October 25, 2013

A written contract is an essential business practice when leasing farm property. It forces detailed consideration, communication, and understanding by both parties and serves as a handy reference in case details are forgotten or one of the parties dies.

The contract should encourage the most profitable, long-term operation of the farm and be beneficial for both parties. Are the returns proportional to the contributions both tenant and landlord make to the business? Will the lease prevent or discourage a tenant from operating the farm in the same way a well-financed owner-operator would run it? Are the best farming methods, conservation practices, and/or environmental practices utilized? What is the plan for needed improvements? Every contract or lease agreement will one day terminate; how is termination to be handled? What method(s) will be used to settle accounts?

The following checklist will help tenants and landlords consider components of a well-designed lease agreement. It is advisable to have an attorney for one party prepare the lease and an attorney for the other party review it.

Parties to Lease and Description
___ Date the lease is entered into.
___ Names and addresses of the landlord and tenant.
___ Legal description of the leased property.
___ Signatures of the landlord and tenant.

General Terms
___Time period of the lease, including beginning and ending dates.
___Rental amount for cash lease; base rent for flexible cash leases, and respective shares and contributions for a crop-share lease.
___When and how rent will be paid and penalties for late payments.
___What is the clause, if any, for automatic renewal of the lease?
___Provision for carrying liability insurance on the property
___ Insuring the crop: under cash leases, tenant pays all premiums and receives all indemnities; under crop-share, each party can insure their share.
___Statement that the landlord and tenant do not intend to create a partnership by entering into the agreement. Neither party will obligate the other for debts/liabilities or damages.
___Conditions under which the tenant may or may not sub-lease the property; allso consider hunting rights, grazing stalks, etc.
___Specify mineral and water rights.
___If tenant is given rights to farm improvements (buildings, bins, for example) at what rental rate?
___If landlord does not own all irrigation equipment, how rent is adjusted to reflect that change?
___Provisions for landowner(s) and tenant(s) reporting of crop/land/business operations to include what these reports will include, how, where, by what means, and how often this reporting will take place.

Termination
___When and how the lease may be terminated and requirements for notice of termination?
___Reimbursement provisions for crop nutrients, lime and/or completed fieldwork upon termination of the lease.
___Acts of the tenant that would constitute default of the lease.
___Tenant's rights if the property is transferred or condemned during the lease period.
___Reimbursement provisions for a crop still in the ground when the lease is terminated.

Operation and Maintenance
___Desired or prohibited farming practices, including types of chemicals that may not be used on the property.
___Process of measuring and maintaining soil fertility and pH levels. (Include minimum required amounts of fertility and remedial actions)
___Which party is responsible for controlling noxious weeds?
___Which party is responsible for maintaining fences?
___Whether the tenant has the right to make improvements and be compensated for improvements.
___Is tenant responsible for non-crop acres (for example for mowing)? How is he compensated for that work?
___Will the tenant be required to carry insurance to cover costs of mitigating his activity – like an accidental chemical spill?
___Whether the tenant has the right to utilize improvements made by the landlord.
___Provisions for soil-conservation practices.
___Statement regarding the existing environmental status of the property and responsibility to minimize activities that may cause contamination.
___Use of non-cropland, garden plots, trees, buildings, grain bins, pasture or other areas not rented for cropland.
___ Provision identifying who is responsible for maintenance on irrigation equipment or other farm use assets identified in the lease.
___Any provisions for the compensation of the tenant(s) for conducting improvement(s) or maintenance on the property or associated use assets.

Landlord Rights and Government Payment
___Landlord's right to enter the property for specific purposes.
___Landlord's right to a security interest in the crops or other provisions for ensuring payment.
___Statement of which party will participate in federal farm programs, including responsibility for eligibility and receipt of payments.
___Nature of landlord participation in management. This may relate to issues regarding income and self-employment, taxes, social security payments, and estate planning.

Arbitration of Difference
___Provision that any amendments must be in writing and signed by both parties.
___Procedure for resolving disputes, including the applicable state statutes.

Crop-Share Provisions
___General agreement, sharing of crops and tenant's contribution of machinery and labor. Each party should share returns in the same proportion as resources are contributed.
___Sharing of operating expenses, generally variable expenses are shared in the same percentage as the crop share; if there are adjustments for no-till, custom application, liming or any new technologies adopted.
___Storage and/or delivery of landlords share of crops.
___Compensation upon termination of the lease; for example, compensation if the tenant paid for and applied lime.
___What records are to be kept by whom and how will this information be shared.

Resources

For more information see

• Leasing Publications
• Flexible Leasing of Farmland
• Ag Leases 101 — Good general farmland lease information

*This list was adapted from information in Ohio State University Extension Fact Sheet, FR-0003-01 by Donald J. Breece, District Specialist, Farm Management, Southwest District.

Robert Tigner, Tim Lemmons, and Allan Vyhnalek
UNL Extension Educators