September 1 is the deadline to terminate farm leases to avoid automatic renewal
by Sara Berges, Allamakee SWCD
To cancel a cropland lease, Iowa law requires notice by either party, tenant or landlord, before September 1. If notification isn’t served, the lease automatically renews on existing terms for the coming year. The most common way to serve notice is to mail the notice by certified mail before September 1. The date of mailing (not the date received) must be before September 1. It must be by certified mail rather than regular mail. You can also hand deliver the notice and have the other party sign for it.
Just because a lease is terminated doesn’t necessarily mean the tenant won’t be renting it the following year. Terminating a lease allows the parties to reevaluate the terms of the lease and make necessary changes. With tight profit margins, many producers are going to want to renegotiate for lower cash rental rates to help with cash-flow.
One alternative to a standard cash rent lease is a flexible lease. The actual rent paid adjusts automatically as yields and/or prices fluctuate, so the rent doesn’t have to be renegotiated every year. Risk is shared between the owner and the tenant. Owners are paid in cash and do not have to be involved in decisions about crop input or grain marketing. There are two main ways to calculate rent in a flex lease: 1) share of gross revenue or 2) base rent plus bonus. To calculate the share of gross revenue, the actual harvested yield is multiplied by the market price and the landowner receives a specified percent of the gross revenue, usually ranging from 25-40 percent. In the second method, a base or minimum rent is received plus a share of the gross revenue in excess of a certain base value. More information about flex leases can be found on ISU’s Ag Decision Maker website (www.extension.iastate.edu/agdm/).
Another alternative is a crop share lease. The owner receives a share of the crop and USDA payments as a return for the land resources used. The owner normally pays half the costs of inputs such as fertilizer, seed, and pesticides when the crop is divided 50-50. Owners are usually responsible for drying, storing, and marketing their share of the crop, as well. However, other variations on sharing of expenses exist.
When setting rental rates, many people turn to CRP rates for comparison. In Allamakee County, the CRP soil rental rates decreased last year in response to the grain market trends. If you are looking for information on calculating rental rates, ISU has a file called “Computing a Cropland Cash Rental Rate” that can help you determine what rate to set.
If you are making changes to your farm lease, consider adding conservation provisions to protect the long-term productivity of your ground. If you have questions about how to do this, contact Sara Berges at the Allamakee Soil and Water Conservation District office at 563-568-2246, ext. 3 or email sara.berges@ia.nacdnet.net.
