Iowa Supreme Court Affirms Conservator’s Authority to Enter into Farm Leases

May 28, 2021 | Kitt Tovar Jensen

On May 21, 2021, the Iowa Supreme Court determined that a district court had improperly reformed farm leases entered into between a farmer’s conservator and his family members. The decision affirmed an earlier order from the Court of Appeals that had overturned the district court’s modification. On review, the Supreme Court agreed that the conservator had the authority to enter into the leases on behalf of the ward and that the conservator did not breach its fiduciary duty.

Background

A farmer used “handshake” agreements to lease about half of his 18,000 acres of farmland to family members at discounted rates. Family members generally did not know what rates other family members received. After a stroke rendered the farmer unable to handle his own affairs, the farmer’s three children disagreed on how to handle the business. The court appointed a conservator and guardian ad litem for the farmer, and the farmer’s children, the conservator, and the GAL participated in mediation.

The mediation produced a family settlement agreement under which the three children agreed to serve on the family council and provide guidance for the conservator regarding the farmer’s past course of dealings. The family council provided a recommendation that (1) “[a]ll current farm leases will remain in effect”; (2) “[a]ll farm leases shall be extended to the year 2030”; and (3) “[r]ents will be calculated at the Iowa State University cash rent for medium quality ground, effective March 1, 2018, less $40 per acre as per past course of dealing.” The guardian requested approval of the agreement, which the court granted.

Soon after, the conservator petitioned the district court for authorization to execute and enter into any agreements necessary to manage the farmer’s land. With agreement from the GAL, the court granted this application as well. The conservator entered in written leases with all family-member tenants. To continue the farmer’s practice of giving discounts to family members, the conservator gave the requested $40-per-acre discounts to the farmer’s three children. The lease term ran until 2030 as recommended in the family settlement agreement.  

Despite the written farm leases, the siblings began to disagree over the use of the farmland. The conservator filed an application requesting that the court resolve these disputes and determine whether it had breached its fiduciary duty to the farmer by relying on the family council’s recommendation. At this time, the farmer’s two sons came forward claiming that the $40-per-acre discount was inconsistent with their father’s past practice.

The district court modified the farm leases to include only a $25-per-acre discount. The farmer’s daughter, who had maintained that the $40-per-acre discount was consistent with the farmer’s past practices, appealed. The Court of Appealsdetermining that the leases were not subject to judicial revision—reversed the district court’s order. The farmer’s two sons and a new GAL requested further review, which the Supreme Court granted.

Conservator Authority to Act on Behalf of Ward

In affirming the decision from the Court of Appeals, the Supreme Court first considered whether the conservator had court approval to enter into the family farm leases. A conservator must receive prior court authorization to lease a ward’s real property. Iowa Code § 633.647(2). Here, no one opposed the family settlement agreement and recommendation or the conservator’s application to enter into agreements to manage the farmer’s land. The original GAL believed the conservator’s application to be in the farmer’s best interest as long as the conservator used the family settlement agreement as guidance. Therefore, the conservator did not need specific authorization to enter into farm leases with family members.

Additionally, the Court found that the conservator did not breach its fiduciary duty by relying on the court-approved family settlement agreement when creating the terms of the farm leases. Noting that family agreements and voluntary settlements are generally preferred, the Court determined that there was no reason for the conservator to distrust the siblings’ recommendation for $40-per-acre discounts. The three were the most knowledgeable of their father’s prior practices. In addition, the district court had approved the recommendation for $40-per-acre discounts in the family settlement agreement.

Similarly, the Court concluded that the conservator did not breach its duty in creating a lease term until 2030. The farmer’s will stated that his property would be sold in 2030 and the proceeds donated to a specific charity. The Court determined that this did not contradict the farmer’s intent but rather showed consistency. Finding that Iowa law gives courts authority over the conservator rather than the ward, the Court affirmed that the district court did not have the authority to modify the farm leases without evidence of fraud, deceit, or mutual mistake. See Iowa R. App. P. 6.904(3)(k); see also Kufer v. Carson, 230 N.W.2d 500, 504 (Iowa 1975).

Authorization to Make Gifts

The Court next rejected the appellants’ contention that the discounted leases were impermissible gifts. Under court order, a conservator may make gifts on behalf of a ward to those who regularly received gifts before the start of the conservatorship so long as it does not impair the ability to provide for the ward. Iowa Code § 633.688. While “gift” is not defined in Iowa Code chapter 633, the Court found that even if the rental discounts qualified as gifts, the conservator satisfied the legal requirements. The district court’s order to enter into farm leases constituted prior approval and there was sufficient evidence the farmer gave below-market rate leases regularly before his stroke.

A Note of Concurrence

Justice Waterman concurred separately to emphasize the approval needed from a district court for a conservator to make gifts. Viewing the below-market rate leases as a gift, he determined that this constituted a practice made regularly by the farmer before the conservatorship that would not prohibit the large estate from providing for the farmer. Waterman concluded by noting that the Mayo Clinic, the farmer’s ultimate beneficiary, had not yet had its day in court and “[w]hether the Mayo Clinic’s challenge has merit is a question for another day in district court.”