What Should Go into Your Farm Land Lease Agreement
Farming and agriculture in the U.S. rely heavily on lease agreements. It isn’t always possible or profitable for you to work your own land.
Instead, you and your family might benefit from leasing portions of your land to operators.
Developing a successful relationship with an operator takes time. It also takes putting your agreement into writing to avoid confusion and disputes.
If you’re leasing your farmland for the first time or you’ve run into problems in the past, talk with Groves Law about what should go in your farmland lease agreement.
Types of Farm Land Leases
There are many ways to arrange the payment terms in a farm lease.
Fixed Cash Rent Agreements
Some landowners require a predetermined fee to use their land that does not depend on the yield or crop prices. The rental rate may be a certain amount per acre each year. This type of land lease agreement protects the landowner from market risk and lets the tenant control how they produce and market the crop.
Flexible Cash Agreements
In this type of farmland lease agreement, landowners use a formula to calculate rent. There’s a base cash rent amount, usually paid in advance. Then, there’s a possible bonus payment after the harvest.
The bonus payment is based on the yield multiplied by the price. In this type of arrangement, landowners take on some of the risk, but the base rent ensures they receive something.
Crop Share Agreements
A crop share is a farm rental agreement through which the landowner and operator divide the income from the crops by a predetermined percentage or ratio.
For example, the tenant might keep 75% of the proceeds while the landowner received 25%. For a landowner to receive a higher percentage, they usually have to pay for a portion of production costs.
Fixed Bushel Agreements
In this farm lease agreement, the rent is a predetermined number of bushels of grain per acre. The tenant delivers the bushels to the local elevator in the landowner’s name. Then, it’s up to the landowner to market and sell the grain.
In this arrangement, the landowner doesn’t take on production responsibilities and risk, but it does take on marketing risk.
Some agricultural land lease agreements are more complicated. For example, a landowner and operator can agree to a fixed price per bushel multiplied by the average yield of that field. This arrangement links the rent to the production capacity of the fields, and the landlord doesn’t take on any production or marketing risks.
Which Arrangement Is Right for You?
You have to decide the level of responsibility you want and the amount of risk you’re willing to take on. You can negotiate an agreement in which you receive fair compensation for the use of your land while the tenant takes on full responsibility for producing and marketing the crop.
If you have a low risk tolerance, you may prefer an upfront cash payment. However, if you’re willing to accept some risk, you can tie your rent to the production and sale of the crop.
Your ability to financially contribute to the arrangement also impacts your choices. You may be able to negotiate more revenue if you take on some of the financial risk during production and marketing.
Basic Farmland Lease Agreement Terms
Every farm lease needs specific provisions, even if it’s an informal agreement among family members or long-term neighbors. These may include:
- Defining the acreage involved in the lease;
- Houses, buildings, and structures on the land available to the tenant;
- The rental rate;
- When payments are due;
- Who receives USDA program benefits;
- The beginning and end dates;
- A renewal term;
- Crop restrictions;
- Pest control and other production restrictions;
- Conservation and land fertility requirements;
- Cost sharing;
- The landowner’s duties;
- The tenant’s duties;
- Equipment use;
- Drying and storage facilities;
- Building and equipment maintenance;
- Stover removal;
- Property taxes; and
- Insurance coverage.
The contract should state when and how you have a say in what goes on. Most landowners don’t have any input in cash-based leases, which is why this type of farm lease works best if you don’t want to be involved in decision-making and production.
In other farm lease arrangements, the owner has a greater level of responsibility and risk.
USDA Commodity Program Payments
Your farmland lease agreement should address U.S. Department of Agriculture programs and who receives any payments. You or the tenant may receive the full payment, or you may split the payment.
This depends not only on your preferences but on USDA regulations. The terms of the agreement dictate whom the Farm Service Agency will pay.
Necessary Legal Provisions
Every farmland lease agreement should have certain legal formalities, too:
- Right of entry: You should reserve the right to come onto the land.
- Mineral rights: The lease shouldn’t give the tenant any mineral rights unless you intend to do so.
- Recreational use: You should address whether the land can be used for hunting or other recreational uses without your express permission.
- Liability for injury: You should include provisions that limit your liability for harm caused by a farming hazard.
- Transfer of interest: You may want to prohibit the tenant from leasing or subletting any part of the land without your permission.
- Binding on heirs: Typically, you would make the agreement binding on the tenant’s heirs or executors.
- Liens and security interests: You can include provisions to give you a lien and security interest in the crops.
- Default: Address what happens if one of the parties breaches the contract, including the amount of interest you can charge the tenant on late payments.
- Arbitration: You can include an arbitration clause requiring you and the tenant to resolve disputes through arbitration instead of filing a lawsuit.
- Attorney fees and court costs: Address who is liable for paying attorney fees and court costs in the event of a dispute.
- Indemnification: In an indemnification clause, the tenant agrees to defend or indemnify the owner against any liabilities or damages from the tenant’s breach of the lease agreement.
If you try to complete a lease agreement on your own, you may inadvertently leave out many of these important provisions. Rely on a farm land lease attorney to help draft and review your lease agreement before you sign.
Ready to Complete a Farm Land Lease Agreement?
If you’re ready to negotiate and sign a farmland lease agreement, call Groves Law. We have extensive experience in all matters relating to agribusiness.
We can work to ensure that important formal agreements like farmland leases protect your business and your property. Call or contact us online today to set up a consultation and learn more about how we can help your business.
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