Lawsuits over late terminations of farm crop leases might reduce after a new law in Ohio takes effect on July 21, 2022.  The law will affect situations where the parties in a farm crop leasing arrangement have not addressed a date or method for terminating the lease–typically verbal leases, although a written lease might also fail to address termination.  A landlord in those situations who wants to end the crop lease will have to do so by delivering a written notice of termination to the tenant operator by September 1.  A late attempt by the landlord to terminate the lease after September 1 would not be effective and the lease would continue for another crop year, although a tenant operator can choose to agree to accept a landlord’s late termination.

Why the new law?

It’s been common practice in Ohio for landlords and tenants to enter into a simple farm lease arrangement, usually verbal, that repeats from year-to-year with the only term up for discussion sometimes being the rental amount. Other important leasing details are overlooked, such as when the lease ends and what one party must do to terminate the lease.  The lack of these details is especially problematic when the land changes hands due to a sale or a landlord’s death, or if another operator tries to “bid up” the leasing amount.  Without any termination notice provisions, the landlord might try to terminate the leasing arrangement in late Winter or early Spring, after the tenant operator made investments on the belief that the lease would continue for another crop year.   f the operator stands to lose investments and income, litigation is the likely outcome and a court will decide if the landlord attempted to terminate the lease “too late.”  We’e seen many cases like this in Ohio.

Ohio’s new law aims to reduce farm lease termination conflicts by requiring the landlord to give  advance notice of the intent to terminate the lease.  A termination by the landlord by September 1 should provide the operator with sufficient notice that the lease is not continuing, keeping the operator from making post-harvest and end-of-year investments for the next crop year.  This is a common law in other states, and Ohio is one of the last states in the Midwest to enact this type of “statutory termination date” for farm leases.

New law highlights the importance of a written farm lease

We always encourage parties to put their farm lease agreement in writing.  A written farm lease can detail important terms such as termination, preventing uncertainty in the future.  A written lease also complies with Ohio’s Statute of Frauds. That law requires a farm lease to be in writing, meaning that verbal leases aren’t automatically enforceable in a court of law.  Due to the Statute of Frauds requirement, parties to a verbal farm lease must convince the court that their lease deserves an “exception” from the law and if the exception is granted, would have to prove the terms of their verbal agreement.  Verbal leases are always at risk of non-enforcement and disagreement over the terms of the lease.

Using a written lease, the parties may agree to their own termination procedures and dates and the statutory termination law would not apply to their leasing arrangement.  The law is simply a default for those crop leasing situations that do not address termination.

Details of the new law

We’ve developed several questions and answers that help explain the new law, available here and in our newest Law Bulletin, Ohio’s New Statutory Termination Date for Farm Crop Leases, available on farmoffice.osu.edu.

What farm leases are subject to the new law?
The law applies to both written and verbal “agricultural lease agreements” that address the planting, growing, and harvesting of agricultural crops. The law does not apply to leases for pasture, timber, farm buildings, horticultural buildings, or equipment.

What if a lease already addresses termination?
The new law only applies when a leasing arrangement has not provided for a termination date or a method for giving notice of termination. If the landlord and tenant operator have addressed these provisions in their leasing situation, the provisions are unchanged by the law and continue to be effective.

When is the termination effective?
If a landlord gives notice of termination in writing by September 1, the law states that the lease is terminated either upon the date harvest is complete or December 31, whichever is earlier. However, the law allows the parties to establish a different termination date if agreed to in writing.

How must a landlord give notice of termination?
The landlord must give the notice in writing and deliver it to the tenant operator by hand, mail, facsimile, or email by September 1. The law does not require using specific language for the notice, but we recommend including the date of the notice, an identification of the lease property, and a statement that the lease will terminate at the end of harvest or December 31, 20____ unless the parties agree in writing to a different date.

What if a landlord terminates after September 1?
Unless the leasing arrangement provides otherwise, a termination delivered by the landlord after September is not effective and the lease would continue for another period. However, the tenant operator could agree to accept the late termination. If so, the parties should both sign a termination date agreement.

Can a tenant terminate a lease after September 1?
A tenant operator is not subject to the new law and can terminate a lease after September 1 unless the leasing arrangement provides otherwise.

Help with farm leases

Our farmland leasing library contains several resources about the legal aspects of farm leases.  We also address the economic side of farmland leasing with data on cash rents and farmland values, custom rates and machinery costs, and enterprise budgets.  If you need assistance finding an agricultural attorney who works with farm leases, we can help with that too; contact us by email at aglaw@osu.edu.  We’ll do our best to help you reduce the uncertainty and risk of your farm leasing arrangement.

Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Pro

When we think of estate planning our thoughts usually go to a will or trust.  However, in some situations, an effective estate plan can be implemented without the use of a will or trust.  Using transfer on death or payable on death beneficiary designations, for some people, can be an adequate estate plan.gram

A transfer on death or payable on death designation can be added to almost any asset with a title.  Transfer on death is used more for tangible assets such as land and vehicles while payable on death is used more for intangible assets such as financial accounts and life insurance.  Both designations do the same thing – upon death, ownership is transfer from the deceased to the designated beneficiary outside of probate.  This process of transferring ownership at death is usually simple and relatively easy.

The strategy of using beneficiary designations as the primary estate planning tool is best used when the distribution plan of assets is simple.  For example, when the deceased’s assets will be divided equally among their children.  Distributions plans that include more involved schemes such as unequal distributions, buy outs, leases or rights of first refusals are too complicated to use just beneficiary designations.  In those situations, a trust-based plan will likely be needed.  Using beneficiary designations as the primary estate planning strategy only fits a narrow band of farmers, but for those farmers and it can be an effective and relatively inexpensive plan.

Consider the following example.  Mom and Dad’s farming operation is an LLC that holds farm machinery, livestock, and crops.  They own 200 acres in their names.  Their other assets include a bank account, retirement account and life insurance.  At Mom and Dad’s death, they want all of their assets to go to their two children equally.  Their net worth is $4 million.

In this example, the first thing to notice is that Mom and Dad are well under the federal estate tax limit.  So, their estate plan does not need to be designed around minimizing estate taxes.  Second, their plan is simple.  Everything goes to their two children equally.  Lastly, the assets they own are all titled assets that can include death beneficiary designations.

Mom and Dad can title their LLC ownership transfer on death to the children.  Upon their deaths, the LLC ownership interests will transfer to the children outside of probate. The transfer is done with a few pieces of paper.  The land can be made transfer on death by recording a Transfer on Death Affidavit.  Upon Mom and Dad’s death, the children will record an affidavit with a death certificate and title is transferred – again, without probate.  The children can be added as the payable on death beneficiaries of the financial accounts and life insurance.  After death, the children will file paperwork with the financial institutions and funds will be transferred to them outside of probate.  A $4 million estate has been transferred without the need to use a will or trust and probate has been avoided.

While this strategy does not use a will or trust for the transfer of assets, it is still a good idea to have a will as a backup.  In the above example, Mom and Dad execute wills that state all of their assets go to their children equally.  The will is there in case a beneficiary designation is in error or an asset is overlooked and must go through probate.  The goal is not to use a will but there should be one as a backup just in case Mom and Dad forgot to add a transfer on death designation to the old livestock trailer that they haven’t used in five years.

The following assets can all have transfer on death or payable on death designations added to their title: vehicles, titled trailers, trucks, boats, real estate, bank accounts, financial accounts, life insurance, stocks, and business entities.  Assets such as livestock, grain, crops and machinery are untitled so a transfer on death designation cannot be added.  However, transferring those untitled assets into an LLC is a great way to essentially convert untitled assets to titled assets.  After the untitled assets are transferred to the LLC, the LLC ownership can include a transfer on death designation.

When considering estate plans, farmers who have relatively simple plans and can add death beneficiary designations to all or most of their assets may not need a complicated will or trust.  The beneficiary designations can be the primary estate plan with a simple will as backup.  This strategy is effective, minimizes legal costs and avoids probate. As stated above, this strategy is not for everyone, but it should be considered.  For more complicated plans or for high-net-worth individuals, a trust may be needed.

Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program

A Right of First Refusal (ROFR) is a contract between the owner of the real estate and the person who is receiving the right to purchase (Holder).  If the owner wishes to sell or transfer the property, the Holder has a legal right to purchase the property subject to the terms and conditions of the ROFR.  If the Holder does not exercise their right to purchase the property, the owner can transfer the property to the third-party buyer. A ROFR can be an effective way to help keep land ownership in the family.

A ROFR can be established in a number of ways including on a deed.  However, in most situations the best method of creating a ROFR is a stand-alone document that is recorded with the county recorder.  By using a separate document, the terms and conditions of the ROFR can be clearly expressed to avoid future confusion or conflict.

There are a number of terms and conditions to include in a ROFR.  Perhaps the most important term is how to determine purchase price.  One way to establish the purchase price is by matching a bona fide offer.  Upon receiving an offer to purchase the land, the owner offers to sell the land at that same price to the Holder.  If the Holder declines to purchase the land at that price, the owner is free to sell to the third party at that price.

Another way to establish the purchase price is by appraisal.  If the appraisal method is used to establish the purchase price, a multi-step approach should be considered to avoid the effect of an outlier appraisal.  For example, the owner can obtain and appraisal first.  If the Holder objects to the owner’s appraisal, the Holder can obtain an appraisal of their own.  If the two appraisals do not match or not within a certain percentage of each, the owner and Holder agree on a third appraisal.  After the third appraisal is conducted, the middle appraisal of the three establishes the purchase price.  Also, any qualifications for appraisers, such a licensed or unaffiliated with the parties, should be included in the terms.

Sometimes both the offer matching and appraisal will be used in a ROFR to establish the purchase price. Terms may include using the lesser of an offer and an appraisal for the purchase price.  Or, if there is no offer and the owner would like to sell, then the appraisal method is used to establish the purchase price.  The important thing is to make it very clear how the purchase price is established to avoid disputes between the owner and potential buyer.

Timelines should be included in the ROFR.  Timelines should be included for:

• Number of days to provide an offer to the Holder
• Number of days to establish the purchase price by appraisal
• Number of days to accept or reject an offer by the Holder
• Number of days to close the purchase

An additional term to consider is what transfers are exempt from the ROFR.  The owner of the land may want to be able to transfer to their family or spouse without triggering the ROFR.  Therefore, the ROFR should specifically state any transfers that are exempt.  The most common exempt transfers are those transfers to descendants and spouses.

Another important provision is the length of term of the ROFR.  The ROFR should have a limit on its term whether it be a number of years or for the life of the owner.  A ROFR that goes on generation after generation can cause big problems for a future owner because the Holder or their heirs may be difficult to find and/or cooperate.

Consider the following example of a common way in which a ROFR is used.

Mom and Dad want to gift five acres to their daughter, Jane, so that she can build a house.  Mom and Dad’s only concern is that they do not want the five acres to leave the family because it sits in the middle of their farmland.  Mom and Dad gift the five acres to Jane and enter into a ROFR at the same time.  The ROFR requires Jane to offer Mom and Dad the first chance to buy the five acres before Jane transfers it.  An exception is made that Jane may transfer the land to her children without triggering the ROFR.  The purchase price is established by a three-step appraisal price with the appropriate timelines included.  The ROFR will be in effect for the next 30 years and then will expire.

The ROFR gives Mom and Dad the assurance that Jane will not be able to simply sell the property to someone outside of the family.  Without the ROFR, Mom and Dad may be reluctant to gift the land for fear of Jane transferring the land to someone else.  The ROFR allows Jane to have full ownership of the property and the discretion to build a house as she wishes but also protects Mom and Dad from having an unwanted neighbor.

ROFRs can be effective in real estate transfers, particularly among family members, and in estate planning.  Keep ROFRs in mind the next time you are considering transferring real estate or as you design your estate plan that includes real estate.  A ROFR should be drafted with the assistance of an attorney to be sure that all the important terms and provisions are included, and it is executed and recorded property.