If you’re a landowner with productive farm or ranch land that you won’t be using yourself, then you may want to consider an agricultural land lease.
Agricultural land leases can be the solution to everyone’s problems.
They allow you to get an income stream from your property while also supporting agricultural businesses, boosting the local economy, and increasing your community’s access to local food and agricultural products.
Whether you’re a landowner or a farmer, an agricultural land lease may be in your future.
If it is, here’s what you need to know.
1. What is an agricultural land lease?
A land lease is the most common form of lease in agriculture.
This lease can take the form of either a cash rent lease or a crop-share lease.
Both of these leases allow the farmer to farm the property, but involve different types of farmland rental rates.
With a cash lease, a tenant will pay a set price per acre or a set lease rate for the leased land.
It is beneficial for the landlord (landowner) because they are guaranteed a predictable return regardless of commodity prices.
For this reason, it is risky for the tenant (the farmer) because they must pay rent regardless of the crops they reap.
While parties can negotiate to help limit their exposure to these risks, the terms will often vary from situation to situation.
With a crop-share lease, the landlord will receive a share of the crops that the tenant produces in exchange for use of the land.
The amount of the share will typically depend on the local custom.
In exchange, the landlord will typically agree to pay a portion of the input costs.
In this circumstance, the landlord is exposed to more risk, but they also benefit from any price or productivity increases.
2. Does it matter if I have a written or oral agricultural land lease?
Yes, it does!
Oral land leases are only valid as long as certain requirements are met.
Unfortunately, many farmland leases are oral, and this can create issues down the line.
Though many parties prefer oral leases, written leases have benefits and those shouldn’t be overlooked.
First and foremost a written lease provides evidence of the lease terms in case a dispute arises between the parties at a later date.
Each state also has a “statute of fraud.”
This requires that certain types of contracts be executed in writing.
These laws can vary from state to state, so we recommend you do research before you create an agricultural land lease.
However, real estate contracts and contracts that cannot be fulfilled within one year are commonly covered by states’ statutes of frauds.
If your oral agricultural lease can be fulfilled within one year, then it would generally fall outside of the statute of fraud.
However, if it lasts for longer than a year, most states will need it to be in writing in order for it to be enforceable.
3. Why should I make my agricultural land available for leasing?
There are a few reasons why non-farmer landowners will make their land available to lease.
Here’s why you might consider it.
If your land has historically been used for agriculture, then you may recognize it as its best use.
Even if you’re not equipped to farm it yourself, that doesn’t mean you can’t come to an agreement with an experienced farmer who is looking to take over additional land.
Depending on your state, farmland may be taxed differently than other types of land.
If your land is used for active agricultural production, you could see a substantial reduction in your property taxes.
Who doesn’t want that?
Perhaps you’ve never been interested in farming before, but you’d love to make this your project now that you have more time on your hands or you’re retired.
You bought the land, but you still don’t know what to do.
Fortunately, you can lease out your land to someone who can help you!
4. What should I consider when leasing agricultural land?
In this section, we’ll break down the considerations into both landowners and farmers.
This is what you should keep in mind as you’re entering into a farm lease.
- What’s your reason for leasing land?
- Do you have a particular interest in seeing the land used for agriculture?
- What type of agriculture do you think is suitable for your farm?
- Do you care what your land is used for, or do you just want it to be farmland tax assessed?
- What is your vision for your property in the short-term and the long-term?
- Do you plan to lease it out for many years?
- Do you have an interest in farming it yourself at some point?
- Is the farm preserved?
- Do you plan on selling the property in the future?
- What do you want the property to look like?
- What types of agriculture fit into that vision?
- How important are land conservation practices to you?
- Do you require tenants (farmers) to have a certain level of income from the land?
- When do you need to receive rental payments?
- Is your main interest in setting up a standard lease with a farmer, or do you want to be further involved with the management of a farm business on your land?
- How much do you want to be responsible for on the property?
- Are there services that you would like your tenant to do? For example: maintenance of buildings, fences, farm lanes, field edges, waterways, etc.
- What infrastructure and improvements does your land have now that would be attractive to a potential farmer?
- What could be added in the future by either you or a farmer to fit the farm’s needs?
- What land characteristics are necessary for producing the crops you intend to grow?
- What infrastructure is needed for your farming business?
- Is irrigation needed?
- Do you require storage areas, livestock fencing, or deer fencing?
- What else will you need to help your farm business succeed?
- How do you plan to market your crops?
- Do you plan to sell your crops at an off-site location?
- Do you plan to direct-market the crops on the farm itself?
- How far are you willing to travel from the farm to an off-farm market?
- Will you have a housing arrangement that will add a commute?
- If on-farm direct marketing is your goal is the landowner open to having a farm stand or marketing on the farm?
- What type of business arrangement are you looking for?
- Are you looking to lease land for your own independent farm operation?
- Are you looking to partner with a landowner in some way? Ex: working together on a joint farm business or working for a landowner as a farm manager
- What types of business opportunities are you ready for?
- How much does farmland rent for in your area?
- How much are you willing to pay in rent for the land you need?
- Are you willing to trade services with a landowner for an adjusted rental rate?
- What length of lease is ideal for your farm business?
5. What should your agricultural land lease include?
Here are the common provisions included in written agricultural land leases:
6. How should you maintain your lease?
Building and maintaining a relationship between parties (landowner and farmer) takes time and effort.
At the core of a good relationship is communication, and you should remember that this communication is more than just an annual discussion of your lease terms.
Treat your lease discussion as being a “good neighbor.”
You should actively reach out, look for ways to be friendly, help where you can, and work through conflict if it arises.
This way, when it comes time to renew the lease or discuss anything outstanding, you can do so with grace.
One great resource if you do have a dispute between parties is the State Agriculture Development Committee’s (FREE) Agricultural Mediation Program.
The program is set up to provide voluntary mediation.
This means that both parties will need to be on board before mediation took place.
Still, if both parties agree, this is a great way to work through problems with a trained, impartial mediator who can facilitate a discussion and examine the problem from a neutral angle.
7. Where can I see a sample lease?
Are you looking for an example?
Check out this sample lease from California.
While the lease template is for reference purposes only, it can give you an idea of what you’ll need in order to move forward.
8. How can I find farmland to lease?
If you’re a farmer looking for farmland, there are several steps you can take to demonstrate your value to a landlord.
We have some top tips listed below.
As a farmer, your “brand” is how you’re perceived in your community.
In essence, you want to build your brand and reputation so that everyone wants to work with you.
Having a strong brand will make it easier to get a great farmland lease with a landlord you enjoy working with.
So, how do you brand yourself?
It depends on what you’re interested and invested in.
For some farmers, it may be an organic approach.
You may love treating the soil as a living organism and practicing a biological farm management approach.
If you can market yourself to landlords who are interested in the same thing, you’re bound to have more success.
Plus, you’re more likely to match up with someone who is interested in improving their farm long-term (rather than someone who is just looking to make some quick cash).
Other elements that are important for your brand (regardless of who you are) are your skills, hardworking attitude, and readiness to improve whatever farmland you rent.
As the Boy Scouts and Girl Scouts often say, “Leave a place better than you found it!”
Who wouldn’t want to work with someone who leaves farmland richer (in more ways than one)?!
In nearly all cases, farming is about relationships.
Cold calling local landlords isn’t likely to get you far.
As soon as you decide that an agricultural land lease is on the table, begin cultivating strong relationships in your community.
Build on the family ties that you have in the industry or your local agricultural community.
Talk to your neighbors.
Reach out to co-ops and extension agencies that can help connect farmers to people looking to rent their land.
If you’re inexperienced and looking to get your foot in the door, advertise yourself as an operator for landowners who don’t have the time to get to everything themselves.
This can help you learn as you go, whether you’re assisting with planting, harvesting, or spreading.
This may seem like a somewhat obvious tip, but the USDA (United States Department of Agriculture) has an abundance of tools that can help farmers who are starting from scratch, taking over a family operation, or getting an agricultural land lease.
They can offer you customer service, conservation reserve program transition incentives, farm loans, FSA land contract guarantees, and more.
Visit here to learn more!
9. How is an agricultural land lease terminated?
An agricultural land lease can often be terminated at any time if all parties agree to the termination.
Other methods of termination will be included in a written lease, including those events under which one party can end the lease without the consent of the other (breach of contract, etc.).
10. How can I find additional resources?
If you’re interested in learning more, you can visit the Farmland Information Center.
You’ll gain access to assessment tools, land leasing guides, and information about leasing from both perspectives.
The agricultural sector relies on agricultural land leases to meet the needs of farmers.
If you’re a landowner, consider leasing out your land to help boost agricultural production in your area.
Just make sure you consider all the questions listed in #4.
This ensures that both you and your tenant are on the same page.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.