Multi-Year Oral Farm Lease Upheld

A contract involving an interest in land must be in writing to be enforceable.  The rule is known as the “Statue of Frauds” and it applies to contracts for the sale of real estate as well as real estate leases.  With a lease, the interest in land that is involved is not an ownership interest, but possession – the tenant gets exclusive possession of the leased premises for the term of the lease.  So, a farm lease must be in writing to be enforceable.  But, there are a couple of notable exceptions.  Perhaps the biggest of the exceptions is that the rule doesn’t apply to contracts where performance is to be completed within one year.  That rule covers oral farm leases – they are presumed to run from year-to-year and simply renew every year on the same terms and conditions as existed in the prior year.  Another exception is for promissory estoppel.  That exception applies, for example, when the tenant relies in good faith on statements and/or conduct of the landlord that an enforceable lease exists and the tenant expends funds or otherwise does something that they wouldn’t have done if they didn’t believe an enforceable lease existed.  These concepts were involved in this case.

The defendant owned a farm and typically leased a portion of the farm to a tenant.  In early 2004, the defendant contacted the plaintiff to see if he was interested in renting the ground.  The plaintiff agreed, and the parties entered into a written one-year lease through February 28, 2005.  However, the plaintiff believed that he had an oral agreement with the defendant that allowed him to lease the land for five years.  As a result, the plaintiff contacted an agronomist to determine the best type of farming for the land over the five-year period.  The agronomist recommended that gridsampling be utilized, a process that would not have been used if the plaintiff believed that he only had a one-year lease.  The plaintiff and the agronomist amortized the payment over four years.  

In 2004, the plaintiff received formal termination notice in accordance with Iowa law which terminated the tenancy.  The defendant was upset about some of the plaintiff’s farming practices that had damaged the defendant’s property.  However, the parties were able to reconcile their differences, and entered into another one-year written lease agreement for the 2005 crop year.  But, the parties continued to have oral agreements concerning numerous related issues including hay bales, corn stalk bales, and fence line feeding bunks.  Again, the plaintiff’s farming practices irritated the defendant, and the defendant terminated the 2005 lease.  They didn’t reconcile their differences this time, and in 2006 the plaintiff sued for breach of the alleged oral multi-year lease.  The defendant raised the Statute of Frauds as a defense, and filed a counterclaim for damages.  The jury ruled for the defendant on the damage issue, but determined that an oral five-lease existed and rewarded the plaintiff damages for breach of contract.  The defendant moved for a judgment notwithstanding the verdict (JNOV) and for a new trial based on an alleged error in allowing evidence of lost profits.

On appeal, the defendant claimed that the trial court improperly admitted evidence of an oral five-year lease and in addition to evidence of the plaintiff’s lost revenue.  But, the appellate court pointed out that the defendant failed to object to the admission of evidence concerning the alleged oral multi-year lease (e.g., the plaintiff’s testimony that he believed he was renting the ground for five years and that his investment in gridsampling was made based on his belief that he had the ground for five years).  As such, the issue was not preserved for appeal, and the court noted that the defendant also personally testified that she had numerous other oral agreements with the plaintiff outside of the written leases.  The court felt that sealed the deal in establishing the plaintiff’s good faith belief that a multi-year lease existed.  Thus, based on the evidence that was allowed without objection, the trial court jury found that an oral five-year lease existed.

As for the plaintiff’s allegation of lost revenue, the court determined that the defendant had properly preserved the issue for appeal, but that the trial court had also properly denied the defendant’s motion for a new trial on the matter because the defendant had not raised the issue in the JNOV motion.  The court also upheld the trial court’s award of damages for the costs of gridsampling.  

So, what’s the take-home from this case?  For starters, the case points out that proper handling of the procedural aspects of a civil case at trial are very important.  Here, the defendant failed to preserve for appeal the issue of whether error was committed concerning the admissibility of evidence of the oral multi-year farm lease.  As such, the jury’s finding that an oral agreement existed was upheld.  Also, the defendant failed to preserve the issue for appeal concerning the defendant’s motion for JNOV.  After all the evidence was admitted, without objection, the jury was able to consider the plaintiff’s costs for gridsampling and fertilizer, and the appellate court determined there was sufficient evidence to support the jury’s findings.  The case also points out the importance of landlords taking the time to reduce all arrangements with tenants to writing. Trumm v. Westphal, No. 8-425/07-1119, 2008 Iowa App. LEXIS 977 (Iowa Ct. App. Nov. 13, 2008).