THE LORANDA GROUP, INC

We have talked with many landowners over the past nine months that are considering either the sale of their farm in order to capitalize on record high land prices, or a revision in their lease terms to adjust for changing commodity prices.  In either case, before a sale can take place or a lease adjustment can be made, the existing lease agreement must be properly terminated. Unfortunately, most owners don’t realize that each state has its own specific laws that govern this issue.  And if the termination is not made in strict adherence with state regulations, then it’s as if it wasn’t made at all, in which case the lease essentially renews with the same terms for the following crop year.

If you think that you might sell your farm between now and spring planting, or if you want to update the terms in your lease, it is imperative that you correctly terminate your existing agreement.  Why?  In the case of a farm sale, terminating the lease ensures that all potential buyers, especially neighboring farmers, will be interested bidders.  Because of higher grain prices, farmers and investors have been more aggressive in bidding for land the past few months.  And they want to actually farm the land they buy — they don’t want to be a landlord for another farmer.  If there is a lease in place on a property, they will either discount their price or have no interest at all.  This could ultimately lower the sale price by 10 – 15%.  In the case of a desire to modify your current lease, if you do not terminate the existing agreement, then your tenant is under no obligation to agree to a change in terms for next year.  Once again, the financial damage could be significant if you are constrained by an existing lease where the income to the landlord is significantly below the market.

The mechanics of properly terminating a lease vary from state to state.  Generally, the notice does have to be in writing and must contain specific language.  These guidelines need to be followed carefully, regardless of whether your current agreement is written or oral.  The following table provides an overview of the important facts to know in order to properly terminate a lease in selected states.  If you have additional questions, we suggest that you contact your attorney.  

(1.) When notice must be sent prior/relative to expiration date of lease.  Note that the expiration date of a lease can vary.  Historically, the lease period ended on February 28^th. However, many modern leases expire on December 31^st. Make sure you know this date in order to forward the notice in time.