obtained for legal protection.

Pasture oral leases have no requirement for termination notice, so long as the oral contract period is for the traditional five-month grazing season. If you are renting crop residues or pasture ground outside of the traditional grazing, it is recommended that you draft a written contract complete with terms and conditions for use.

Regardless of the business arrangement, a well constructed written agreement should always be used to protect the business, and in many cases, the personal relationships of those involved. The written contract has the advantage of specifically detailing the terms and conditions of the arrangement, the dates of contract termination, any renewal clauses, and other special rental provisions, such as those that occur with flexible leasing. If you are not currently using a written lease, then use this harvest season to draft contracts for all your rented land, regardless if you are a tenant or a landlord. Various lease examples for cash, share, and flexible provisions on dryland and irrigated practices are available from your local University of Nebraska-Lincoln Extension county office as well as online at agecon.unl.edu and cropwatch.unl.edu. If you need assistance with preparing written leases, or if you have additional questions, please contact an attorney. 

By Tim Lemmons, UNL Extension Educator