UNL CropWatch April 1, 2011: Open Communication Can Lead to Positive Landlord/Tenant Relationship

UNL CropWatch April 1, 2011: Open Communication Can Lead to Positive Landlord/Tenant Relationship

 April 1, 2011

Recently I received a note from a tenant who was concerned that I would publish the rent values from the UNL Nebraska Farm Real Estate Survey. He felt the survey results would just cause his rent to go up, and once up, landlords wouldn’t want to see it go down if crop prices dropped.

Communication Tips

Tenants can take the lead in ensuring open, positive communication for a healthy landlord/tenant relationship.

Older landlords love updates on what’s happening on the farm and a monthly contact of some kind may be very helpful to them. It doesn’t have to be formal, just a call, note, card, or short drop-by.

Send a card at the holidays or for your landlord's birthday. Drop by a plate of cookies and let him know how planting is progressing or how many inches of rain you got last week. When he stops by the coffee shop, they’ll have something to contribute to the conversation.

While a tenant may be concerned about a landlord knowing too much and wanting to exert control, often the result may be just the opposite. Landlords who know what’s going on and understand current expenses and practices may be more positive and supportive of the renter’s management. Remember that the farm represents their legacy -- they want their renter to be successful and for the farm to be well managed.

Flexible Cash Lease

A win-win option for many landlords and tenants may be a flexible cash lease tied to price and or yield. This structure allows the risk to be shared. Generally, both landowners and tenants are aware of the risks of farming and can understand the value in flexing the rent according to current economic conditions.

For more information on this option, contact your local Extension office.

 

Here is my response to that farmer:

I also share your concerns that cash rents are going up rapidly, 75-90% over the last six years, and will be slow to go down if/when commodity prices fall. When landowners get used to having that income, they are not going to want to give that up – I agree with you on that.

One rule of thumb for establishing rent is that a landlord should get 25-30% of the gross income from the farm. If you assume just 200 bushels for an irrigated crop this fall with a $5.50 price, the gross is $1100 and a 30% share for the landlord would be about $330 per acre. Landlords can also calculate this and when their rent is lower than the 25-30% range, they’ll wonder why. (See UNL Farm Lease Calculator.)

Market volatility also may contribute to an uneasiness between landlord and tenant in setting a rental rate. Prices are moving more in 15 minutes, than they did over an entire year when I was growing up. These wild market swings can be overwhelming and stressful.

Ongoing, Clear Communication

Building a successful landlord-tenant relationship is beneficial to both parties and can lead to a fruitful long-term arrangement. Clear communication will be the key to keeping this relationship strong and cash rents at the proper level. To do this:

  1. Tell the truth. Telling the landlord the yield for the field or whole farm average, then telling the coffee shop the biggest number observed on the yield monitor can lead to misunderstanding. Your credibility may be questioned.
     
  2. Communicate expenses (tenants). In many cases, landlords are former farmers. Depending on how tuned in they are to current production costs, they may know how much current expenses have risen.
     
  3. Communicate intentions and expenses (landlords). Landlords need to communicate too. Tenants cannot possibly know how the landlord wants the land to be managed if that information isn’t communicated. Expectations for fertility management, tillage, mowing ditches, and weed control are examples of information that should be shared. It’s also appropriate for landlords to tell tenants how much land taxes have changed.

Many tenants may question why they need to share information about their expenses, yields, and the farming practices and choices they’ve made.

Often landlords are relatives and many are life-long friends of the family. They are interested in the tenant’s success and wellbeing and the care and management they provide to the operation they may have devoted their lives to. Having a connection with the conditions and the current operation will help those landlords better understand the whole picture of what is really going on.

Allan Vyhnalek
Extension Educator, Columbus