Farmland Leases: General Variables to Consider

Lee R. Schroeder indicated in a recent column at the The Lima (Ohio) News Online that, “Many farm leases are year-to-year verbal leases, despite many potential pitfalls. A written farmland lease does not need to be lengthy or be prepared by an attorney. However, I have found that effective farmland leases include at least four components.

First, the landlord and the tenant should be defined.”

“[I]f the current owner of the land owns the land through a life estate or under a life lease, the lease’s landlord should be defined to include the people who would own the land if the current owner dies before the lease terminates.”

Mr. Schroeder added that, “Second, the character of the lease should be defined. Traditionally, there were two types of farmland leases: cash rent and crop-share. A cash rent lease is usually structured as a payment or series of payments from the tenant to the landlord in exchange for the tenant’s ability to raise crops and keep all revenue earned from those crops.”

“In crop-share leases, the landlord has traditionally paid the real estate taxes and half of the cost of inputs such as seed, fertilizer and herbicides. The tenant would provide all labor and pay the other ‘share’ of input expenses. The annual crop would be split between the landlord and the tenant.”

Mr. Schroeder pointed out that, “Recently, ‘hybrid leases‘ have become more prevalent. These leases usually include a base cash rent and bonuses to the landlord for good yields, good crop prices or both. A tricky part of hybrid leases is that the bonus calculation can be confusing or hard to verify.”

Last week’s update noted that, “Third, the duration of the lease should be specified in the lease. The lease should have a definite end date or unquestionably clear automatic renewal provisions. Such clarity allows tenants to conduct advance marketing of grain and make timely orders and purchases of inputs for the following year. This also gives landlords income and expense certainty in budgeting their enterprises.

Fourth, the lease should set forth the rent amount or rent formula, along with specific rent-due dates in cash rent leases.”

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