Definitions
Rights to property are sometimes described as a bundle of sticks. They can be shared, divided or transferred via several methods such as sale, assignment, bequest, gift, sublease, mortgage, or license of the leased Premises. What is allowed and how a transfer happens is explicitly set forth in the lease.
Assignment and sublease are terms for transferring the Tenant’s leasehold interests to a third party. In assignment, the entire leasehold interest is transferred from the current Tenant to a new one. In a sublease, only a partial interest is transferred; in the case of a farm lease, this typically would be a portion of the property or a structure such as a hoop house.
Purpose
The purpose of this section is to set forth the rights of each Party to transfer interests in the lease, and what happens if either Party dies or the property changes hands.
FAQs
The operating agreement for an entity will dictate who takes on its rights and responsibilities upon its dissolution. If there is no operating agreement, each state’s corporations and/or intestacy (dying without a will) laws will govern who takes the rights and responsibilities of the lease.
As a matter of common law, the terms of a farmland lease continue after the death of either party. The deceased party’s interests and/or responsibilities descend to the applicable heirs. However, state laws, the kind of lease involved, and any applicable lease language will determine the outcome in each case.
The parties can also agree to terminate a lease upon the death of either party and can spell out in the lease what happens (e.g., to the crops and any associated income) if this occurs. Additionally, if the landowner dies during the term of a lease, the type of ownership in which the land was held will be relevant. Different states’ laws handle these situations differently. Consequently, it’s worthwhile to address this contingency in a lease.
A lease should specify what will happen in the event the premises are taken by eminent domain (through a condemnation proceeding), whether the parties reserve the right to terminate the lease, and whether the proceeds of a condemnation will be shared between the parties. A lease may also provide that, depending on the extent of the land taken, either party has the right to decide whether it is feasible to continue the operation of the farm or to terminate the lease without penalty, as well as how such determination should be made.
In this situation, the terms of the lease will govern. The lease will continue to apply to the subsequent owner if so stated in the lease. Or the lease may require that upon transfer, the lease terminates and the existing owner compensates the tenant per the terms in the lease.
Example Text
These text examples (in italics) illustrate what you might include in parts of this section. Example text is not intended as “sample” or “model” language, or as “best practice.” You may copy and paste example text into the template, then modify it for your working lease document. Or you can learn from the examples in order to develop your own text.
Text box “Change in ownership”
- In the event that ownership of the land comprising the Leased Premises is conveyed or transferred (whether voluntarily or involuntarily) by the Lessor to any other person or entity, this Lease shall not cease, but shall remain binding and unaffected.
- This Lease is binding on all persons who may succeed to the rights of the Lessor including but not limited to heirs, executors, assigns, and purchasers, as applicable, and in accordance with this Lease.
- Unless agreed otherwise in writing, this Lease terminates upon transfer of title to the Premises or any portion thereof from the Lessor to another party.