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Making a Farm Lease
Leasing your farm or livestock land is a way for you to receive income without having to work the farm or ranch yourself. Farm Lease Agreements are contracts between the owner of the land and the tenant who plans to use the land for farming or raising livestock.Use the Farm Lease document if:
Leasing your land is a good way to make some income while you try to sell land or during times that you can't work the land yourself. This Farm Lease Agreement includes the provisions necessary to help you protect your investment while receiving payment for use of your land.Other names for Farm Lease
Farm Lease Agreement, Farm Land Lease Agreement, Farm Lease Form, Land Agreement
There are different types of farm or land agreements, but this agreement is specifically for what is often called a "cash-rent" Farm Agreement. This means that the tenant pays for the use of the land but the landowner does not share a percentage of the income generated from crops or livestock. The advantage to this type of agreement is that the landowner receives predictable, scheduled payments. The disadvantage is that they don't receive a possible larger payment if the tenant has an exceptional year.
Even if you are renting from or leasing to a longtime friend or neighbor, it is best to convert any type of handshake agreement into a signed lease agreement. While handshake agreements can be legally enforced with good evidence, a written agreement outlines the terms clearly and makes it much easier to prove an agreement should you need to. A written contract can also help prevent disputes that may arise from foggy memories and miscommunications.Major provisions of a Farm Lease
The Farm Lease Agreement is designed to protect the land owner's interests. It outlines how the land can be used, what condition the land should be in at the end of the lease, the owner's option-to-sell rights, insurance requirements, and default terms.
Here are the key sections of this lease agreement:
This section covers when the lease begins and ends as well the amount of the lease payments. You can define how you want payments received, when they are due and what happens if the tenant pays late (or doesn't pay). You can also stipulate what will happen if they do not vacate at the agreed upon time. It includes the option to restrict tenants from subleasing.
If there will be existing crops in the ground when the tenant moves in, the contract stipulates that just as much must be reseeded and ready to go when they leave the property.
This section releases the owner from anyone assuming any type of formal business relationship such as a partnership or joint venture and that the tenant is not an employee. This releases each party from obligations or liabilities incurred by the other. The contract also states that creditors or others cannot put liens on property the landlord owns to collect from the tenant.
Use of premises
This limits the tenant to using the property for only planting, growing and harvesting of crops or the feeding, pasturing, maintenance or production of agricultural livestock. It also says that the tenant shall use best practices and abide by all laws. Tenants are also restricted from using any type of chemicals that will cause long-term effects on the land. Additionally, it disallows dangerous materials to be stored on the premises.
Insurance and taxes
This section requires that both parties carry the proper insurance and that the landlord must approve the chosen insurance policies. As expected, the landlord pays for their own property and personal taxes. The tenant must remain in good standing with creditors associated with any of their property located on the premises.
Landlords are required to maintain structures and have permission to access the premises as needed. Structures may be barns, equipment, fencing and more. You can assign certain responsibilities to the tenant such as equipment they use often that may need ongoing maintenance. If significant damage occurs, such as from a fire or storm, the landlord does have the option to terminate the lease. You also have the right to give the renters permission to add approved improvements at their expense.
Utilities and services
This provision requires the tenant to pay for any utilities or services related to their operations. This includes expenses related to planting crops to return the land to as it was at the beginning of the lease. While utilities, in general, are included you'll want to have detailed discussions, about water rights and usage.
Option to sell (right of first refusal)
If the owner receives a viable offer on the property, they must give the tenant the first right to purchase for that price. If the tenant cannot or does not want to purchase the property the owner can proceed with the sale of the property. This is a good option if the landowner has been looking to sell for some time and decided to rent the land in the interim. The contract allows a reasonable amount of time to vacate.
To be frank, you can charge whatever the leasee agrees to (which may or may not be in everyone's best interest), but to determine a fair lease amount, you will need to balance expenditures (both parties) and potential gains. Ideally, both parties will have their expenses met and both will enjoy a profit. If you are thinking about a long-term agreement you'll want to try to ensure that the tenant can maintain your land well and afford ongoing expenses to be in a good position to bring in future income.
If your tenant will be growing the same crops that you are accustomed to doing yourself, you should have a good idea about what the expenses and yields might be. You could contact a local agricultural real estate professional to ask about going rates to help you determine what the fair market rate might be.
Once you and the tenant agree to the terms, it is set in stone for the term of the agreement. If the yields or prices are low that year, the tenant takes most of the risk, if it's a bumper year and prices are good, you will not be able to enjoy the excess gain. If you want to take a part of the crop or livestock risk/gain you can enter a Crop-Share Lease Agreement. For this type of lease, you should contact a lawyer to make sure your agreement meets your specific needs.
You and your tenant can decide how to cover these expenses. During the term of the agreement, the landlord still owns the irrigation system, but the tenant will be using it. Here are some possible solutions:
Grain bins are not exclusively included in this lease. But you can add a separate lease for use of your grain bins. If the tenant chooses to lease your bins or bring in other equipment, make sure the utilities to maintain the equipment is considered.
Often farm or ranch land will include residential buildings such as single-family homes, bunkhouses or mobile homes. You can choose to include those in the lease or you may even keep residing in one of the buildings as part of your agreement. However, even if you do not charge extra rent for these buildings, you should have a standard residential Lease Agreement in place so you can control who lives in the houses, how long guests can stay and how repairs are made.