As harvest season comes to a close, many producers are turning their attention to preparations for the next year. One thing that may be forgotten in this planning period is the farm lease for those who rent land. In its simplest terms, a lease is an agreed upon arrangement between the land owner and the renter. It serves to protect the interest of both parties so that both’s responsibilities are clearly defined. While many do this verbally or with a “hand shake” agreement, it is often best to have a written lease to avoid complications or disagreement should they arise. Below are several tips that farmers and land owners may want to consider when creating farm leases.
Cover the Basic Components of Lease
All farm leases should contain four basic components: (i) a clear description of the property being leased, (ii) the rental rate and any other rent arrangement, (iii) the length (or term) of the lease and (iv) signatures of the owner(s) and tenant.
The location of the farm and/or field(s) being leased should be as clearly defined as possible to avoid any issue with vagueness. The legal description of the property needs to be included, as well as, any additional descriptions for the locations that may be helpful to identify individual fields. The approximate size of the field, its distance from landmarks (i.e. creeks, named roads, etc.), GPS locations, and Cardinale directions (i.e. North, South, etc.) are all important features that may help distinguish between fields. The legal description is a physical description that is sufficient enough to ensure legal transfer of the property and may be found on the most recent copy of the most recent deed for the property or the County Clerk’s office. It may be tempting to use the description from the properties tax records, but sometimes these records haven’t been updated and may refer to a prior deed. It is also important to include the names and signatures for all of the owners on the lease.
The amount of rent agreed upon by the owner(s) and tenant is an obvious part to include in the lease, but this may take many forms. Most producers choose a fixed cash lease (i.e. a set cash value per acre for each year) because it is much simpler for both parties involved. However, there are other types of leases that may more evenly distribute the risks and rewards involved with farming between the owner and tenant. For example, a flexible cash lease determines the rent based on actual yields attained on the property and/or the market price of the crop at the time of harvest. This has the advantage of being more accommodating to the tenant, who frequently faces uncertainty in the growing conditions and market trends for the upcoming year when leases are signed, but the amount of rent paid/received may vary from year-to-year. Similarly, a crop-share lease (or livestock-share lease for pastures) more evenly splits the risk between both parties as property owner receives a portion of the harvested crop as the rental fee. However, as the proportion of the crop received by owner increases, their investment in the cost of production may also be expected to increase. Regardless of the form of how the rent is paid, there should be deadlines for when the payments are due.
The length of the lease may vary between farms and types of operations, and there are advantages and disadvantages for short- and long-term leases. A short-term lease allows more flexibility as the rent is more readily negotiated based on property/crop values or if the owner wishes to sell the property. Most short-term leases may include an annual automatic renewal clause if the owner and tenant agree to previous lease terms. A long-term may be needed if the tenant were to invest capital into improvements that will have an impact on production or the value of the property beyond a single growing season. For example, the building of fence to be able to graze a pasture or applying lime to a low fertility field may require the tenant to spend a large amount of money into the property to suitable for production and should therefore be able to recover this investment over a greater number of years.
Include Any Additional Concerns
As previously mentioned, a lease is simply an agreement, or contract, between a land owner and their tenant on how a property should be used. Therefore, either party should be invited to include a section on potential concerns they may have for use of the property. Ultimately, any worries or questions discussed between the owner and tenant may be included in the lease, but the terms must be agreed upon by both parties. These sections vary considerably between farms, but some examples of additional clauses that may be used include:
· Use and/or Maintenance of the Buildings: Many properties contain barns or other facilities, which may or may not be of use to the tenant. If they are used by the tenant, it should be clearly defined who is responsible for any repairs or maintenance to these structures.
· Controlling Weeds: A landowner may require the tenant to keep weeds in or around the property leased under control. This is particularly important for noxious or invasive weed species, such as autumn olive or johnsongrass, which can quickly take over a field and becomes more problematic to control once they are well-established in an area. The way the weeds are controlled (i.e. mowed, herbicides, cover crops, etc.) are important to include in this section and may be of importance in grain fields to prevent herbicide resistance in certain weed species.
· Maintaining Soil Fertility: A landowner may also want to include stipulations on how the soil fertility on a property is managed. This may include requiring the owner receiving the results of soil test and proof of fertilizer application annually. Soil fertility is an inherent characteristic of the field and may be costly and take a long period of time to recover if mismanaged. A tenant may essentially “mine the soil” of nutrients by harvesting a crop without applying fertilizer over multiple years and then not renew their lease when sub-optimal yields are obtained. For lime applications an owner may pay for a portion of the cost of lime or agree to prorate the rental cost over a three- to five-year period if the tenant pays for this expense because the benefits from lime applications are received over multiple years.
· Conservation Practices: Similar to sections requiring the tenant to maintain or improve soil fertility on the property, the owner may want to establish guidelines for specific practices they wish to be implemented in the field. This may include some things as no-
tillage practices, the use of cover crops, rotational grazing, etc. If these practices require an additional investment to the tenant, then both parties should work out an agreement that off-sets this expense.
· Right to Entry: Legally, the tenant has the right treat anyone who enters the property as a trespasser once the lease is signed, including the owner. This would be considered poor judgment on the tenant ‘s side and would decrease the likelihood of their lease being renewed. However, it would be a good practice to define who would be allowed entry to the field or property, and during what periods they will be allowed. For example, a tenant may wish that access to a field be restricted to the extended family members of the owner, who usually ride ATVs through the property during the summer months, when the tenant has a crop or cattle in the area, but may allow for these family members to access during the fall months to hunt following harvest of crop or when the cattle are moved.
· Termination of Lease: It may be wise for both parties to agree on an appropriate method on how the lease may be ended, particularly if one party doesn’t meet the terms agreed to. Some owners and tenants will go as far to assign an arbitrator (i.e. an unbiased authority) who may help settle disputes before they reach the point of litigation. This section may also include deadlines of when the tenant must notify the owner of their intent on renewing the lease or if a written notice would be required for this decision.
Incorporate Changes as if Creating a New Lease
It is highly unlikely that the owner or tenant will be likely to anticipate every issue that may arise from rental of a property, especially if this is an initial arrangement on a property. If any changes are required during the term of a lease, a new lease does not need to be created. Instead it may be sufficient to make a separate document with the required changes if it is signed and dated by both parties. A clear description of the properties that the changes apply to should also be included if the tenant rents multiple properties from the owner. When (or if) a new lease is created, these changes may then be incorporated into the new lease agreement.
Don’t Be Afraid to Seek Help When Needed
The creation of any document that may have legal implications may seem intimidating, but farm leases do not need to be complicated. Again, a lease is simply a written form of an agreement between the owner and tenant. Many producers do this verbally, but having this agreement written down may serve as a reference for future use. While lawyers may assist with the creating of a lease, they may do so for a fee that is often an unneeded expense. Many land-grant universities and farm organizations have templates available where the tenant or property owner may add their information. The Mason County WVU Extension Service is always willing to provide insights or any additional information required to create an effective farm lease that protects the interest of both parties.
Ben Goff, Ph.D., is ANR Agent-Mason & Putnam counties, Extension Service, West Virginia University.