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November 12, 2012

Expert: Consider legalities when terminating, renegotiating farmland leases

Rushville Republican

RUSHVILLE — As the end of grain harvest draws near, many landlords and tenants will be renegotiating or terminating farmland lease agreements - a process full of legal requirements, a Purdue Extension agricultural economist warns.

First and foremost, lease agreements and terminations should be in writing. While oral farmland lease agreements are as legal as written leases in Indiana, Gerry Harrison said some details of the oral agreement might be disputed.

“Oral leases should be avoided,” he said. “There are many problems with oral leases, including what is or was the actual agreement.”

Earlier this year, the Indiana Court of Appeals ruled that a lease termination is required to be in writing, which protects both landlord and tenant.

“It could be very risky to rely on an oral notice to terminate a lease,” Harrison said. “Further, if a new leasing arrangement is needed with the existing tenant and a lease agreement does not come, the tenant, without a proper notice to quit, likely has the land for the coming year at the same rent or arrangement as the current year.”

Indiana law also requires that a notice to quit, or terminate, a lease needs to be delivered by a landlord or tenant in a timely manner. For a lease of at least a year, law requires notice to be delivered three months before the end of the lease year.

If a lease doesn’t specify the lease-year end, Harrison said it’s customary in Indiana to consider the end of February of the coming crop year as the lease-year end.

“Farming is a continuous process. If there is to be a new tenant, the current tenant needs to plan for the transition, and the new tenant would likely want to start preparations for the coming crop year during the late summer or the fall of a current crop year,” he said.

For landlords and tenants who are renegotiating lease agreements, Harrison said it’s important for both parties to have an understanding of the farmland’s rental value.

“Landlords must recognize the difference in the rental value of varying farmland parcels as to size in acres and quality of the land,” he said. “While crop farming has been quite profitable in recent years, an oddly shaped 30 acres is not likely to be as desirable to a tenant as a very fertile 300-acre parcel.”

Some lease renegotiations might require professional help to draft an appropriate rental agreement.

Harrison prepared an in-depth look at farmland lease renegotiations and terminations titled “Indiana Farmland Leases - Key Considerations and Laws.” It’s available by emailing him at harrisog@purdue.edu.

More information about farmland leases also is available in Harrison’s free Purdue Extension Publication, “Legal Aspects of Indiana Farmland Leases and Federal Tax Considerations,” which is available for download at http://www.extension.purdue.edu/extmedia/EC/EC-713.pdf

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