OSU Extension’s farm lease workshop last week pointed out that lease agreements will be critical in coming years since many farm prices and rental rates are not sustainable with projected grain prices.
One of the speakers, Peggy Hall, OSU agricultural law specialist, stressed that a farm lease must conform to Ohio’s legal requirements. The law requires six components for creating a legally enforceable lease:
• The lease must be in writing. Enforcing a verbal farm lease is very difficult in Ohio due to our “Statute of Frauds.” It states that a lease must be in writing to be legally enforceable.
Despite this law, many verbal farm leases exist. If a problem arises under a verbal farm lease, the law would not uphold the verbal lease unless a party could prove that the court should grant an exception from the Statute of Frauds requirement.
This is a risky position and forces a party to go to court simply to try to prove there is a lease.
• The lease must identify the land, including the legal description, address and acreage. The terms of a farmland lease are also important.
• Both parties should sign the lease. The Statute of Frauds states that a lease is not enforceable against a party who did not sign the lease.
• The lease must properly name the parties and all owners. In the case of joint landowners, such as a married couple or partnership, both owners must sign the lease.
If a limited liability partnership or similar entity owns the land, it should be the named party entering into the lease, and the individual who signs the lease on behalf of the entity must have legal authority to do so.
• A lease over three years must be notarized. Parties to a lease of more than three years must have their signatures certified by a notary public or local official such as a judge, mayor or clerk of court.
• The parties should file a “memorandum of lease.” Ohio law requires the lease transaction be filed with the county recorder in the county where the land exists, which gives notice of the lease arrangement to potential purchasers and others.
Rather than requiring the parties to divulge all details of the lease, the law allows the parties to file a shortened memorandum of lease that includes names and addresses of each party, a legal description of the land, the lease period, and rights of renewal.
It may also be beneficial to have termination terms established to avoid disagreements. If the parties do not have a written lease covering notice of termination, the courts could come into play.
Our courts vary on the notice period required for a year-to-year farm lease, from three months to six months. Based on court rulings, parties to a farm lease should consider providing a six-month notice of termination.
If proper notice is not provided by one party, the other party could legally argue that the lease should continue for another lease period. A law stating a specific notice period for farm lease termination could help prevent disputes over whether adequate notice has been given, but currently it does not exist.
It may be possible for a lease to be terminated by either party even if a farmer has already purchased inputs for the rented farm for this season, if it does not have the proper termination parameters included in the document.
The custom in many areas is to renegotiate leases in late summer or following fall harvest. Sept. 1 is a good time to renegotiate leases.
However, without anything in writing, a lease could technically be renegotiated anytime.
Additional lease information may be found at http://aede.osu.edu/programs/aglaw/docs/FarmLeaseFactSheet2008.pdf and http://aglease101.org/.
A checklist for farm leases may be found at http://ohioline.osu.edu/fr-fact/0003.html.
Lentz is extension educator for agriculture and natural resources for The Ohio State University Extension Service in Hancock County. He can be reached at 419-422-3851 or via email at firstname.lastname@example.org.
Lentz can be heard with Vaun Wickerham on weekdays at 6:35 a.m. on WFIN, at 5:43 a.m. on WKXA-FM, and at 5:28 a.m. at 106.3 The Fox.
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