Policy Post: September 2020

Handshake agreements and holdover tenant terms:

Land rental agreements are an integral part of farming. It is very common for rented land to make up a sizable portion of a farmer’s total operation. There are many types of rental agreements; however, oral lease agreements are most common across the state. These leases are usually based on a “handshake agreement” and the farmer keeps control of the land based on a past agreement.

These handshake agreements lead to “holdover tenants,” someone who remains in possession of real property after a previous tenancy expires. When a landowner makes a handshake agreement with a farmer there is nothing in writing to spell out the terms of the agreement. It is basically assumed the farmer is a tenant on the property from year to year after the initial agreement– allowing the farmer to be a tenant on the property if the landowner continues to take the rental payments. As a result, the farmer becomes a holdover tenant with the same terms as the original agreement.

In the 1945 case, Smith et al. v. Holt, the Tennessee Court of Appeals ruled in favor of the tenants of a house who were considered “holdover” tenants based on the facts of the case. The property owner in the case decided to terminate the tenancy without sufficient notice. The court recognized to terminate a year-to-year lease in Tennessee, notice must be given at least six months prior to termination of the lease. Because of the case, it has become common practice for landowners who wish to legally terminate a holdover farm lease to provide farmers a written notice of termination prior to July 1, six months prior to the next calendar year. For tenants who become holdover tenants after multiple year leases, it is unclear whether notice of termination would renew the lease for another like term or convert the lease to a year-to-year lease unless specified in a written contract.

Competition for farmland, changes in ownership and estate settlements have increased the number of disputes between farmer tenants and landowners wanting to terminate the oral agreement. The Smith et al. v. Holt case sets a legal precedence for sufficient notice to terminate a lease, but because it was not a farm lease case, the precedent has not always been followed by the trial courts for farm leases. No statutory law protects farmer tenants in this type of dispute.

Written contracts are the most secure option for farmers and landowners. They can be worded as a year-to-year or multiple year lease. However, if a tenant remains in control beyond the written lease without a written renewal of the contract, the tenant becomes a holdover tenant for another lease term. Provisions in written contracts can address changes in term length once holdover tenancy begins. The following topics can be outlined in a written contract to provide clarity between the landowner and farmer.

Templates for written land rental agreements can be found at ag.tennessee.edu/arec/Documents/publications/.

The following general information has been provided in part by Carol Anne Austin, J.D., of Dyersburg. Farm Bureau does not offer legal advice and information provided by Ms. Austin is for educational purposes and not legal advice. Readers should consult their own attorneys for specific questions related to the information provided.

Heirs and Successors
Land rental agreements can become complicated when the land is transferred to heirs and successors without a written contract. A tenant farmer has the right to farm regardless of death of an owner unless outlined in a written agreement. If the farmer is a holdover tenant, heirs and successors must adhere to giving written notice of termination by July 1 to end a land rental agreement or the farmer will continue into the next year. Once a farmer has a crop in the ground, the lease can be terminated but the tenant has the right to harvest the crop.

New Ownership
It is generally recognized by Tennessee courts that, without a written contract, a tenant farmer has the right to continue farming regardless of sale of the property. A new owner must give the farmer a written notice of termination by July 1, or the farmer will have the right to farm the next year.

Livestock Compared to Crops
Rules for pasture leases are not necessarily the same as for crop leases. The premise of the six-month notice is to provide sufficient time for crops to be planted and harvested. Under applicable law, such as the Uniform Commercial Code (UCC), it is generally recognized that the crop belongs to the farmer (although the landlord has lien rights in the crop for payment of rent). Hay would likely fall under the rules for a crop lease, but since the term of the lease can vary, it is best to have a written contract. When notice of termination for pasture leases must be given depends on how often and when rent is paid. For example, if rent is paid annually, there must be a six months’ notice. Instead of the July 1 notice date, the date the notice is due would depend on when the rent is due. If there is a written contract, the notice for termination can be upon what the landlord and tenant agree.

Land Improvements
When a tenant is making long-term improvements to the land like lime application and excavation, it is best to have a written agreement between the landlord and the tenant outlining shared costs. A written agreement prior to beginning the improvements can ensure the two parties agree on the methods used, the tenant will be reimbursed, and how the improvements will be handled at the end of tenancy. A written agreement can also ensure a landlord is included in decisions when assistance is provided by government agencies for land improvements.

Fixed Equipment
Fixtures in agriculture may include any removable equipment or structure affixed to the land; any works on, in, over or under land; or anything grown on land for a purpose other than harvesting. This includes irrigation equipment, grain facilities, feeders, sheds, etc. According to Ms. Austin, the general practice between many landlords and their farmers is “whatever is in and underground belongs to the landlord and what is above ground belongs to the farmer.” This is not always the case and many lawsuits result from disagreements over fixtures. Since these assets are such an expense, it is best to have a written agreement declaring ownership and handling of the property once tenancy ends.

Hunting and Fishing Rights
Written agreements can outline hunting and fishing rights of the tenant and landlord. This not only resolves the issue of who gets the revenue from such activities but also protects livestock and crops from being damaged. It is also important to provide clarity on access rights for both parties.

COVID-19 liability protection passed during special legislative session:

A special session of the General Assembly began on August 10. They adjourned on August 13 after addressing issues in Governor Bill Lee’s call for the special session of COVID-19 liability protections, telehealth services and laws governing state capitol grounds.

The Tennessee COVID-19 Recovery Act (SB8002/HB8001) passed with overwhelming bipartisan support in the House and Senate.  This legislation is important to protect farms, businesses, churches, non-profits and schools from frivolous lawsuits. Thanks to Lt. Gov. Randy McNally and Speaker Cameron Sexton for leadership in seeing this legislation through and for Governor Lee asking the legislature to address this issue.

The Tennessee COVID-19 Recovery Act specifies in state law there is not a cause of action for loss, damage, injury or death arising from COVID-19 unless an entity demonstrated gross negligence or willful misconduct, creating a higher standard to file a lawsuit. For a claim to move forward, the claimant must file a verified complaint with specific facts that the alleged injury/illness came from the workplace. The claimant must have their injury, damage or death certified from a licensed physician. This bill is retroactive to August 3, 2020, as this is the date Governor Lee announced the special session. The intent of retroactivity in the legislation is to eliminate any scenario where lawsuits would quickly be filed as a placeholder in order to have current law apply. The legislation also has an explicit severability provision which makes clear if any individual piece of the legislation is ever ruled unconstitutional, the entire law will not be removed from state law. Finally, it clarifies the legislation does not apply to claims under Tennessee’s Worker’s Compensation law.

The telehealth legislation (SB8003/HB8002) broadly mandates two items. First, it requires insurance companies to provide telehealth and telemedicine benefits to the same level as in-person visits. It does provide some safety measure such as requiring the virtual encounter to be medically appropriate. Second, it requires the insurance company to utilize the same payment policies for telemedicine visits as it does for in-person visits. This means a provider receives the same payment, whether an encounter is in-person or virtual. Farm Bureau was neutral on this legislation during the special session.

Farm Bureau would like to thank all our members who contacted their lawmakers in support of the Tennessee COVID-19 Recovery Act. This brief special session shows how vital it is for Farm Bureau members to have personal relationships with lawmakers and be willing to take quick action when needed.