Yes, you read it right: our roundup of agricultural law questions includes a question on popcorn--not one we often hear. Below is our answer to it and several other legal questions we’ve recently received in the Farm Office.
A farm lease landlord didn’t notify a tenant of the intent to terminate a verbal farm lease before the new September 1 deadline. What are the consequences if the landlord now tries to enter into a new lease agreement with another tenant operator?
Ohio’s new “statutory termination law” requires a landlord to provide written notice of termination of a verbal farmland lease by September 1 of the year the lease is effective. The law is designed to prevent a tenant from losing land late in the leasing cycle, after the tenant has made commitments and investment in the land. The new law now establishes September 1 as the deadline for a valid termination, unless a lease provides otherwise. If a landowner terminates after September 1, the consequences are that a tenant could either try to force continuation of the lease for another lease period or seek damages for the late termination. Those damages could include reimbursement for work already completed, such as fall tillage, nutrient applications, and cover crops; reimbursement for input costs such as seed and fertilizer that tenant cannot use or return; and lost profits from the tenant's loss of the crop. Find our law bulletin on the new statutory termination date for farm leases on the Farm Office website.
A farmer plans to build a barn and grain bins close to the property line of a neighbor. Does the neighbor have a legal right to stop the farmer from building so close to the boundary?
No, probably not. Because the neighbor lives in a rural area, Ohio’s “agricultural exemption” from local zoning regulations applies to the situation. The agricultural exemption law states that except in limited circumstances, agricultural land uses and structures used for agriculture, like barns, are not subject to township or county zoning regulations and building permit requirements. If this township has building setback requirements in its zoning resolution, for instance, the farmer is not subject to the regulations and can build the barn closer to the property line than the setback provisions require and farmer is not required to obtain a zoning or building permit for the barn. One exception is that if the farmer’s land is less than five acres and is one of at least 15 lots that are next to or across from one another, the agricultural exemption would not apply to the farmer's land. Find the agricultural exemption from zoning in Ohio Revised Code 519.21.
In replacing a line fence, a landowner entered a neighbor’s property and cleared 10 feet from the fence of all brush and trees, even though the neighbor warned the landowner not to do so. Did the landowner have a right to cut and remove the neighbor’s trees and vegetation?
No. Ohio law in Ohio Revised Code 971.08 does allow a person to enter up to 10 feet of an adjacent neighbor’s property for the purpose of building or maintaining a line fence, but it is only a right of entry for the purpose of working on the fence. It allows a person to access the neighbor's property without fear of legal action for trespass. But the law does not allow a person to remove trees or vegetation within the 15 foot area. In fact, the law specifically states that a person will be liable for any damages caused by the entry onto the neighbor’s property, including damages to crops. Additionally, since the neighbor stated that the trees should not be removed and the landowner removed them anyway, the landowner could be subject to another Ohio law for “reckless destruction” of trees and vegetation. That law could make the landowner liable for three times the value of the trees that were removed against the neighbor’s wishes. Find the reckless destruction of vegetation law in Ohio Revised Code 901.51.
Would a milk contamination provision in an insurance policy address milk that could be contaminated as a result of the East Palestine train derailment?
Probably not. Milk contamination coverage provisions in a dairy's insurance policies typically only apply to two situations: unintentional milk contamination by the dairy operator and intentional contamination by a party other than the dairy operator. Contamination resulting from an unintentional pollution incident by a party other than the dairy operator would not fit into either of these situations. But insurance policies vary, so confirming a farm’s actual policy provisions is important when determining insurance coverage.
A grower of popcorn wants to process, bag, and ship popcorn. Does the grower need any type of food license?
No. Popcorn falls under Ohio’s “cottage food law.” Popcorn is on the list of “cottage foods” identified by the Ohio Department of Agriculture (ODA) as having lower food safety risk than "potentially hazardous foods." A producer can process and sell a cottage food without obtaining a food license from the ODA or the local health department. However, the producer may only sell the food within Ohio and must properly label the food. Labeling requirements include:
- Name of the food product
- Name and address of the business of the cottage food production operation
- Ingredients of the food product, in descending order of predominance by weight
- Net weight and volume of the food product
- The following statement in ten-point type: "This product is home produced."
Read our law bulletin on Ohio’s Cottage Food Law on the Farm Office website.
Tags: farm lease, statutory termination, line fences, trees, Zoning, agricultural exemption, dairy, Insurance, popcorn, cottage foods
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.
Tags: farm lease, farm lease termination, statutory termination, September 1, crop lease
By 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.
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.
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.
Tags: legal groundwork, tenant, farm lease, right to purchase
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.
Tags: farm lease, verbal farm leases, lease termination, HB 397, beginning farmers, tax credits, HB 95
Author: Peggy Kirk Hall, Asst. Professor, Agricultural & Resource Law
Tags: farm lease, farmland lease, enforceable lease