Long Term Leases Provide a Valuable Tool In Farm Succession Planning as Recent Court Case Highlights

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Wind turbines on farmland in Iowa.  Image by Mark Hesseltine from flickr.com.

The article is not a substitute for legal advice. 

Developing a farm succession plan that allows the next generation to take over the farm and provides for non-farm heirs is not an easy task. Often you will want to treat your children equally but keeping the farm viable for the next generation may not allow for equal treatment. Dividing the farmland equally may result in one heir getting fewer acres needed to support a family. Your heirs are human and will potentially carry grudges against a sibling. A recent decision out of Iowa highlights what can happen when a farm succession plan fails. In Gent v. Gent, Thomas sought an injunction from the Iowa courts to limit how his brother, John, could utilize family farmland John had leased. John had initially leased the farmland from their parents for twenty-five years. This court decision highlights why families should work to develop plans that work towards their goals. There is no one size fits all approach in this process and families will have to understand that communicating, goal setting, and adopting can be important in this process.

Background

John Gent leased family farmland from his parents under the terms of a twenty-five-year lease in 2010. His brother, Thomas, at some point after 2010 exercised an option to purchase the family farmland and sent notice to John that he intended to terminate John’s lease as successor to their parents. John went to court to have his lease declared valid and Thomas counter-sued claiming John was committing waste on the leased farmland and claiming the lease was invalid. The district court granted Thomas’s request for a permanent injunction to prevent John from committing waste on the farmland. John appealed this decision.

On appeal, the court of appeals highlights testimony on the waste issue by Thomas at trial. Thomas testified that John had damaged the farmland by removing soil conservation structures and had made threats to treat the land with a chemical that would prevent vegetation from growing for ten years. John testified that the structures removed were done under John and Thomas’s dad’s direction.

The issue with this testimony is it did not match John’s history of farming. John farmed not only this family farmland but other farmland giving him experience and a history of using the good husbandry practices on cropland. To the court, the twenty-five-year lease gave John no incentive to destroy the family farmland (either by removing structures or spraying a chemical on the land). Thomas, on the other hand, had no farming experience, no knowledge of the current conditions on the farmland, and unaware of what their dad had approved for John to do. To the appeals court, there was no evidence that John committed waste and no evidence that Thomas would suffer a future injury (necessary to receive an injunction).

Why Care?

Long-term leases can be one way to allow on-farm heirs to continue to farm family

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Corn being harvest in Iowa.  Image by TumblingRun from flickr.com

farmland and provide funds to off-farm heirs. Long-term leases also prevent the off-farm heir from potentially using past grudges to prevent the on-farm heir from continuing to lease the farmland. In this case, it’s unclear if the off-farm heir wanted to terminate the lease to lease to another tenant, take up farming himself, sell the farmland, or carried a grudge against his brother. In any case, it will potentially be hard for the off-farm heir to cancel the lease without paying damages to the on-farm heir unless the on-farm heir has done something to breach the lease.

Additional tools could be utilized to provide fair treatment to all heirs. Families should sit down develop goals, discuss the goals with heirs (siblings, in-laws, and others) to make sure the heirs understand why the family farmland is transferred to the next generation the way it is. Then farm families can work with an attorney and other professionals to develop a plan that allows for the farm to continue on for the next generation and provides for fair treatment of off-farm heirs. If you are interested in learning more about this topic or seeing upcoming workshops on developing a farm succession plan, check out UME’s Farm Transitions and Estate Planning page.

References

Gent v. Gent, No. 17-1677, 2018 WL 4923115 (Iowa Ct. App. Oct. 10, 2018).

 

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