Terminating a Lease on Farmland
Updated: Jul 8, 2020
This post should not be construed as legal advice.
We are to that magical time of year when tenants and landlord have to decide if they will be terminating their agricultural land leases. Issues can come up when giving notice to terminate a lease and both parties need to make sure they are following either the terms of the lease or state law (if the lease is silent on termination) to provide timely notice. A recent court decision highlights issues which can arise when not providing timely notice.
In Switzer Farms v. Switzer, a landlord in Indiana gave notice on October 17 that the landlord intended to terminate the lease on October 31(14 days later). Indiana law required notice to be given 3 months in advance. Because notice was not timely, landlord agreed to continue renting to tenant for another year but stated a fair rental rate would be $350/acre instead of the $170/acre the tenant currently paid. Tenant did not agree to the higher rental rate and landlord started renting the farm to another party. On appeal, the Indiana Court of Appeals agreed with the tenant that timely notice to terminate had to be given 3 months before the expiration of the lease. For example, if the lease ran from Jan. 1 to Dec. 31, then notice to terminate would need to be given before Oct. 1. In this case, landlord gave 14 days’ notice to terminate and was not timely.
The other issue was the landlord rented the farmland to another tenant before giving the current tenant an opportunity to renegotiate the rental rate. To the court, this failure amounted to an anticipatory breach of the lease by the landlord, a breach of contract where a party unequivocally indicates they will not perform when performance is due. In Switzer, the landlord would have not allowed the current tenant to continue leasing the farmland for the next year and renting the farmland to a new tenant would be the anticipatory breach. In Indiana, as in Maryland, the non-breaching party (in Switzer, the tenant) would be entitled to damages caused by the breach.
What is the takeaway point on this court decision? Both parties (landlord and tenant) need to provide timely notice to terminate a lease. Courts historically always require the parties to give timely notice (either according to state law or what is written in the lease). If notice is not timely, and the landlord still rents the farmland to another party, then the landlord has potentially anticipatory breached the lease. An anticipatory breach would allow the tenant to recover damages (what exactly is included in damages is another post).
University of Maryland Extension and the Agricultural Law Education Initiative have resources available to assist you in providing notice of termination. See a form termination letter at http://go.umd.edu/TermLetter. Also available in the UME Agricultural Leasing page are form leases, a leasing handbook, county rental rate info, and informational videos on the topic. See them at http://go.umd.edu/MDAgLease.