Farm lease renewal time seems very far away, and in one sense, it is—half a year is a sizable stretch of months. But if you have any questions about renewing your lease, there isn’t much time at all.

In Iowa, most farmland leases take effect on March 1. Such leases automatically renew year-to-year unless one of the parties expressly notifies the other six months in advance to terminate the contract. For instance, if you are renting acres you don’t want to plant in 2025, you need to provide notification to your landlord no later than September 1 this year (the same holds true for landlords wanting to terminate a lease).

Iowa state law mandates a specific process by which this must be done. Some of the termination requirements include notification by certified mail, sent no later than the last day of August. This may vary, though, if the property is smaller than 40 acres or if the parties agree to terms in writing. Even oral leases must be terminated using this written process.

In general, the receipt of a certified letter is rarely seen as good news and causes a certain amount of strain whether the recipient is landlord or tenant. And although this notification process is not technically difficult, I have long thought it should be the last step of modifying a lease, rather than the first.

Farm lease negotiations

I believe a better practice would be for the tenant and landlord to meet in person by the 4th of July each year to discuss their farm lease. Here it is appropriate to go over issues with the land, both good and bad. It is also a chance to clear the air if there are any misunderstandings.

This meeting can cover many things, but some that should be reviewed annually include:

Drainage issues. In many areas, farms are more productive with well-spaced and functioning tile. As roughly two-thirds of landlords are older than 70, their perspective on adequate farm tile may date back to clay tile and 100-foot spacing. Today it is not unusual to see spacing into 40 feet, since tile makes the crop. It is my experience that in recent times after CSR, the next question is about how much tile there is. Many tenants have the ability to either repair or replace tile, and often will donate the labor if their landlord is willing to pay for the tile.

Maintenance. Landlords sometimes request that ditches, waterways, and terraces be mowed on a regular basis. Depending on the time of year, it may appear the tenant is not staying up with the landlord’s desires in this area, especially if the wishes are not spelled out in the lease. It may be a good idea to include this type of requirement, as well as frequency of maintenance.

Rent. Many times landlords will hear at the “coffee shop” that going rent is far above what they are receiving. No one wants to believe they are being taken advantage of, so this can create a difficult situation. A tenant should be willing to share information about the general economic conditions in the farming industry, both in expenses and yield history.

When operating returns drop rapidly, the tenant may want to move from a cash rent situation to a flex lease. Many flex leases allow a reasonable return to the landlord while capturing possible upsides of profitability. One issue with a flex lease is how to set the base and how to set the flex. Many flex leases are set such that the tenant takes all the risk in bad years and receives only a minimal benefit in good years.

On the flex side, what may sound good on paper may not work in real life—an example is a lease that collects every month based on local elevator prices. This is a great lease, except that it requires someone to monitor prices on a monthly basis. The expectation is that the tenant will sell some grain each month to match this; unfortunately, this may not be possible or advisable, as the tenant may not know what their yield will be.

A better method would be to set the base rent, then a flex based on the actual yield that can be verified at harvest. As an example: If the base is $250 and the flex is based on “30 percent of yield (multiplied by) harvest price (minus) the base paid,” this is easy to understand and calculate.

Involvement of outside parties. In many situations the landlord is older and may ask one of their children to sit in on negotiations. While this is a great opportunity for the tenant to build a relationship with the next generation, one concern is that some offspring live far from the farm and often don’t keep up with the process. If this is the case, I advise making the most of the 30 minutes or so you have to educate them about what you do and what you need.

Some of the sadder farm situations I have seen are when a long-term neighbor or offspring has been renting a farm for many years and the landlord has not adjusted the rent because they don’t need the money or they just haven’t addressed the matter. To the farm manager or child suddenly assisting the landlord, this looks like the tenant has been taking advantage of their boss or relative. These situations rarely turn out well for a tenant, so keeping rent reasonably close to market value is important (refer to my above comment about “coffee shop” talk).

Sensitive information. Many leases now require that a tenant provide copies of invoices showing the amount of fertilizer they put on the field, as well as periodic soil tests. Some farmers don’t believe this is an appropriate request—but if it is in the lease, it should either be adhered to or negotiated out of the lease.

Often, split leases require the tenant to provide sales locations of their crop—occasionally this happens in other kinds of farmland leases too. If this is not desirable, the tenant may need to pay rent upfront.

The original lease. A great number of people do not read the lease they are renewing, or maybe they just take a piece of paper and write “lease continuation” on it with the change in rent, without reviewing the actual lease. I advise the original lease be reviewed each year, then modified and initialed by both parties if there are changes.

One example: Many leases set out that the tenant is responsible for the repair of fences or buildings. But even if the landlord is willing to put in the material, fence maintenance requires a lot of labor, often with little to no benefit for the crop farmer. In some cases, state fence law may apply. Other examples include tenants unknowingly agreeing to repair a well or septic tank if there is a house on the leased land.

Renewal is not inevitable

From time to time a farm lease may be terminated for matters outside of either party’s control. These could include factors as unrelated to farming or maintenance as a difference in political affiliation or marital discourse with a distant relative. No reason has to be given. Usually the personal relationship that has been established will weather these ups and downs … but we all realize that can change as people change.

So, to summarize: Sending a termination notice should ideally only be done after options have been explored and both sides know it is going to happen. Market conditions may make the rent too high; if so, the tenant should explain and document this. If a tenant provides appropriate yield records, another farmer may not be able to bid as aggressively for the land.

Some unpleasant farm disagreements have arisen from not terminating a lease as required by law. Remember, a tenant and landlord should know and follow the law, but “coffee shop lawyers” are worth what you pay for them. Rather than courting chaos by taking advice from uncertain sources, reach out to us at Ag & Business Legal Strategies—our attorneys are well-versed in agriculture lease law, and we can also provide a financial perspective on your negotiation process as needed.

Sign up for our lease termination service today and receive the FREE “Farm Lease Negotiation Checklist” for easier conversations going forward. The end of August is just around the corner—don’t delay!

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