It is critical that landlords and renters spend time addressing the terms of the rental agreement before finalizing the agreement to prevent problems over the duration of the contract. Maintaining positive working relationships between landlords and renters is vital for long-term success.
The following considerations and example farm land rental agreement can help landlords and renters assemble a fair and equitable written agreement specific to their situation. While the list of items to consider is not all encompassing, it provides common items that should be considered for inclusion in farm land rental contracts. However, not all items may be necessary to include in the rental agreement.
Farm Land Agreement Sections
Each section of land rental agreement is described, and examples are provided of items to consider in each section:
1. Contracting Parties and Date
This section of the contract should state starting date, ending date, and who the contract will be between. The landlord will be the person or persons who own the land and the renter will be the person or persons who will rent the land. This section lays the foundation for making sure that it is clear from the beginning who will be involved in the leasing process and the time period it is in effect.
2. Property Description
This section can be a detailed or a general description that clearly identifies the property. A legal description of the land could be entered here, a map of the property showing the actual rented acres, or a written description. It is important to list the actual number of acres that are being rented and where they are located. It may be necessary to identify specific usage of some acreage, for example tillable acres and pasture acres. If participating in USDA farm programs, consider attaching the USDA Farm Service Agency (FSA) maps to the lease agreement.
3. General Terms of the Lease
This section includes the length and/or time frame of the lease, and specific uses that the renter is granted and/or not granted by the lease. It may also include rights that the landlord reserves with respect to the property. Specific datesshould be used. Other items may be added to this section. Note that under Wis. Stat. § 704.05(2), unless otherwise stated in the lease, the tenant has exclusive possession of the property with some limited exceptions. For example, with advance notice and at reasonable times, the landlord can inspect, repair, or show the property to prospective tenants or purchasers. Examples:
- Hunting rights on the property
- Snowmobiling, cross country skiing, ATV/UTV, horseback riding
- Grazing livestock on crop residue or removing crop residue
- Grazing livestock on permanent pasture or growing crops
- Water source- irrigation and or livestock housed as part of agreement
- Use of buildings or grain bins
- Others relevant to property
- Landlord’s right to enter the property
- Proof of liability insurance coverage
4. Land Use
This section may include management practices that may or may not be used by the renter. Local Natural Resource Conservation Service (NRCS) and County Land Conservation Departments can be resources to help review and develop conservation plans for farms that may not have one. Examples:
- Cropping and soil conservation practices
- tillage practices
- crop residue management
- cover crops
- conservation structures
- Fertilizer and manure application protocols or limitations
- Pesticide application protocols or limitations and setbacks (grapes, hops, others )
- Procedures for physical changes to property (trees, fences, field roads, etc.)
- Cropping and soil conservation practices
5. Payments and Due Dates
This section addresses when payment(s) is/are due and how much the payment(s) will be. Details can be added as needed. If the contract is a flexible lease or some form of a crop share agreement, then details of what each party is responsible for, and/or factors that trigger changes from the base lease, should be defined and stated here. If the landlord requires a deposit for potential damage repair, this should be included in this section.
Most rental contracts are based on tillable acres, and/or only the acreage used by the tenant. It may be necessary to identify different rental rates for specific parcels depending on usage, potential productivity or other factors agreed upon by both parties. Examples may include tillable vs. pasture, potential large yield differences, etc.
Federal Farm Program – Most, but not all, farms have some program crop base acres enrolled in the federal farm program. These base acres generally have potential payments tied to them and may require both the landowner and tenant to sign forms t make program decisions. Many Federal Farm program payments are paid to the party assuming production risk. A landlord receiving straight cash rent is not assuming production risk.
6. Termination/Amendment of Agreement
This section should include reasons and/or procedures for early termination, and procedures for amending the contract. This section could also include procedures for renewal or nonrenewal of the contract, including date of notice and date by which agreement is reviewed to determine if it continues as is or with changes for the following year(s) of the contract.
This section seals the agreement with all parties’ signatures. All parties listed in section one of the agreement should also be included with their signatures in this section.
Determining the Rental Rate
Following is a list of criteria that may be considered when determining the rental rate.
- Potential crop returns – Knowing what your actual costs of production are and what yields to expect from an individual farm can help determine how much money will be available to pay rent. Farm operators need to know their own costs of production! Using average costs or costs derived from other sources can be a recipe for disaster. When calculating crop returns do not use historically high prices, but also do not use the historically lowest prices. Use what you received as your annual average price for corn, beans, small grains or other crops for the past 5 to 10 years.
- Land quality – All fields do not have the same yield potential! It is important to know the soil types on a farm and the yield capability of that land. Past yields can be an indicator of potential land capability. The NRCS Web Soil Survey may be a good reference.
- Slope and erosion potential or wetlands – This can influence cropping practices, the amount of land that can actually be cropped in a parcel, and management practices the land may require. Large, open, easy-to-farm level fields may have higher rent value than small, odd-shaped parcels that are difficult to farm.
- Previous crops, herbicides and fertility – Cropping history and past herbicide usage can limit crop options in the coming year. Soil fertility levels are often overlooked. Land with high phosphorus and potassium soil test levels will require considerably less fertilizer for crop production, and thus may have more initial rental value.
- Use of facilities and services provided – Use of grain drying/storage, machinery storage and other facilities can add to the value the tenant receives from the cash rent. It is recommended to develop a separate lease to address any facilities that may be rented. Clarification on fencing maintenance may also be needed.
- Previous history – The working relationship and previous experiences between landlord and tenant are often an important factor in determining final cash rental rates. If your tenant is taking care of the land as you would (keeping down weeds, maintaining soil fertility, preventing erosion), mowing the lawns and waterways, and plowing snow from your driveway, this may be worth a reduced rent rate. Trust, respect and good communication are essential in maintaining good landlord/renter relations.
- Area Demand – Competition, or the lack thereof, can sometimes have a significant impact on land rental rates. Some neighborhoods or areas have many farm operators looking to rent more land while others have only one or maybe two choices.
- Having the rental income pay the property taxes – Some landowner’s objective of land rent is to completely pay for their property taxes. There are some potentially serious flaws in this objective. In some cases this may work, primarily where there are a large enough number of tillable acres to spread the cost out and still have a reasonable rent payment by the renter. On parcels that have a high percentage of forest land or other land not useable by the renter or buildings that are of high value, and not used by the renter, it may be an unreasonable goal to have the tillable land carry the tax burden of the entire property.
Additional information can be found at: http://aglease101.org/
Contributing authors Jerry Clark, Ryan Sterry, and Joshua Kamps UW-Madison Division of Extension Agriculture Agents in Chippewa, St. Croix, and Lafayette Counties. Dr. Paul Mitchell, Director of the Renk Agribusiness Institute at the UW-Madison and Department of Agricultural and Applied Economics