Today, I am back harping on my favorite issue, agricultural land leases. A farmer recently told my colleague in another Western state that “this country would be a lot better off if more leases were handshake deals in the middle of a field.” Many of you may feel this way, but as I keep pointing out, handshake deals in the middle of the field do not always answer all the questions. One of those questions may be: Does the tenant have a right to crop residue when the lease is terminated? Earlier, Sarah Everhart had a good post here on soil fertility that I also encourage you to read on this topic, available here.
A recent decision by the Court of Appeals of Iowa, Slach v. Heick, highlights this issue. In Slach, original owner leased farmland to Heick in 2010. The leased property was sold in January of 2011 to Slach and that is when things went downhill. Because Slach did not give proper notice of lease termination (required by Sept. 30th in Iowa), he had to continue leasing the property to Heick for 2011. Slach did give proper notice to terminate the lease in 2011 and the lease was set to end at the start of 2012.
For 2011, Heick planted corn on the property and after harvest intended to bale the stalks for hay to feed his cattle. After harvest, but before Heick could have the stalks baled, Slach entered the field and began fall tillage to prepare for his crop the following year. Heick subtracted his assumed losses from the lost hay off his rental payment in December 2011. Shortly after that the parties went to court, suing each other.
Before we look at what the court decided in this case, let’s talk about differing views on stubble, aka crop residue. Under the common law (or the judge-made view), tenants were entitled to remove crop residue from the field as long as it did not violate the implied covenant of good husbandry practices. The covenant of good husbandry practices is a doctrine implied by many states (Maryland has yet to imply it) that tenants use good agricultural management practices and not commit waste. Removal of crop residue could breach this doctrine when enough is removed to cause soil erosion, water quality issues, or a drop in yields. Landlords should limit the removal of crop residue to protect against these issues.
Tenants on the other hand may want the right to remove crop residue. My dad often bales wheat residue to use in cattle feed. The tenant in Slach wanted to bale corn stalks for cattle feed. Other markets may exist for crop residue as well; just a few years ago corn stover (corn residue left after harvest) was being looked at to produce cellulosic ethanol, meaning what was once trash is potentially now treasure. There may be markets for these crop residues in the future, beyond just the normal feed uses, and tenants may want to enter these new markets.
Back to Slach. The parties used a form lease that was silent towards the ownership of crop residue, such as corn stalks. But the lack of language did not settle the issue. Iowa had a new law go into effect after the lease was originally signed in 2010 giving the tenant right to crop residue, unless the lease stated otherwise. This new law was enacted to aid the development of a cellulosic ethanol market in Iowa. When the lease was renewed in 2011, the new law became a part of that lease, and Heick had a right to the stalks.
Why do I bring this up? If you are a landlord, you may want to clearly define in your written lease if crop residue may be removed from the farmland. If you are the tenant and want the rights to remove some residue for animal feed, then clearly define that right in the lease. As I said at the start, these are not issues you can clearly define in a handshake deal in the middle of the field. You may have to work out specific percentages to make both parties happy.
If you have additional questions on agricultural leasing issues, check out the University of Maryland Extension’s Grain Marketing’s Agricultural Leasing page at http://go.umd.edu/MDAgLease.