This week, the Iowa Court of Appeals issued two opinions analyzing farm leases. We told you Wednesday about a most interesting case where the court held that a residential acreage tenant with a single horse was entitled to September 1 statutory termination notice. Although the second farm lease case of the week is less surprising, it’s helpful to review. The court analyzed several common farm lease provisions, and the court's analysis is useful to both producers and their advisors.
The tenant had been leasing 85 acres of farmland owned by the City of Strawberry Point since 2007 pursuant to a written lease that had automatically renewed each year until 2014. In 2013, the city council decided to put out bids before renting the farm for the following crop year. Accordingly, the city administrator sent the farm tenant written termination notice, via certified mail, on August 19, 2013.
After the city selected a different tenant, the tenant filed an action alleging breach of the lease. He argued (1) that the lease was not properly terminated because the termination notice was sent out by a city clerk, without a vote by the city council; (2) that he was entitled to the value of the 2013 corn stover; and (3) that he was entitled to a pro rata share of the value of the lime he applied during the 2012 crop year. The district court entered summary judgment in favor of the city. On appeal, the court affirmed, except with respect to the lime.
The court ruled that the lease termination was valid under Iowa Code § 562.7. The city clerk, who was also serving as the city administrator, properly carried out the directive of the city council in sending the notice of termination. No prior vote was required. In addition, the city council ratified the termination several month later when it resolved to advertise for bids for a new farm lease.
The court also easily disposed of the tenant’s argument that he was entitled to the value of the corn stover for the 2013 crop year. The tenant argued that the stover was part of the “crop” which he owned. The court disagreed, first citing its own definition of “corn stover”[i] as “corn stalks, leaves, and cobs remaining aboveground on the field after the harvest of corn kernels.” The tenant’s lease with the city stated, “Tenant shall not remove the Real Estate, nor burn, any straw, stalks, stubble, or similar plant materials, all of which are recognized as the property of Landlord.” As such, the court found that Iowa Code § 562.5A,[ii] which gives the tenant the right to the stover absent a writing to the contrary, did not apply. The fact that, in prior years, the tenant had removed the corn stover from the property, did not change the court’s interpretation of the lease provision.
The court did, however, grant the tenant some relief. Although the district court had denied the tenant the right to a pro rate recoupment of unused lime costs, the court found he was entitled to such damages. A written amendment to the parties’ lease provided that lime and trace materials were to be allocated over 7 years and that “if the Lease [was] not renewed,” the tenant was to be reimbursed by the landlord “to the extent Tenant has not received the benefits, on a pro rata basis.” Because the tenant only received the benefits of the lime for the 2012 and 2013 crop years, the court ruled that, under the terms of the lease, he was entitled to reimbursement for the unused benefit of the lime. The court rejected the city’s argument that the tenant had not properly received authorization from the city for the lime expense, as the city argued was required under an “expense authorization”[iii] provision in the lease. The court found that the cited provision was not triggered because the lime expense was not for the benefit of the city, but for the benefit of the tenant to increase his own productivity. The tenant applied the lime without cost to the city. He was entitled to reimbursement because he didn’t receive the full seven years’ benefit of the lime after the city terminated the lease.
The court remanded the case for a determination of the tenant’s damages.
[i][i][i][i] Slach v. Heick, No. 14-0539, 2015 WL 1546445, at *3-6 (Iowa Ct. App. Apr. 8, 2015).
[ii] “Unless otherwise agreed to in writing by a lessor and a farm tenant, a farm tenant may take any part of the aboveground part of a plant associated with a crop.”
[iii] The lease provided, “No expense shall be incurred for or on account of the Landlord without first obtaining Landlord’s written authorization.”
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