Ag Land Lease Considerations For 2015

Jan 12, 2015

By Allan Vyhnalek

During uncertain financial times such as these, tension can develop between landlords and tenants who become unsure as to whether their lease arrangement is fair. The best way to build mutual trust through these periods is to develop a clear two-way channel of communication and put any understandings in a written lease.

Lease agreements — cash rent or crop share — should clearly outline who is responsible for which expenses. They should include a termination date and outline expectations for tillage, mowing, fences and weed control. Landlords should also discuss the current and future goals of the operation as well as the rising costs they are facing. Tenants should report planting dates, disease or insect pressure, moisture events, irrigation use, yield, unexpected expenses, and price received to landowners.

Some tenants may try to skimp on inputs for 2015. Landlords should consider lease provisions that allow for soil tests to be completed at the end of the lease. If the test results indicate a deficiency of certain nutrients, the landlord should be compensated. Likewise, if the tenant has just invested in improving the soil fertility and is now removed from the lease, a provision should be in place to have that tenant compensated for his investment that will be utilized by the next tenant.

Ownership of irrigation equipment also may need to be addressed.  In Nebraska there seems to be quite a bit of variance in which party owns the equipment. In a typical cash farmland lease, the landlord owns all irrigation equipment.

Nevertheless, in many cases, the tenant is bearing the cost of installing equipment, most notably, providing the center pivot. When the tenant is providing part of the irrigation equipment, the rent should be lowered to reflect the contribution of the tenant.

In some cases the landlord has made no contribution to buying or maintaining the irrigation equipment, but feels entitled to irrigation cash lease rates. This is simply not appropriate. In this case, the landlord has a "good" dryland or rainfed farm and should get very good dryland rent, but not irrigated cash rental rates.

Subleasing and hunting rights also may need to be addressed in the lease. In some cases the landlord is fine with the tenant sub-leasing the crop ground, hay, or cornstalks. In other cases, the landlord does not want to allow that.  This should be discussed and noted in the written lease. For cropland, the hunting rights belong to the tenant unless the landlord specifically holds the rights out of the lease.

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