By BRAD HAIRE
Farm Press Editorial Sta;
Have you recently made a land lease agreement? Was it fair? Is it time to renegotiate? Situations change and can change quickly in farming. What seemed fair a few years ago might not be today. There is more than one way to come to a land
lease agreement, and it depends on how the risk is shared.
“An e;cient lease is achieved if it allows the farm to realize its
total potential returns while protecting the interests of both parties,” says Chuck Danehower, University of Tennessee Extension farm
management specialist and
Southeast Farm Press contributing writer.
“An equitable lease provides each party shared returns, while protecting the
interests of both parties. A
written lease is highly desirable and can prevent problems in the future.
“The two parties involved must select the lease type best suited
to their situation. The landowner and producer must determine what
contributions of labor, capital, and management skills they are able
and willing to provide, and what production and price risks each
party will bear. Making these determinations will give a general in-
dication of the type of agreement which best fits. The determination
of an appropriate crop-share or cash lease arrangement will have a
significant influence on net-farm income and satisfaction of the two
parties,” Danehower says.
ESTABLISH A CASH;RENT RATE
Cash lease has been popular for many years. Landowners like it because they have minimal responsibility. This type of lease also provides tenants maximum operating freedom.
If the decision is made to use a cash rental arrangement, what is
fair cash rent for the cropland? Prior to 2014, there was an increase
per acre in cash rent leases as crop prices stayed in a historically higher range. Now that prices are lower and projected to remain lower, it
may be time for a reevaluation of the lease, Danehower says.
General knowledge of cash rents in the area is needed, with adjustments made for di;erences in land productivity. The National Agricultural Statistics Service has cash rent data available on their Quick
Stats website, and in many areas it is broken down by county. This
can be a good place to start when evaluating rents.
HAVE YOU CONSIDERED A FLEXIBLE LAND LEASE?
Flexible crop leases have been more in place in the Midwest, but
within the last few years there has been increased interest in the
Southeast and Mid-South.
“Twenty years ago, farmers used what I would call an informal
flexible lease,” Danehower says. “They had farmland leased on cash
rent. If they had a really good year, they would increase the rent to
the landowner. It was not called a flexible lease but the landowner
knew if the year was above average, they would receive extra rent.
Today’s flexible leases are probably a little more complicated than
that, but is still the same concept.”
“Basically, there is a fixed cash rent with a mechanism in place
that can provide a bump in the rent if certain conditions are met —
usually price and/or yield related. Some flexible lease agreements
have a base rent, which not only can be adjusted upward in good
times, but can be adjusted downward in a poor year.”
There are many ways to adjust cash rent. The three most com-
mon are (1) adjusting for changes in commodity price only, ( 2) both
commodity price and yields, and ( 3) output price, yields, and input
costs. Along with these methods of adjustment, there are fixed cash
leases or a percentage of the crop, whichever is greater.
WHAT ABOUT CROP;SHARE LEASES?
What are we really talking about when we talk about a fair rent?
We really mean a fair and equitable rent that is based on the equity
Is your land lease fair?
Time to renegotiate?
What seemed fair land lease terms a few years ago might not be today, and it
may be time for renegotiation.—Getty Images/Justin Sullivan
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