Clearly, landownership is a wonder piece of a person’s holdings. You go to bed with the same number of acres you woke up with, it doesn’t change where it is located or who manages it, doesn’t have a new login requirement every six months or have a customer rewards email program that you have to opt out of.
On the downside, its value growth (last couple of years not withstanding) is slow, it doesn’t have a lot of ups and downs in return, and it not a prone to high returns as other types of investments. It’s public that you own it in most cases without extra effort to hide it, and it attracts the public to your door. No body ever needs permission to track a deer across your stock portfolio and no young driver has ever gone in a ditch outside your bank cd’s and needs a tow out.
Renting the land is a way to achieve a return in exchange for not taking some of the risk of putting in the crop. Landowners shouldn’t expect to take productivity times acres minus average expenses and think that is what they should receive as rent. Landowners are shifting the risk of production to the tenant in exchange for a sure thing, the rent check. If they want some risk, landowners can “stay in the game” in several different ways such as by crop sharing the ground or taking a percentage of the gross crop as rent and marketing it themselves. It all depends on if the landowner wants to be worried about April showers, July heat, September freezes, and fall market failures.
The cycle in Iowa is 1 March to 1 March, with formal notice of termination of a lease required by the 1st of September of the year prior to the end of the lease. That is a 2024-2025 March to March lease requires termination by 1 September of 2024. Traditionally, landowners take rent in Iowa in March. While the best way to ensure landowners get their rent is to get it up front, many choose to take ½ in the spring and ½ in the fall or participate in a crop share type arrangement where the rent isn’t really due at the start of the lease term. Once the rent is paid, then the landowner has to release the lien.
If a landowner opts for this route, it is vital that they consider a landlords’ lien. Many years ago, it was a presumption that landowners got paid first in the event of a shortfall of funds from a tenant. That is not the status of the law. Landowner’s must file a protective lien with the Iowa Secretary of State. Landowners who follow the steps correctly will have the first in line status that used to be the default. That priority position is determined by when the filing is made. To maintain the 1st in line status, the lien has to be filed within 20 days of the tenant taking possession. In many leases that is right after St. Patrick’s day. Also, by filing the lien, the landowner’s name shows up as a secured creditor on checks for sold grain etc. and makes it easier to take crops and equipment to satisfy the landowner’s debt.
The tenant’s lender isn’t going to be thrilled to find out a landowner has a lien, after all, if done right it jumps the line in front of them. Don’t feel too bad for them. Those lenders have detailed cash flows and knowledge of the farm tenants’ operations and make risk judgments based on those factors. Landowner’s generally do not have access to that information to decide whether or not to carry a tenant for six months, often times at zero interest.
The push back on this concept of getting a lien is real. Landowners say things like, a handshake is all I need, I will get paid regardless, the tenant would never do that to me, or I trust the tenant to do the right thing. Those are all valid human observations and considerations. They don’t play well at court, however. Tenants say they rely upon the interest free financing to make the cash flow and that they provide value in the form of snow plowing, fence fixing, and other landowner benefits in exchange for those payment concessions. Those probably have more weight for a compelling reason to carry a tenant on a delayed payment.
Realistically, the landowner’s tenant might be great, but is her husband or her kids who live in Pittsburg going to behave the same way? What about dealing with dead tenant’s executors who are trying to stretch 10 dollars over 15 dollars worth of bills to close the estate. It’s not about the tenant all the time, sometimes is about who the tenant is replaced by that drives the need for this simple filing.
So, what is a landowner to do? They want to be paid but they want to not have an acrimonious relationship with the tenant or cause problems with the bank and they want their snow plowed and deer sausage delivered at Christmas. The answer is simple, cash money upfront, at a discount from the expected rent. Depending on the size of the rent check, 98% of the money with no hassle, no worry, and no lawyers in March is better than 100% of the rent minus legal fees, time spent dealing with the tenant and the tenant’s banker and watching the weather.
