Should Leases be Adjusted for Flood-Damaged Farm Ground?
Compiled by Allan Vyhnalek, with writing assistance from Glennis McClure, Jim Jansen, Jessica Groskopf, Robert Tigner, Cory Walters, and Dave Aiken
Where there is significant damage from flooding to cropland, should the rental rate be adjusted for 2019? The answer lies in the characteristics of the individual situation. This article provides guidance on adjusting rental rates for flood-damaged land with different lease characteristics.
How bad is the damage and who is going to fix it?
Flood damage can be categorized into two types. One is the “hard” work and the other is the “heavy” work:
The “hard” work will probably not be avoided. This usually includes quite a bit of hand labor and light work with equipment to remove branches, corn stalks, trash debris, and other obstacles deposited on the field.
The “heavy” work may not need to be done at all. This work includes heavy equipment like bulldozers, scrapers, or graders to take care of major problems. It might include moving topsoil, removing sandbars, and fixing holes, gullies, and ruts from the flooding.
In both cases, the party primarily responsible for completing this work is the landlord. The landlord bears the responsibility for providing the tenant with the land ready to farm. Desiring a positive long-term landlord/tenant relationship and knowing the work needs to be done in a timely fashion, most tenants are probably going to provide most, if not all, of the “hard” work described above. When that happens, is it appropriate for the landlord to acknowledge that effort? Most would say “Yes.”
Should rental rates be adjusted?
If the land lease arrangement is a conventional crop share, the rental rate may not need to be adjusted. Since the crop share lease arrangement shares production risk between the landlord and tenant, if the production varies, the amount received from a share varies based on production. Crop insurance policies contain preventative plant provisions which could lead to an insurance payment, even though nothing was planted. This will only apply to those with an insurance policy. Payment size, if any, will depend on the rules contained in the preventative plant provisions. We encourage those with crop insurance policies to contact their agent about preventative planting rules.
For cash rents, is it appropriate for the landlord to receive a full cash rent payment for 2019, if the land has flood damage? Due to the language in the lease contract, full payment will likely be expected. However, is that equitable to both parties? Good landlord-tenant communications will be key to deciding equitable payment for 2019. Begin that conversation now instead of waiting until the end of the production year. Waiting will likely result in a hardship with at least one of the parties.
The language in the lease needs to be examined. If the lease does not specifically address weather-related events prior to planting, the amount paid might vary. Under contractual law, if an event renders the property unusable for the entire growing season, the tenant may have a case for vacating the premise and not making any lease payments for 2019. Seeking release from a property under these terms may have a devastating effect on the relationship between the tenant and the landlord (even the neighborhood) in the future.
One suggestion for 2019 is to look at some way to adjust cash rent based on actual productivity. Another possibility is to use some measure of total revenue on a per-acre basis. This could be some type of flexible cash rent that takes into account the date of planting, damage to topsoil, sand deposits, and other aspects that might affect yields. Check with your local Agricultural Economics Extension Educator for ideas to accomplish this.
Do you have crop insurance?
The other issue with cash rental rates relates to the holder of the crop insurance policy, which is the tenant. The tenant may consider assisting the landlord in the “hard” and/or “heavy” work by contributing preventative planting payments to cleaning up flood-damaged farmland.
For crop share rents, both the landlord and tenant could have crop insurance, which would likely include a prevented planting coverage. For either type of rent, discuss your plans with your insurance agent.
Good communications between the landlord and tenant on issues like this will go a long way toward an amicable resolution.
Also be sure to visit with the Farm Service Agency to understand any implications from changes to the crop lease agreement.
For Government Help, Be Sure To Document
There will be situations where the cost of doing both the “heavy” and the “hard” work can be documented and submitted to the Farm Service Agency for Emergency Conservation Program payments. The key point is that documentation should include pictures (before and after), tracking equipment used, supplies, and labor.
If you are modifying your rental agreement for 2019, put it in writing. Stress may be high and you will want to make sure both parties are fully aware of what they are agreeing to.
In summary, 2019 may be the year that both parties need to share the pain of the March flooding. Good communications between landlord and tenant are probably the only sure way that both parties are satisfied with the results of the lease.
If you would like to visit about this issue, the team of Extension Educators working in Agricultural Economics can help:
Austin Duerfeldt, Southeast District, 402-873-3166; email@example.com
Jim Jansen, Northeast District, 402-261-7572; firstname.lastname@example.org
Robert Tigner, West Central District, 308-696-6734; email@example.com
Jessica Groskopf, Panhandle District, 308-632-1247; firstname.lastname@example.org
Allan Vyhnalek, Department of Agricultural Economics, 402-472-1771; email@example.com