Husband Out-Negotiated by Tenants – Twice

This case is the husband’s fall-out from a lease that he and his former wife signed with their tenants. The wife’s case was decided in 2010 (a summary of which can be found: Additional (and Contradictory) Farm Lease Provisions Construed). At issue with the lease was a term stating the lease “shall continue until such time as the tenants no longer wish to rent the farm ground or until such time as they purchase the property from the landlords.”

The application of this phrase was at issue originally when the plaintiff and his wife divorced. She received a portion of the agricultural property at issue and tried to terminate the tenancy under Iowa statutory procedure in order to sell her share. The district court reviewing that matter held that the phrase was unconscionable because the tenants could hold the land perpetually and the lease could only be terminated by the tenants. The tenants appealed the decision.

After the district court invalidated the term, but during the pendency of the appeal, the ex-husband sent a statutory termination notice to the tenants to terminate his portion of the land subject to the same lease.  He believed that the previous lease was no longer valid and wanted to have a new lease. The husband and the tenants reached a rental agreement for the 2010 farming year. Prior to either party signing the new lease, however, the tenant made a handwritten notation that stated, “Rent for 2010 shall be no more than $19065 to be paid in 2 payments and can be adjusted pending the outcome of court case #09-1011.” The court case referenced was the pending appeal in the wife’s declaratory judgment action.

In 2010, the tenants paid the first half of the rent when due. Then, the Court of Appeals issued its decision in the ex-wife’s case that overturned the district court’s ruling. The appellate court held that the lease term was binding, but under Iowa’s Constitution, was to be revised for a term not more than 20 years.

Without discussing the outcome of the ex-wife’s case, the husband sent a timely notice of termination of the 2010 lease. A few months later, the tenant sent a check for the second rental payment, but included only enough to cover the remainder due under the terms of the 2003 lease, which was about half the amount agreed upon for 2010. The tenants made clear they intended to continue leasing the property under the terms of the 2003 lease despite the ex-husband’s notice of termination. They sent a check for the rent in 2011 under the 2003 lease terms. The tenants farmed throughout the 2011 season.

The ex-husband filed a suit for declaratory judgment and a complaint against the tenants alleging breach of contract and trespass. He also sent another notice of termination of the lease in 2011. The court sided with the tenants and held that the 2010 lease was merely a contingent lease pending the ex-wife’s Court of Appeals case. The court recognized the 2003 lease as valid and dismissed the claims against the tenants. The husband appealed.

On appeal, the court held that the 2003 lease was still valid for twenty years as determined in the ex-wife’s case and that this lease did not permit the ex-husband to unilaterally terminate the lease. Because he could not terminate the 2003 lease, the termination notices were ineffective. 

The court also agreed that the 2010 lease was only a contingent lease based on the handwritten notation by the tenant before the signature of either party. The court agreed that the tenant “was merely making a prudent decision in continuing a lease temporarily under terms less satisfactory than the 2003 agreement by not sacrificing or conceding the validity of the 2003 lease.”

The appellate court likewise rejected the ex-husband’s breach of contract claim for failing to pay the full rent under the 2010 agreement because the 2003 lease controlled. Because the tenant paid the rent owed under the 2003 lease, there was no breach of the 2003 lease. The court also rejected the trespass claim because the tenants had possessory rights of the land under the 2003 lease. The husband could not unilaterally terminate these rights.

This case demonstrates the danger of not having an attorney review the terms and conditions of any lease. The ex-husband agreed to a term in the 2003 lease that allowed the tenants to continue to lease his land in perpetuity at the same rent established in 2003. The court reduced the lease term to 20 years, but the ex-husband is stuck with tenants he does not like in a situation in which he is losing money every year and will continue to lose  more money every year for the next 10 years. Further, the ex-husband allowed the tenant to change the terms of the 2010 lease by making the lease contingent rather than having the 2010 lease potentially displace the 2003 lease. Instead of determining the legal effect of the handwritten notation, the ex-husband signed the lease. While there may be some upfront costs in having an attorney review agricultural leases, this case illustrates how much can be at stake if parties do not take this simple step to protect themselves before signing a contract. Knight v. Grow, No. 2-1165, 2013 Iowa App. LEXIS ____ (Iowa Ct. App. Apr. 24, 2013).