Iowa Court of Appeals Surprisingly Rules that Oral Agreement Negated Necessity For Statutory Lease Termination Notice
Auen v. Auen, No. 13-1501, 2014 Iowa App. LEXIS 541 (Iowa Ct. App. May 14, 2014), petition for review denied, Iowa Sup. Ct., July 15, 2014.
In a case disregarding long-established Iowa farm lease law, the Iowa Court of Appeals has found that a landlord was excused from statutory notice requirements because he and the tenant reached an “oral agreement” to terminate the lease.
Facts of the Case
The defendant is the plaintiff’s step-grandson. The plaintiff held a life estate in a 224-acre farm, which the defendant had cash rented since 2007. Before leasing the farm, the defendant had helped his grandfather farm the property until he passed away. The written lease, which had automatically renewed annually for five years, required the defendant to pay the plaintiff cash rent of approximately $125 per acre (far less than market value).
The plaintiff was 93 and in poor health on April 1, 2012, when the facts leading to the dispute at issue arose. On that day, the defendant and the plaintiff’s son (who had been serving as her attorney in fact for a number of years) met at the plaintiff’s apartment where the defendant testified that he “handed grandma the check and said, you know, the rents are crazy and the rent should be adjusted.” No other discussion occurred on that day.
On August 16, 2012, the plaintiff’s son and the defendant met at the son’s home. The son’s wife was present as well. At that time, the plaintiff had moved into a nursing home, and the cost of her care had increased greatly from her previous assisted-living expenses. Although the defendant claimed that they “just discussed the increase of rent because of grandma’s health,” the son and his wife testified that the son and the defendant went back and forth in a heated discussion regarding a new lease amount. The son asked the defendant for cash rent of $335 per acre for the upcoming crop year, and the defendant told him he could not come up with that money. The son testified that he told the defendant, “[S]ince the first of September was coming up that I would have to terminate the lease, that I did terminate the lease.” He also testified that defendant replied, “Okay, it’s terminated.” The wife purportedly supported this story, although the court did not set forth her testimony. The defendant testified, “If the rent’s got to be raised this high, then the first thing [you need] to do is terminate the lease.” He also testified that he did not agree to terminate the lease in that meeting.
After the meeting, the son asked the plaintiff’s attorney to prepare a notice of termination. The letter stated, “I would ask you to sign all of the enclosed copies [of the Notice of Termination of Farm Tenancy] retaining one for your records, and then return the remaining two executed notices to me in the envelope that I have provided.”
Either the attorney did not send the notice by certified mail, as is required by Iowa Code §562.7(3), or he was unable to produce a receipt proving that the notice was sent by certified mail. The defendant testified that he did not open the letter, although he received it. The defendant continued to possess the farmland “through the 2013 crop year” and paid $125 per acre in cash rent for that year (for a total of $27,600).
Trial Court Decision
While the defendant remained in possession of the farmland, the plaintiff filed a petition in equity in December of 2012, asking the district court to find that her farm lease with the defendant “ended in August of 2012.” The defendant denied that the lease had been terminated and after a trial, the district court found that the lease was terminated by a valid oral agreement in August of 2012.
Iowa Court of Appeals Decision and Analysis
On appeal, the Iowa Court of Appeals affirmed, deferring to the district court on issues of credibility and finding that the parties had entered into an oral agreement to terminate the farm lease on August 16, 2012.
In so holding, the Court of Appeals relied on just two Iowa cases involving the termination of a farm lease. In each cited case, the Iowa Supreme Court had ruled in favor of the tenant, finding that the notice was insufficient. Rather than applying analysis to the facts at hand, the Court of Appeals quoted several passages from these cases and ruled without much discussion that the parties had orally agreed to terminate the lease on August 16, 2012.
Although the Court of Appeals quoted from Denton v. Moser for the proposition that a “farm tenancy may be terminated by agreement of the parties,” the court did not further elaborate on this requirement. In Denton v. Moser, the Iowa Supreme Court allowed a farm lease to continue for another year because the landlord was eight days late in delivering statutory notice to the tenant. The language relied upon by the Court of Appeals was dicta with no further discussion.
The Court of Appeals also ignored long-standing Iowa case law determining that the farm lease termination requirements of Iowa Code §562.6 must be liberally construed to “reduce uncertainty attending the termination of tenancies by informal notification” and to prevent us from returning to “jousts between landlords and tenants as to whether notice was in fact given.” The notice provisions in the statute are mandatory, not directive. The closing paragraph of the first case from which the Court of Appeals quoted describes the legislative intent of the law. It aptly applies to the facts of the case at hand:
“The legislature has provided a method by which to terminate farm tenancies. It is available to either landlord or tenant. It is peculiarly well-suited to meet a situation such as existed here and to permit a landlord to terminate a tenancy in such way as to leave no uncertainty between the parties at a time calculated to cause a minimum of injury to the tenant who must find a new landlord and negotiate a new contract. Plaintiff's failure to pursue the statutory method here cannot, under the record, be ascribed to reliance upon the alleged oral agreement or upon conduct amounting to estoppel.” 
The statute governing Iowa farm lease terminations, Iowa Code §562.6, states:
If an agreement is made fixing the time of the termination of a tenancy, whether in writing or not, the tenancy shall terminate at the time agreed upon, without notice. Except for a farm tenant who is a mere cropper or a person who holds a farm tenancy with an acreage of less than forty acres where an animal feeding operation is the primary use of the acreage, a farm tenancy shall continue beyond the agreed term for the following crop year and otherwise upon the same terms and conditions as the original lease unless written notice for termination is served upon either party or a successor of the party in the manner provided in section 562.7, whereupon the farm tenancy shall terminate March 1 following. However, the tenancy shall not continue because of an absence of notice if there is default in the performance of the existing rental agreement. (emphasis added).
Under Iowa Code §562.6 a farm lease automatically renews at the end of its stated term unless the landlord gives the tenant proper statutory notice. The Iowa Supreme Court has strictly construed these requirements to find that notice mailed to a tenant and read by a tenant before September 1 is not sufficient notice if it does not comply with the certified mail requirement. Likewise, the Iowa Court of Appeals has previously held that even if a written lease includes a date certain for termination and a clear waiver of notice provision, the landlord must give the proper statutory notice by September 1 or the lease will automatically continue another year.
Several Iowa Supreme Court cases have found that a tenant was equitably estopped from asserting the protections of the notice provision because of conduct prejudicing the landlord. For example, where a tenant had told the landlord that he did not think he wanted to renew the lease and consented to his landlord signing a lease with a new tenant, he was estopped from asserting the failure of notice. The court did not decide these cases, however, on the grounds that the parties reached an agreement to terminate the lease. Rather, it decided the cases under the equitable principle that one cannot speak against his own acts or representations to the injury of the one to whom they were directed and who reasonably relied upon them. The plaintiff in the case at hand did not appear to set forth an estoppel theory. Nor were there any facts to support detrimental reliance by the plaintiff.
Neither has the Iowa Supreme Court ever dispensed of the required statutory notice contained in Iowa Code §562.6 based upon an oral agreement. Although the statute seems to allow such an agreement, the statutory scheme would suggest that such an agreement would have to be unambiguous, date certain, and desired by both parties. One Iowa Supreme Court case was decided based upon a written agreement to terminate the lease. In that case, however, the parties entered into a written agreement, with consideration, to terminate a farm lease on a date certain, September 23, 1940. In that case, the court found that no further notice was required because the tenancy was already terminated by written agreement at the time the deadline for statutory notice (which at that time was November 1) passed.
In the present case, even taking the plaintiff’s testimony regarding the August 16 meeting as true and the defendant’s testimony regarding that same meeting as false, the interaction described constituted the very informal interactions the statute was designed to foreclose. If it were sufficient under Iowa law for a landlord to approach his tenant, tell him the lease was terminated, and wait for him to echo back, “It’s terminated,” the written statutory notice scheme would be rendered meaningless. The interaction between the son and the defendant in this case is a case study of the type of "he said, she said" battle the legislature intended to avoid. The notice scheme, while strict and sometimes burdensome, provides necessary certainty and clarity to termination proceedings. Even if the provisions are too strict, it is for the legislature, not the courts, to rework them.
Several other important facts challenge the Court of Appeals’ decision in this case:
- Although the statute requires an oral agreement terminating a farm lease to “fix the time of the termination,” there was no evidence that the parties (including the landlord) discussed a date upon which the lease would terminate. Although the tenant no doubt had crops in the field and did continue in possession to harvest them, the court held that the lease was terminated not on the following March 1, but on the date of the meeting, August 16. A mid-lease termination when a tenant has crops in the ground is nonsensical, and raises the question of which party actually terminated the lease. If the tenant is deemed to have terminated the lease, the tenant would not be entitled to harvest the growing crops. If the landlord terminated the lease, then the tenant could harvest the growing crops. If termination was by mutual agreement, further analysis is required to determine rights to the growing crop. There was also no evidence that the parties had come to an oral agreement to fix the time of termination at August 16 or any other date. As such, there could have been no oral agreement to terminate the lease.
- The “Notice of Termination of Farm Tenancy” sent to the defendant after the meeting at issue clearly militates against a finding that the lease was terminated four days earlier. Had the plaintiff’s attorney properly sent the notice by certified mail, this case would not be before the courts. Although the district court “rejected” the defendant’s argument that the attorney’s act of sending the notice of termination was contrary to the existence of an August 16 oral agreement to terminate, that finding is suspect. The court found that the letter inferred a “prior agreement” because the attorney sent the notice with an “acknowledgment” for the defendant to sign and return. The notice and acknowledgement, however, did not state that they were confirming a prior agreement to terminate the lease. Rather, they comprised “notice to terminate.” It is difficult to see how the court so quickly dismissed the defendant’s argument.
In case after case, the Iowa Supreme Court has upheld a strict construction of the Iowa farm lease termination statute. Landlords who fail to strictly follow the requirements of the law cannot oust a tenant from their property. In this case, it appears that the court saved the plaintiff from the faulty notice sent by her attorney by finding an “oral agreement.” Not only were the facts supporting an oral agreement of any kind weak, the oral agreement the court found did not “fix the time of the termination of the tenancy” as is required by law. Although the agreement purportedly ended the lease immediately, there was no consideration for an early termination and the defendant did not vacate the property. None of these issues were addressed by the court.
This case flies in the face of established Iowa case law interpreting the Iowa farm lease termination statute and promotes a return to “jousts between landlords and tenants.” This case will no doubt spawn a number of “oral agreement” arguments before the courts in the months ahead.
Practitioners and landlords should never attempt, however, to rely on an oral agreement to waive notice of a lease termination. Although the argument worked this time, it likely won’t work again. For more detailed discussion of Iowa Farm Lease Law, read our publication, Iowa Farm Leases - Legal, Economic and Tax Considerations
On July 15, 2014, the Iowa Supreme Court denied review of this case.
 Leise v. Schiebel , 246 Iowa 64, 67 N.W.2d 25, 1954; Denton v. Moser, 241 N.W.2d 28 (Iowa 1976).
 Buss v. Gruis, 320 N.W.2d 549 (Iowa 1982).
Leise v. Schiebel , 246 Iowa 64, 67 N.W.2d 25 (Iowa 1954).
 Davenport Bank and Trust Co. v. Krenz, 130 N.W.2d 698 (Iowa 1964)(holding that when statute required restricted certified mail of notice, non-restricted certified mail was insufficient; restricted mail can be delivered to addressee whereas certified mail provides the sender with a receipt of mailing; today’s statute requires only certified mail); Buss v. Gruis, 320 N.W.2d 549 (Iowa 1982) (same).
 Schmitz v. Sondag, 334 N.W.2d 362 (Iowa Ct. App. 1983).
 Wetzstein v. Dehrkoop, 44 N.W.2d 695 (Iowa 1950); Laughlin v. Hall, 20 N.W.2d 415 (Iowa 1945).
 Crittenden v. Jensen, 1 N.W.2d 669 (Iowa 1942).
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