November 9, 2013

Clearly dealing with relatives can be one of the hardest issues to address as it relates to farm leases. However, with good communications and a written lease agreement, you can set up relationships that are not hard on the family.

First, have all leases in writing. This cannot be stressed enough. I know of situations where the handshake lease was made by grandparents and great uncles and aunts. When that generation passes on, no one knows exactly what the agreement was, and suspicion arises needlessly.

Next, understand that there are ownership costs for that land that the tenant is probably just providing without compensation. Items like: mowing road ditches, spraying weeds, controlling volunteer trees, maintaining terraces, maintaining buildings, grading and rocking driveways, and keeping fences up are just a few of the landowner costs that in many cases are just taken care of by the tenant.

In some cases I have landlords thinking that they don’t receive enough cash rent from a relative. When we discuss the land ownership costs and how they are taken care of, the landlord quickly realizes that the tenant is providing the labor and cash investment in those items.

If the rent isn’t the going “coffee shop” rate, the landowner is simply recognizing that the tenant is receiving a discounted rent as compensation for their efforts to keep the land and property in good order.

While the rent to a relative doesn’t have to be at the ‘"top" of the range, it needs to be fair. I’m not qualified to know your exact circumstance to know what "fair" is, that is a family discussion. What one family does will be very different from another family. Tenants need to communicate clearly by sharing information about the farm. Information like actual yields and prices received will go a long way to building good trust for the family to continue the leasing arrangement for another generation.

But the most compelling reason to have a lower rent for relatives is that they are relatives. Especially if we have younger folks coming to replace our older generation, this provides an opportunity to help that generation establish themselves.

Utilizing the land resource properly is a business, and the lease should be fair to both parties. With clear communication and having the lease in writing, most problems with lease terms can be minimized.

For more answers to your land lease questions attend one of the 26 Landlord/Tenant Lease Workshops being held across the state. Find a site close to you.

Allan Vyhnalek
Extension Educator, Platte County