January 2019 Agricultural Law News
January 17, 2019
In a previous article (The Case for Putting it in Writing), the case was stated for putting all agricultural contracts in writing. This time, the focus is on a particular type of contract: the land lease.
It is still common practice for farmland owners to verbally allow others to plant, grow, and harvest crops on their land. However, while the “handshake agreement” is a cherished tradition of the farming community, so is taking a practical approach to potentially problematic situations. In that regard, there are a number of pitfalls that come with verbally leasing farmland that should encourage both parties to put their agreement in writing.
One such pitfall is the fallibility of memory. Land leases are typically for a number of years, so that the lessee might see a return on their initial investment. After the passage of even a few years, the parties’ recollections of key provisions or conditions of their agreement may diverge.
Worse yet, either or both of the parties may have been replaced by heirs, successors or assignees, who only have secondhand information about the terms of the lease. Without a written document to refer back to for clarification, both situations are fertile soil for anything from uncomfortable disagreements to full-blown legal disputes.
Speaking of other parties, another drawback of the verbal land lease is the potential for the lessee to sublease the property to another farmer. Without a written provision barring a transfer or assignment of the lease rights to someone else, a landowner may be hard-pressed to avoid having to deal with an unexpected tenant.
An unforeseeable aspect of the verbal agreement is changed circumstances. Even when it provides for a long term, a lease is only a snapshot in time, capturing the conditions of the land and the situations and expectations of the parties as they then exist.
The most thoughtful of people still cannot anticipate all the twists and turns that life will bring in the coming years. The land or its bounty may change, the lessee may come to desire different pursuits, or the lessor may find an alternate need for the land. When the circumstances surrounding a lease change, a verbal agreement will offer little guidance or protection for the parties, should they seek to alter or terminate it.
If disputes develop over a verbal land lease, a fourth pitfall is Michigan law. Like many states, Michigan has a “statute of frauds” which mandates that certain agreements be in writing in order to be deemed valid.
One of those is a lease which will last longer than one year. Parties seeking to have a court enforce a multi-year verbal land lease will find that they have run afoul of this requirement. In addition, Michigan law provides that terminating an annual lease requires a notice of termination, one year in advance. Thus, without a clear agreement on a shorter termination period, a lessor seeking to end a yearly lease may face having to wait another year before regaining possession of the land.
We hear it all the time: “I didn’t think that we needed to write it down because we were in agreement.” The fact is, however, that the best time to write it down is when you are in agreement. Having your handshake memorialized in writing is more likely to keep you in agreement, and far more likely to help you resolve disagreements when they arise.
Foster Swift can assist you with putting your land leases and other important agricultural contracts in writing. If you have further questions about your land lease and would like clarification on the details, contact Steve Smith at 269.983.1400 or by email at firstname.lastname@example.org. Steve devotes his practice to advising and representing individuals, businesses and associations in the broad spectrum of real estate and property matters as well as corporate formation and management issues.