For farmers purchasing land is not always an option or the best option for their purpose. In those cases, leasing land may be a better option. For leasing land, there are multiple options:
1. Cash-Rent Leases: A cash rent lease is where the tenant usually pays a fixed dollar amount in rent and it may be modified based on crop yield, i.e. increasing in good years and decreasing in bad years.
2. Crop-Share Leases: In this type of lease the landlord will share input costs, such as seed, fertilizer, and fuel, while tenant provides the labor and remaining input cost. Once harvested, the proceeds will be divided as per the agreement.
3. Hybrid Leases: In this scenario, the landlord receives minimum fixed rent while sharing in some of the profits, losses, and decision making.
When deciding to lease, the following terms should be included in the agreement:
• Parties: It is important, no matter what type of agreement it is, that the parties are clearly identified, including listing addresses or other unique identifying information.
• Purpose: Farm leases should note the purpose of the lease.
• Property Description: An accurate description of the leased area should be included that has listed any buildings and structures that tenant has access to.
• Lease Term: The length of the lease should be clearly stated and in some states may require that it be recorded if it is longer than a certain amount of years.
• Renewal Terms: The lease should include provisions allowing for renewal of the lease including notice of intent to renew or not renew.
• Payment: The lease should indicate how rent is determined, when it will be due, and the form of payment.
• Duties and Prohibitions: The lease should state the duties and prohibitions of both the landlord and the tenant, including specification of how will be responsible for repairs and maintenance.
• Rights to Natural Resources: The lease should state whether tenant or landlord will retain the rights to natural resources on the property, such as water, solar, mineral, timber, fishing, and hunting rights.
• Reporting Requirements: Landowner should discuss and include reporting requirements by tenant, such as providing grid sampling, yielding monitor data, weighing wagon results or testing plot results.
• Default: The least may include a list of actions that count as defaults in terms of the lease, specifying whether part or all of the listed defaults can be cured or waived by the other party.
• Ability to Assign or Sublease: Lease should state whether the obligations under the lease may be assigned or subleased to another farmer.
• Notice: The lease should specify how much notice both landlord and tenant need to give in various situations, such as notice of default and intent to renew or terminate lease
• Termination: The procedure for voluntary and involuntary termination should be detailed in lease. State law will vary on how much notice is required and the format for providing notice.
In addition to the above stated terms, parties should consider including terms such as an indemnity or hold-harmless clause to prevent landlord for being held liable for activities of the tenant. Additionally, lease should include clauses for choice of law, choice of forum for disputes, Alternative Dispute Resolution, confidentiality, and severability.
Want more information on contracts for the food and agriculture industry? Check out my first book that I co-authored with Pat Dillon, an Iowa agriculture lawyer titled “Field Manual: Legal Guide for New York Farmers and Food Entrepreneurs” available on CreateSpace, Amazon, Kindle and iBooks. You can find out more about this book here. Furthermore, you can check out this extensive outline on common agriculture contracts on my JD Supra page prepared for this Lawline.com presentation.