Frequently Asked Questions: Does Selling the Farm Terminate an Existing Lease?
Updated: Jul 8, 2020
This post should not be construed as legal advice.
I’ve currently been taking a few calls over the question, does your landlord’s selling the farm terminate your existing lease? My best answer is no, but potentially it can. The answer depends on the existence of a written lease and the terms in that lease. The answer will also depend on whether the buyer had notice of the tenant’s existing lease.
You will notice I said “notice” and not knowledge of the lease. As we will discuss, courts in the past have inferred that a buyer had notice that a lease existed and should have asked the tenant about the terms of that lease. I should point out that Tiffany Lashmet at the Texas Agriculture Law Blog has a good overview of this topic as well; click here.
Another good starting point is knowing whether the landlord shared the written lease with the realtor (if there is one) and with potential buyers. But the current landlord may not always share the written lease with the buyer, make the buyer aware of the existence of the lease, or may have a lease which is oral. Buying farmland with a valid lease may lower the selling price because it may deter the buyer’s future plans for the property.
One simple way for the landlord to terminate the lease when selling the property is to include language when setting the lease terms which terminate the lease when the property is for sale. This makes it a contract term both parties have agreed to and the term would be enforceable. A landlord looking to sell the leased property would want to potentially consider adding language to the lease giving the landlord the right to quickly terminate the lease. A tenant faced with this kind of lease may want to require enough time to get equipment off the property or allow for a reasonable time to harvest any growing crops. (For more information on growing crops at a lease’s termination, see Frequently Asked Questions: Do I Have the Right to Growing Crops When the Lease Terminates?.
If the lease does not include a term allowing termination upon sale of the land, then we revert to the common law (or court-made law on the subject). If the buyer buys the property with notice of the existing lease then buyer buys the property subject to the existing lease (it’s always going to be in writing too, right?). For the buyer to get notice of the existing lease could be simply the landlord or the tenant filing a copy of the lease with the county land records. This would put the buyer on notice when doing a title search. But notice could be given by the landlord/seller telling the buyer about the existing lease or the buyer, when inspecting the property, could see the property being used for agriculture and should start questioning the landlord/seller as to the existence of any leases on the property.
The Maryland Court of Appeals has stated the rule to be: “Of course, a person purchasing property with knowledge that a tenant is in possession of the property is charged with notice as to the tenant’s rights under the lease to him.” (Waters, 1922). In one case, the Court of Appeals found that a buyer purchasing property at an auction and had been told about an existing lease had a duty to find out the legal status and effect of the lease (New Freedom Corp., 1971).
One issue which could exist is when the buyer has no notice of the existing lease. In those cases, the buyer would be considered a bona fide purchaser who takes the property free of the lease. This will be a fairly difficult argument for a purchaser to make because courts can infer notice of the lease by the buyer even if the buyer was never told about the lease. Notice can be inferred in many cases where it is open and obvious that the tenant is leasing the property, such as when the tenant has livestock on the leased property. The tenant may also have crops growing on the farm. Both are potentially enough to put the buyer on notice to start asking questions about a potential lease.
Need help in developing your own written agricultural property lease? Resources are available. Visit the University of Maryland Extension’s Grain Marketing Agricultural Leasing page to find form leases, the leasing fact sheet, summary of rental rates, and videos on leasing issues. For additional leasing posts on this site, check out the “Ag Lease” tag.
New Freedom Corp v. Brown, 272 A.2d 401 (Md. 1971).
Waters v. Wambach, 117 A. 751 (Md. 1922).