Contracts

By: Robert Moore, Thursday, January 12th, 2023

Legal Groundwork

As farm machinery has become more complex and reliant on computer software, the right-to-repair issue has become a prominent issue in the farm community.  Farmers are sometimes prevented from repairing their own equipment because they do not have access to needed diagnostic tools or are otherwise barred due to embedded software.  Farmers have voiced their criticism of manufacturers as right-to-repair has become a prominent issue in the agricultural community.

In an effort to address the right-to-repair issue, the American Farm Bureau Federation (AFBF) and John Deere recently entered into a memorandum of understanding (MOU) in which Deere agrees to provide access to documentation, data and diagnostic tools used by the company’s authorized dealers.  This development was likely a response to pressure that Deere and other manufactures were under to allow right-to-repair.  New York recently passed a right-to-repair law and Senator Tester introduced right-to-repair legislation in the U.S. Senate earlier this year. 

 

Software User License

The issue of right-to-repair is related to a user’s license.  The term “license” has a specific meaning under the law.  Someone who holds a license for a product is allowed to use the product but does not own the product.  In 2016, Deere began using a user’s license for the software in its machines.  Essentially, when a customer would buy a machine from Deere, the buyer had ownership of the steel but did not own the software that makes the machine operate.    

Software licensing has its roots in 1980’s software.  The burgeoning consumer software industry initially sold its software to customers and retained no rights to the software.  These software developers began to see purchasers of their software reverse engineer the software and development slightly different software that resulted in the same functionality.  In essence, a person could buy the software, make a change to the software to potentially avoid copyright infringement, but end up with software that did the same thing as the originally purchased software.  This process essentially allowed for the stealing of intellectual property from the software developer, but the developers had little legal recourse.

To overcome this loss of intellectual property, software developers began selling a license to use the software.  The software license allowed the purchaser to use the software, but the software developer retained ownership.  The license agreement expressly prohibited reverse engineering or using the software in other ways that jeopardized the software developer’s intellectual property.  By keeping ownership,  software developers could take legal action against people who tried to copy and resell the software.

The software license worked reasonably well for many years.  The vast majority of software users were oblivious to the license agreement and continued using the software as they always had.  The licensing arrangement help protect the software developers’ intellectual property.  However, in the last twenty years or so, software began to be embedded in electronic devices blurring the lines between the software and the hardware. A new tractor seems to be as much a computer running software as it does a power unit pulling implements.  

 

Right-to-Repair

The integration of software into farm machines came to light in 2016 when John Deere implemented a software user license agreement to presumably protect its intellectual property.  Its licensing agreement clearly stated that reverse engineering or copying of the software is prohibited.  However, Deere seems to have taken it one step further.  Farmers and independent repair shops were prohibited from having the diagnostic tools and manuals required to make repairs.  This denial of diagnostic tools effectively made it impossible for farmers and independent mechanics to make repairs on some John Deere equipment.  Many people in the farm community expressed their concern about the license agreement and saw it as scheme to keep the repairs, and the fees from those repairs, all within the John Deere dealer network.  Farmers wanted to be able to repair their own equipment, or use other independent third parties, to potentially save money and to have more timely service, especially during busy times like planting and harvest.

Due to pressure from a combination of the new legislation in New York, the right-to-repair legislation introduced in the Senate and dissatisfaction expressed by farmers, John Deere likely felt it was best to make some concessions with farmers while keeping ownership of the software.  This speculation is supported by the fact that AFBF agreed to “refrain from introducing, promoting, or supporting federal or state "Right to Repair" legislation that imposes obligations beyond the commitments in this MOU.”  So, it seems AFBF agreed not to pursue right-to-repair legislation in exchange for Deere loosening its prohibitions of right-to-repair.

While it is impossible to foresee all the future implications for an agreement like the one between AFBF and Deere, it does seem that it is a reasonable compromise.  Farmers can now have access to diagnostic tools to allow for self-repairs while Deere keeps ownership of its software.  Critics argue the agreement does not go far enough and Deere still has too much control over self-repairs.  We will see over the next few years if the agreement is, in fact, a reasonable compromise.

 

Memorandum of Understanding

It is noteworthy that the agreement between AFBF and John Deere is memorialized within a Memorandum of Understanding.  For those not familiar with an MOU, there may be some curiosity as to its legal context.  MOUs are most often used at the beginning of a negotiation to ensure that both parties are starting with the same understanding of their current positions, to make clear what each party is seeking from the negotiation and that it is worthwhile for both parties to move forward.  Unlike a contract, an MOU is generally not legally enforceable.  Because the agreement is an MOU, neither AFBF nor Deere is legally bound to its terms.  Neither party has legal recourse if the other party does not honor its commitments as outlined in the MOU. If either party reneges on its commitments, the party at fault will likely receive criticism in the public opinion realm but will likely have no legal liability.

 

Conclusion

The John Deere software licensing issue is a good example of how new technology can require new strategies and concepts in the law.  Prior to the 1980’s, copyright law had worked just fine for books and movies but it did not work well for the new medium of software.  So, the concept of software licenses was developed to address the threats to the software industry. Twenty years later when the line between software and hardware began to blur, software licenses were again modified to protect the developer of the software.  In the case of John Deere, perhaps they went a bit too far in enforcing their licenses.  The threat of unfavorable legislation and criticism from customers probably caused John Deere to walk back their stance on prohibition of diagnostic tools to allow self-repairs.  Hopefully, the agreement between John Deere and AFBF has found a reasonable middle ground that benefits all parties.

 

 

Posted In: Business and Financial, Contracts
Tags: Right-to-Repair
Comments: 0
Solar panels iand corn growing in a field in Ohio
By: Peggy Kirk Hall, Wednesday, August 31st, 2022

Solar and wind energy development is thriving in Ohio, and most of that development will occur on leased farmland.  Programs in the newly enacted federal Inflation Reduction Act might amplify renewable energy development even more.  The decision to lease land for wind and solar development is an important one for a farmland owner, and one that remains with a farm for decades.  It’s also a very controversial issue in Ohio today, with farmers and community residents lining up on both sides of the controversy.  For these reasons, when a landowner receives a “letter of intent” for wind or solar energy development, we recommend taking a careful course of action.  Here are a few considerations that might help.

Purpose and legal effect of a letter of intent.  Typically, a letter of intent for renewable energy development purposes is not a binding contract, but it might be.  The purposes of the letter of intent are usually to provide initial information about a potential solar lease and confirm a landowner’s interest in discussing the possibility of a solar lease.  Unless there is compensation or a similar benefit provided to the landowner and the letter states that it’s a binding contract, signing a letter of intent wouldn’t have the legal effect of committing the landowner to a solar lease.  But the actual language in the letter of intent would determine its legal effect, and it is possible that the letter would offer a payment and contain terms that bind a landowner to a leasing situation.

Attorney review is critical.  To ensure a clear understanding of the legal effect and terms of the letter of intent, a landowner should review the letter with an attorney.  An attorney can explain the significance of terms in the letter, which might include an “exclusivity” provision preventing the landowner from negotiating with any other solar developer for a certain period of time, “confidentiality” terms that prohibit a landowner from sharing information about the letter with anyone other than professional advisors, “assignment” terms that allow the other party to assign the rights to another company, and initial details about the proposed project and lease such as location, timeline, and payments.  Working through the letter with an attorney won’t require a great deal of time or cost but will remove uncertainties about the legal effect and terms of the letter of intent.

Negotiating an Option and Lease would be the next steps. If a landowner signs a letter of intent, the next steps will be to negotiate an Option and a Lease.  It’s typical for a letter of intent to summarize the major terms the developer intends to include in the Option and Lease, which can provide a helpful “heads up” on location, payments and length of the lease.  As with the letter of intent, including an attorney in the review and negotiation of the Option and Lease is a necessary practice for a landowner.  We also recommend a full consideration of other issues at this point, such as the effect on the farmland, farm business, family, taxes, estate plans, other legal interests, and neighbor relations. Read more in our “Farmland Owner’s Guide to Solar Leasing” and “Farmland Owner’s Solar Leasing Checklist”.

New laws in Ohio might prohibit the development.  A new law effective in October of 2021 gives counties in Ohio new powers to restrict or reject wind and solar facilities that are 50 MW or more in size.  A county can designate “restricted areas” where large-scale developments cannot locate and can reject a specific project when it’s presented to the county. The new law also allows citizens to organize a referendum on a restricted area designation and submit the designation to a public vote. Smaller facilities under 5-MW are not subject to the new law.  Several counties have acted on their new authorities under the law in response to community concerns and opposition to wind and solar facilities.  Community opposition and whether a county has or will prohibit large-scale wind and solar development are additional factors landowners should make when considering a letter of intent.  Learn more about these new laws in our Energy Law Library.

It's okay to slow it down.  A common reaction to receiving a letter of intent is that the landowner must act quickly or could lose the opportunity.  Or perhaps the document itself states a deadline for responding.  A landowner shouldn’t let those fears prevent a thorough assessment of the letter of intent.  If an attorney can’t meet until after the deadline, for example, a landowner should consider contacting the development and advising that the letter is under review but meeting the deadline isn’t possible.  That’s a much preferred course of action to signing the letter without a review just to meet an actual or perceived deadline.

For more information about energy leases in Ohio, refer to our Energy Law Library on the Farm Office website at https://farmoffice.osu.edu/our-library/energy-law.

September 1 calendar
By: Peggy Kirk Hall, Wednesday, August 24th, 2022

September 1 is fast approaching, and this year it’s an especially important date for landowners leasing cropland under an existing lease that doesn’t address when or how the lease terminates.  In those situations, September 1 is the new deadline established in Ohio law for a landowner to notify a tenant that the landowner wants to terminate the lease.  If the landowner does not provide notice by September 1, the lease continues for another lease term. 

This September 1 deadline only applies to verbal or written leases that don’t have a termination date or a deadline for giving notice of termination.  If a crop lease already includes a termination date or a deadline for giving notice of termination, those provisions are unchanged by the new law. The new September 1 termination date also only affects leases of land for agricultural crops.  It does not apply to leases for pasture, timber, farm buildings, horticultural buildings, or leases solely for equipment.

To meet the new legal requirements, a landowner must give the notice of termination in writing and deliver it to the tenant operator by hand, mail, fax, or email on or before September 1.  While the law does not specify what the termination must say, we recommend including the date of the notice, the identity of the lease property being terminated, and the date the lease terminates, which the law states will be the earlier of the end of harvest or December 31, unless the parties agree otherwise.

Tenant operators are not subject to the new September 1 termination deadline—the law applies only to the landowner.  Even so, it’s important for tenant operators to understand the new law because it protects a tenant if a landowner attempts to terminate a lease after September 1.  In those instances, the law allows the tenant to continue the lease for another term because the termination notice was late.

A lesson this new law teaches is the importance of having a written farm lease that includes termination provisions. The parties can agree in advance when the lease will terminate or can set a deadline for notifying the other party of the intent to terminate the lease.  Such terms provide certainty and reduce the risk of conflict and litigation over a “late” termination.

Read the new “termination of agricultural leases” law in Section 5301.71 of the Ohio Revised Code.

Ohio Farmland Leasing Update webinar
By: Peggy Kirk Hall, Tuesday, July 26th, 2022

Is it time to start thinking about your farmland lease for next year?  We think so!  There are new legal issues and updated economic information to consider for the upcoming crop year.  That’s why we’ve scheduled our next Ohio Farmland Leasing Update for Thursday, August 11 at 8 a.m.  Join the Farm Office team of Barry Ward, Robert Moore and Peggy Hall for an early morning webinar discussion of the latest economic and legal farmland leasing information for Ohio. 

Here are the topics we’ll cover:

  • Ohio’s new statutory termination law for verbal farmland leases
  • Using a Memorandum of Lease and other lease practice tips
  • Economic outlook for Ohio row crops
  • New Ohio cropland values and cash rents survey results
  • Rental market outlook

There’s no cost to attend the Zoom webinar, but registration is necessary.  Visit https://go.osu.edu/farmlandleasingupdate for registration.  And if you’re already thinking about your next farmland lease, also be sure to use our farmland leasing resources on https://farmoffice.osu.edu.    

By: Robert Moore, Friday, May 20th, 2022

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

The relationship between farmland owner and tenant often goes beyond just a business transaction.  It is common for the tenant to lease the same farmland for many years or for the tenant/landowner relationship to span several generations.  The relationship between the parties may evolve into one of great trust and respect – the landowner knowing that the tenant will treat the land like their own and the tenant knowing the landlord will always be fair with them.

Sometimes, when the landowner knows that their heirs do not have interest in owning the land, they will promise to give the tenant the first chance to buy the farm at landowner’s death.  Tenants will always appreciate this gesture so that they do not have to outbid their neighbors at a public auction when the landowner dies.  However, a mere promise is not enough.  To protect the tenant’s right to purchase the farm, the landowner must take proactive measures.

Under Ohio law, and every other state, verbal promises regarding real estate are rarely enforceable.  Because real estate is such an important asset, courts do not want to have to guess as to what a buyer and seller may have agreed upon.  So, in most situations, if it is not in writing, a court will not enforce verbal promises regarding real estate.

Example.  Landowner has leased her land to Tenant for 25 years and verbally promised that when she dies Tenant will get to buy her farm.  Upon her death, her heirs do not want to sell to Tenant because they think they will get more at auction.  Because Landlord’s promise was only verbal, the heirs can ignore Tenant and sell at auction.

So, what can be done to ensure that a landlord’s desire for a tenant to buy the farm is enforceable?  The following are options available to Landlord and Tenant.

 

Will or Trust

The landlord can include a provision in their will or trust giving the tenant the right to buy the farm.  Upon landlord’s death, the trustee or executor will be obligated to sell the land to the tenant.  This is an easy solution to give the tenant a chance to buy the farm.  However, it is not a perfect solution.

Wills and trusts can be changed at any time.  The tenant has no guarantee that a landlord will not change their will or trust and remove the purchase provision.  For as long as the landowner has mental capacity, they can change their will or trust anytime they wish.  So, while putting the purchase option in the will or trust is better than a verbal promise, it is not a guarantee the tenant will have a chance to buy the farm.

Practice Pointer.  When giving a tenant the right to purchase a farm, consider also providing them with a small amount of money from the estate/trust.  By giving them even $100, the tenant becomes a beneficiary of the estate/trust and is entitled to be informed of all aspects of the administration.  There could be some dispute as to whether the tenant is a beneficiary of the estate/trust if they only have purchase rights.  A beneficiary of an estate/trust has certain rights that a mere buyer would not have.

 

Right of First Refusal

For the tenant, a better strategy may be to enter into a Right of First Refusal (ROFR) with the landowner.   A ROFR is an agreement that gives the tenant the chance to buy land at the landowner’s death or before the landowner can transfer it.   The ROFR includes a provision that makes it binding upon the landowner and their heirs so that the ROFR survives the landowner’s death.  Upon the landowner's death and before the land can be transferred to heirs, the ROFR is triggered and tenant can decide if they wish to buy the land.  The ROFR should be signed by both parties, notarized and recorded.

Example.  Landowner wants to ensure that Tenant has a chance to buy her farm when she passes away.  Landowner and Tenant execute a ROFR that states upon Landowner’s death, Tenant will have a chance to buy the land at appraised value.  The ROFR is made binding upon the Landowner’s heirs and recorded.  When Landowner dies, the purchase provision in the ROFR will be triggered and Tenant will have an opportunity to buy the land.

The disadvantage of the ROFR for the landowner is that it cannot be changed.  The ROFR is a contract and once signed cannot be changed without the tenant’s consent.  If the landowner wants to keep the option to change their mind regarding the sale of the farm, they should not enter into a ROFR but opt for the will/trust strategy instead.

 

Purchase Terms

Regardless of which of the aforementioned strategies are used, time and effort should be spent specifying the purchase terms.  The will/trust or ROFR should include specific language addressing the following:

  • Identify the Property.  Use parcel numbers, legal descriptions, FSA farm numbers and/or acreage to specify what land is being offered for sale.  Do not leave any room for misunderstandings of what land is being offered to the tenant.  Avoid using only farm names to identify (i.e. “Smith Farm”)
  • Purchase Price.  Clearly state how the purchase price is determined.  If by appraisal, consider using a licensed, certified appraiser to avoid any perception that the appraiser favors one party or the other.  Also consider including a three-step appraisal process allowing either party to get their own appraisal if they dispute the original appraisal.  A flat price can be used for the purchase price but the parties risk the flat price not adjusting to market conditions.  The landowner may also include a discount % on the purchase price to help the tenant.
  • Deadlines.  The purchase terms should give the tenant a specific number of days to decide if they want to purchase the farm.  This term should begin to run after the purchase price has been established.  The tenant should be required to exercise their purchase option by giving written notice to the estate/trust.  A closing date should also be set, usually a specific number of days after the tenant has provided the written notice to purchase.
  • Other Purchase Terms.  Include any other purchase terms like title insurance and transaction costs.

 

Summary

Landowners and tenants should not rely on verbal promises for the purchase of the farm at landowner’s death.  Using either a will/trust or ROFR can ensure that a tenant will have a legally enforceable right to purchase the farm.  When drafting the will/trust or ROFR, include specific purchase terms to avoid conflict between the tenant and the landowner’s heirs.  The parties should seek legal counsel to assist in drafting the documents to be sure that all legal requirements are met.

Oil and gas well pump.
By: Jeffrey K. Lewis, Esq., Monday, April 25th, 2022

One of the core principles of the American legal system is that people are free to enter into contracts and negotiate those terms as they see fit.  But sometimes the law prohibits certain rights from being “signed away.”  The interplay between state and federal law and the ability to contract freely can be a complex and overlapping web of regulations, laws, precedent, and even morals.  Recently, the Ohio Supreme Court ruled on a case that demonstrates the complex relationship between Ohio law and the ability of parties to negotiate certain terms within an oil and gas lease.     

The Background.  Ascent Resources-Utica, L.L.C. (“Defendant”) acquired leases to the oil and gas rights of farmland located in Jefferson County, Ohio allowing it to physically occupy the land which included the right to explore the land for oil and gas, construct wells, erect telephone lines, powerlines, and pipelines, and to build roads.  The leases also had a primary and secondary term language that specified that the leases would terminate after five years unless a well is producing oil or gas or unless Defendant had commenced drilling operations within 90 days of the expiration of the five-year term. 

After five years had passed, the owners of the farmland in Jefferson County (“Plaintiffs”) filed a lawsuit for declaratory judgment asking the Jefferson County Court of Common Pleas to find that the oil and gas leases had expired because of Defendant’s failure to produce oil or gas or to commence drilling within 90 days.  Defendant counterclaimed that the leases had not expired because it had obtained permits to drill wells on the land and had begun constructing those wells before the expiration of the leases.  Defendant also moved to stay the lawsuit, asserting that arbitration was the proper mechanism to determine whether the leases had expired, not a court. 

What is Arbitration and is it Legal?  Arbitration is a method of resolving disputes, outside of the court system, in which two contracting parties agree to settle a dispute using an independent, impartial third party (the “arbitrator”).  Arbitration usually involves presenting evidence and arguments to the arbitrator, who will then decide how the dispute should be settled.  Arbitration can be a quicker, less burdensome method of resolving a dispute. Because of this, parties to a contract will often agree to forgo their right to sue in a court of law, and instead, abide by any arbitration decision.   

Ohio law also recognizes the rights of parties to agree to use arbitration, rather than a court, to settle a dispute.  Ohio Revised Code § 2711.01(A) provides that “[a] provision in any written contract, except as provided in [§ 2711.01(B)], to settle by arbitration . . . shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract.”  What this means is that Ohio will enforce arbitration clauses contained within a contract, except in limited circumstances.  One of those limited circumstances arises in Ohio Revised Code § 2711.01(B).  § 2711.01(B)(1) provides that “[s]ections 2711.01 to 2711.16 . . . do not apply to controversies involving the title to or the possession of real estate . . .”  Because land and real estate are so precious, Ohio will not enforce an arbitration clause when the controversy involves the title to or possession of land or other real estate.  

To be or not to be?  After considering the above provisions of the Ohio Revised Code, the Jefferson County Court of Common Pleas denied Defendant’s request to stay the proceedings pending arbitration.  The Common Pleas Court concluded that Plaintiffs’ claims involved the title to or possession of land and therefore was exempt from arbitration under Ohio law.  However, the Seventh District Court of Appeals disagreed with the Jefferson County court.  The Seventh District reasoned that the controversy was not about title to land or possession of land, rather it was about the termination of a lease, and therefore should be subject to the arbitration provisions within the leases.   

The case eventually made its way to the Ohio Supreme Court, which was tasked with answering one single question: is an action seeking to determine that an oil and gas lease has expired by its own terms the type of controversy “involving the title to or the possession of real estate” so that the action is exempt from arbitration under Ohio Revised Code § 2711.01(B)(1)? 

The Ohio Supreme Court determined that yes, under Ohio law, an action seeking to determine whether an oil and gas lease has expired by its own terms is not subject to arbitration.  The Ohio Supreme Court reasoned that an oil and gas lease grants the lessee a property interest in the land and constitutes a title transaction because it affects title to real estate.  Additionally, the Ohio Supreme Court found that an oil and gas lease affects the possession of land because a lessee has a vested right to the possession of the land to the extent reasonably necessary to carry out the terms of the lease.  Lastly, the Ohio Supreme Court provided that if the conditions of the primary term or secondary term of an oil and gas lease are not met, then the lease terminates, and the property interest created by the oil and gas lease reverts back to the owner/lessor.  

In reaching its holding, the Ohio Supreme Court concluded that Plaintiffs’ lawsuit is exactly the type of controversy that involves the title to or the possession of real estate.  If Plaintiffs are successful, then it will quiet title to the farmland, remove the leases as encumbrances to the property, and restore the possession of the land to the Plaintiffs.  If Plaintiffs are unsuccessful, then title to the land will remain subject to the terms of the leases which affects the transferability of the land.  Additionally, the Ohio Supreme Court concluded that if Plaintiffs were unsuccessful then Defendant would have the continued right to possess and occupy the land.  Therefore, the Ohio Supreme Court found that Plaintiffs’ controversy regarding the termination of oil and gas leases is the type of controversy that is exempt from arbitration clauses under § 2711.01(B)(1). 

Conclusion.  Although Ohio recognizes the ability of parties to freely negotiate and enter into contracts, there are cases when the law will step in to override provisions of a contract.  The determination of title to and possession of real property is one of those instances.  Such a determination can have drastic and long-lasting effects on the property rights of individuals.  Therefore, as evidenced by this Ohio Supreme Court ruling, Ohio courts will not enforce an arbitration provision when the controversy is whether or not oil and gas leases have terminated.  To read more of the Ohio Supreme Court’s Opinion visit: https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-869.pdf.

 

 

Photo of Ohio Statehouse in Columbus, Ohio
By: Peggy Kirk Hall, Friday, April 08th, 2022

UPDATE:  Governor DeWine signed H.B. 95, the Beginning Farmer bill, on April 18, 2022.  The effective date for the new law is July 18, 2022.  The Governor signed the Statutory Lease Termination bill, H.B. 397, on April 21, and its effective date is July 21, 2022.

Bills establishing new legal requirements for landowners who want to terminate a verbal or uncertain farm lease and income tax credits for sales of assets to beginning farmers now await Governor DeWine’s response after passing in the Ohio legislature this week.  Predictions are that the Governor will sign both measures.

Statutory termination requirements for farm leases – H.B. 397

Ohio joins nine other states in the Midwest with its enactment of a statutory requirement for terminating a crop lease that doesn’t address termination.  The legislation sponsored by Rep. Brian Stewart (R-Ashville) and Rep. Darrell Kick (R-Loudonville) aims to address uncertainty in farmland leases, providing protections for tenant operators from late terminations by landowners.  It will change how landowners conduct their farmland leasing arrangements, and will hopefull encourage written farmland leases that clearly address how to terminate the leasing arrangement.

The bill states that in either a written or verbal farmland leasing situation where the agreement between the parties does not provide for a termination date or a method for giving notice of termination, a landlord who wants to terminate the lease must do so in writing by September 1.  The termination would be effective either upon completion of harvest or December 31, whichever is earlier.  Note that the bill applies only to leases that involve planting, growing, and harvesting of crops and does not apply to leases for pasture, timber, buildings, or equipment and does not apply to the tenant in a leasing agreement.  A lease that addresses how and when termination of the leasing arrangement may occur would also be unaffected by the new provisions.

The beginning farmer bill – H.B. 95

A long time in the making, H.B. 95 is the result of a bi-partisan effort by Rep. Susan Manchester (R-Waynesfield) and Rep. Mary Lightbody (D-Westerville).  It authorizes two types of tax credits for “certified beginning farmer” situations. The bill caps the tax credits at $10 million, and sunsets credits at the end of the sixth calendar year after they become effective.

The first tax credit is a nonrefundable income tax credit for an individual or business that sells or rents CAUV qualifying farmland, livestock, facilities, buildings or machinery to a “certified beginning farmer.”  A late amendment in the Senate Ways and Means Committee reduced that credit to 3.99% of the sale price or gross rental income.  The bill requires a sale credit to be claimed in the year of the sale but spreads the credit amount for rental and share-rent arrangements over the first three years of the rental agreement.  It also allows a carry-forward of excess credit up to 7 years.  Note that equipment dealers and businesses that sell agricultural assets for profit are not eligible for the tax credit, and that an individual or business must apply to the Ohio Department of Agriculture for tax credit approval.

The second tax credit is a nonrefundable income tax credit for a “certified beginning farmer” for the cost of attending a financial management program.  The program must be certified by the Ohio Department of Agriculture, who must develop standards for program certification in consultation with Ohio State and Central State.  The farmer may carry the tax credit forward for up to three succeeding tax years.

Who is a certified beginning farmer?  The intent of the bill is to encourage asset transition to beginning farmers, and it establishes eligibility criteria for an individual to become “certified” as a beginning farmer by the Ohio Department of Agriculture.  One point of discussion for the bill was whether the beginning farmer credit would be available for family transfers.  Note that the eligibility requirements address this issue by requiring that there cannot be a business relationship between the beginning farmer and the owner of the asset. 

An individual can become certified as a beginning farmer if he or she:

  • Intends to farm or has been farming for less than ten years in Ohio.
  • Is not a partner, member, shareholder, or trustee with the owner of the agricultural assets the individual will rent or purchase.
  • Has a household net worth under $800,000 in 2021 or as adjusted for inflation in future years.
  • Provides the majority of day-to-day labor and management of the farm.
  • Has adequate knowledge or farming experience in the type of farming involved.
  • Submits projected earnings statements and demonstrates a profit potential.
  • Demonstrates that farming will be a significant source of income.
  • Participates in a financial management program approved by the Department of Agriculture.
  • Meets any other requirements the Ohio Department of Agriculture establishes through rulemaking.

We’ll provide further details about these new laws as they become effective.   Information on the statutory termination bill, H.B. 397, is here and information about the beginning farmer bill, H.B. 95, is here.  Note that provisions affecting other unrelated areas of law were added to both bills in the approval process.

Ohio Farmland Leasing Update photo with farm field
By: Peggy Kirk Hall, Tuesday, February 01st, 2022

Winter is a good time to review farm leases, for both economic and legal reasons.  We'll provide you current information to help with the farmland leasing process in our Ohio Farmland Leasing Update webinar on February 9, 2022 from 7 to 9 p.m.   Barry Ward, Leader of Production Business Management for OSU Extension, will address the economic issues and our legal team of Peggy Hall and Robert Moore will provide the legal information.  

Our agenda will include:

  • Current economic outlook for Ohio row crops
  • Research on cash rent markets for the Eastern Corn Belt
  • Rental market outlook fundamentals
  • Negotiating conservation practices
  • Using leases in farmland succession planning
  • Ohio's proposed law on providing notice of termination
  • Ensuring legal enforceability of a lease

There is no fee for the webinar, but registration is necessary.  Register at https://go.osu.edu/farmlandleasingupdate.

Ohio Farmland Leasing Update photo with farm field
By: Peggy Kirk Hall, Friday, January 07th, 2022

Winter is a good time to review farm leases, and current information is critical to that process.  That's why our Farm Office team is offering its Ohio Farmland Leasing Update, a webinar on February 9, 2022 from 7 to 9 p.m.   I'll be joined for the webinar by co-speakers Barry Ward, Leader of Production Business Management for OSU Extension, and attorney Robert Moore.  

On the legal side, we'll share legal information to help parties deal with addressing conservation practices in a leasing situation, using leases in farmland succession planning, Ohio's proposed new law about providing notice of termination, and ensuring legal enforceability of a lease.  On the economic side, Barry Ward will provide a current economic outlook for Ohio row crops, research on cash rent markets for the Eastern Corn Belt, and rental market outlook fundamentals.  We'll also overview farmland leasing resources.

There is no fee for the webinar, but registration is necessary.  Register at https://go.osu.edu/farmlandleasingupdate.

Posted In: Contracts, Crop Issues
Tags: farmland lease
Comments: 0
Blue sturgeon swimming in river.
By: Jeffrey K. Lewis, Esq., Friday, November 12th, 2021

Did you know that white sturgeon are North America’s largest fish?  The largest white sturgeon on record was caught in 1898 and weighed approximately 1,500 pounds. Sturgeon is the common name for the species of fish that belong to the Acipenseridae family. The largest sturgeon on record was a Beluga sturgeon weighing in at 3,463 pounds and 24 feet long.  Talk about a river monster!  Swimming right along, this edition of the Ag Law Harvest brings you some intriguing election results from across the country, pandemic assistance for organic producers, and a lesson in signatures. 

Maine first state to have “right to food.”  Earlier this month, Maine voters passed the nation’s first “right to food” constitutional amendment.  The referendum asked voters if they favored an amendment to the Maine Constitution “to declare that all individuals have a natural, inherent and unalienable right to grow, raise, harvest, produce and consume the food of their own choosing their own nourishment, sustenance, bodily health and well-being.”  Supporters of the new amendment claim that the amendment will ensure the right of citizens to take back control of the food supply from large landowners and giant retailers.  Opponents claim that the new amendment is deceptively vague and is a threat to food safety and animal welfare by encouraging residents to try and raise their own products in their backyards without any knowledge or experience.  The scope and legality of Maine’s new constitutional amendment is surely to be tested and defined by the state’s courts, but until then, Maine citizens are the only ones the in the United States that can claim they have a constitutional right to food.  

New York voters approve constitutional environmental rights amendment.  New Yorkers voted on New York Proposal 2, also known as the “Environmental Rights Amendment.”  The proposal passed with overwhelming support.  The new amendment adds that “[e]ach person shall have a right to clean air and water, and a healthful environment” to the New York constitution.  New York is one of a handful of states to have enacted a “green amendment” in its state constitution.  Proponents of the amendment argue that such an amendment is long overdue while opponents argue that the amendment is too ambiguous and will do New York more harm than good. 

USDA announces pandemic support for certified organic and transitioning operations.  The U.S. Department of Agriculture (“USDA”) announced that it will be providing pandemic assistance to cover certification and education expenses to agricultural producers who are currently certified or to those seeking to become certified.  The USDA will make $20 million available through the Organic and Transitional Education and Certification Program (“OTECP”) as part of the USDA’s Pandemic Assistance for Producers initiative. OTECP funding is provided through the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”).  Producers can apply for expenses paid during the 2020, 2021, and 2022 fiscal years.  For each fiscal year, OTECP will cover 25% of a certified operation’s eligible certification expenses, up to $250 per certification category.  Crop and livestock operations transitioning to organic production may be eligible for 75% of eligible expenses, up to $750 for each year.  Both certified organic operations and transitioning operations are eligible for 75% of eligible registration fees, up to $200, per year for educational events to help operations increase their knowledge of production and marketing practices.  Applications are now open and will be available until January 7, 2022.  Producers can apply through their local Farm Service Agency office.  For more information on OTECP visit https://www.farmers.gov/pandemic-assistance/otecp.    

A signature case.  In 2018 Margaret Byars died intestate survived by her 5 children.  After Byars’s death, one her sons, Keith, revealed that Margaret had allegedly executed a quitclaim deed in 2017 giving her Dayton home to Keith.  The other siblings brought this lawsuit claiming that the deed was invalid and unenforceable because the facts surrounding the execution of the deed seemed a little odd.  In 2017, Margaret was diagnosed with breast cancer and moved into a nursing facility.  Shortly after entering the nursing home, Sophia Johnson, a family friend and the notary on the deed, showed up to notarize the quitclaim deed.  Trial testimony revealed that the quitclaim deed was prepared and executed by a third party.  Margaret did not physically sign the deed herself.  In fact, the trial court noted that the signature looked like the handwriting of the person that prepared the deed and that no one saw Margaret authorize another to sign the deed for her.  Sophia testified that when she showed up to notarize the deed, the deed was already completed and signed.  Sophia also testified that Margaret seemed to intend to transfer the house to Keith and understood the nature and consequences of the deed.  After hearing all the testimony, the trial court concluded that the deed was enforceable, and the house belonged to Keith.  However, on appeal, the Second District Court of Appeals found the deed to be invalid.  The Second District stated that in Ohio a grantor need not actually sign a deed in order to be valid, however, the court concluded that the “signature requirement may be satisfied by another affixing a grantor’s signature on a deed so long as the evidence shows that the grantor comprehend the deed, wanted its execution, and authorized the other to sign it.”  The court concluded that the evidence showed that Margaret comprehended the deed and perhaps even wanted its execution.  But the evidence did not show that Margaret authorized anyone to sign the deed for her.  Because it could not be established that Margaret authorized the preparer or anyone else to sign the deed for her, the Second District court held that that deed was invalid under Ohio law.  This case demonstrates the importance of attorneys and the work they do to make sure all asset transfers and estate planning documents are in compliance with the law to help avoid unnecessary lawsuits and prevent any unintended outcomes.

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