Additional (and Contradictory) Farm Lease Provisions Construed

July 29, 2010 | Erin Herbold

Many Iowa farmers use standard written forms, sometimes adding additional terms when executing farm leases in Iowa. When clauses conflict in a farm lease, how do the courts determine the parties’ intent in the event of a dispute? What happens in the event of a perpetual lease? This case demonstrates the importance of executing a clear and concise written farm lease agreement and addresses the problem of perpetual farm leases. 

Here, a married couple owned a residence, plus an additional 126 acres of farmland. Eventually, they experienced marital difficulties and listed the home for sale with a realtor. Another couple made an offer on the home, with the intent that their son would live there. The offer was contingent on the buyers’ right to farm the additional 126 acres, so a farm lease was drafted and entered into. 

The parties specified the beginning date of the lease, but failed to fill in the blank for the date of duration or termination. The additional provisions that the tenants added to the lease specified that “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.” However, this provision conflicted with other language in the lease that said the lease would “automatically renew upon expiration from year-to-year unless the tenancy is terminated by Sept. 1st.” 

When the sellers divorced and the farmland was subsequently divided, problems arose between landlord and tenant. The wife decided to sell her share of the farmland and offered the tenants the first right of refusal. After a failed attempt to gain an appraisal by both parties, the sale fell through and the wife served the tenants with notice of the termination of the farm tenancy before September 1 (Aug. 28, 2008). 

At trial, the court found that the additional terms were not clear and attempted to create an unconstitutional perpetual lease. Thus, the land would be unmarketable if the landlords ever wanted to sell. Thus, the farm lease termination was upheld, as the court determined this was a year-to-year lease. 

However, on appeal, the Iowa Court of Appeals had a different take on the additional provisions and their importance within the lease. The appellate court noted that the parties failed to fill in the blanks for the duration and expiration of the lease.  Thus, the court looked to other indicators of the parties’ intent under the farm lease. The appellate court found that the farm lease clearly intended to create a perpetual lease in favor of the tenants. The agreement was not “unconscionable,” because both parties accepted the terms and were awarded some benefit from the contract. 

The court went on to state that unconscionability involves both procedural and substantive elements- meaning that there was a lack of understanding or inequality between the parties as to the specific terms or that the lease was just plain harsh, oppressive, or one-sided.  But, the court determined that the bargaining process was fair and each party had ample opportunity to review the lease before signing. Thus, the appellate court ordered that the farm lease be “reformed” to a term of no more than 20 years. The Iowa Constitution (Article I, Section 24) provides that “no lease or grant of agricultural land… shall be valid for a longer period than twenty years.” Basically, a lease is not unconscionable simply because it is perpetual- it just needs to be reformed consistent with the parties’ intent. 

When a contract contains conflicting terms, one general and one specific, the specific term controls. Since the parties used a form contract, the specifically-added provisions were more indicative of the parties’ intent. Stream v. Grow, No. 0-094/09-1011, 2010 Iowa App. LEXIS 310 (Iowa Ct. App., Apr. 21, 2010).