Farm Leasing

I doubt any of the 5 year leases are going to look very appealing right now unless it’s A+ ground. Cash rents are coming down here as they should with the prices.

Actually, and forgive me for saying so, the best place to start is with your lawyer. Next is your insurance company; even if the lease contains necessary verbiage requiring them to obtain and keep in place all the proper insurance(s), you'd still want to carry liability insurance. Murphy's Law. I know when we went to buy another farm adjacent to ours, the huge sticking point was the owner's cousin. The owner inherited the farm from her father (he had to quit working it almost 20 years before he died, it was since rented out), she being an only child, but her cousins used to hunt the land for decades, even when they were from time to time banned from doing so. The issue was, the owner wanted to keep good relations with the cousin's family. So, I suggested a 5-year conditionally renewable exclusive hunting lease that I'd make with them. They loved the idea, but both my lawyer and insurance company were absolutely against it because of the potential for high risk to which we'd open ourselves. Their reasoning was sound, we didn't offer the lease, they decided to take a different offer and another neighboring farmer bought that farm. Sunk a fortune into it. Now, he's screwed because the lease wasn't properly worded, and the cousin won a lawsuit enforcing the "exclusive" part; the new owner cannot be in, or travel though for ingress or egress, any location deemed by the cousin or his family as "hunting land." And the lease did not limit what type of hunting, so even though now deer season is over, the cousin's family is there hunting small game during the day, predators during the day and at night, all the while thumbing their noses at the new owner and thinking that it's all righteous and that they have the right since they've been using the property for so long... it's sad. So, ideas may come from here and maybe they'll be the best ideas you'll hear, I'm just throwing it out there that any "advice" that you receive outside of the professionals you pay to represent or protect you is worth - well, what you pay for it. And you cant recover any losses from "us" for our ideas you choose implement that turn out to bite you. Good luck, I hope it works out terrific for you!

I'm on the other side of the state but I doubt things are all that different. The more successful farmers have equipment that won't hardly turn around on 40 acres. Smaller operators usually have a higher per acre overhead and can't pay as much, unless they are producing a speciality crop. Hunting leases are similar, the big outfitters have hundreds of acres under lease and aren't interested in small acreages unless they are already leasing neighboring ground. Leases to individuals, in my opinion can be unchanged more troublesome. I know this isn't what you are hoping to hear but much has changed over the years for an operation to be successful. Production costs are high, labor costs are high, and margins are small. Around here, smaller operations are usually either absorbed by big operators or become hobby farms for families with very successful off farm income. An agricultural lender will want a very detailed business plan before they consider helping you make a purchase. But that is where I would suggest you begin the process.

when I leased mine out; I figured out what kind of a return I wanted.   Second step was protecting my topsoil.  I rent mine on shares.  I like it because the best years are cash friendly and protecting my topsoil and organic matter, allows me to weather the dry yrs.

I cash rent my farm. It pays the taxes or close to it.

Gary Burnett wrote: For the people that rent on shares,especially ones that are absentee landowners how do you know you are not getting cheated?

That's one of my biggest concerns. Been workin in business/ finance my entire life and know all too well how easy it is to twist the numbers around

reporting yields to crop insurance pretty much can prove a bad renter out in a heart beat!

X-2 on modirt!

Be careful about putting in a provision in the lease that requires the tenant to pay if fertility levels drop.
That provision was in our "county farm" lease. BTO from 30 miles away won the cash rent bid against some local farmers. After 3 year lease soil samples were pulled and the county got a bill because the fertility levels went up.
Legal opinion was that if payment of (x)$ for P level dropping (x) points, when P level on second soil test read (x) points higher that the tenant needed to be paid for that fertility. County reimbursed almost a full year of cash rent on 3 year lease.
Soil tests are very easy to manipulate (if you know what you are doing) with regard to sampling process, time of year, moisture level of soil at time of sample.
What seems like a good provision can come back to bite you in the ass.

Edited by soybreedingboy77 - 07 Jan 2019 at 4:49am

yields have to be reported; if your and his don't jive, someone is in the wood shed.   also if your agent is worth his salt; he will answer when asked how your yields stack up to other comparable farms in your area, then in your lease there is a provision that says he must pay ALL legal costs if suit is brought against him.   Around me we probably have 2 cheaters and everyone knows who they are.   If you allow your renter to make money and treat him as a partner, very few/none will cheat you.   They don't wanna even have there name associated with cheating a landloard as that brand will follow them to the grave.   Everyone of there other landlords will start looking at them cross eyed!  I interviewed 23 prospective renters when mine came up for rent and never worried once about any of them cheating me.    I'm also of the stanch feeling that if my tenant cannot make money farming for me, then it will not be a match made in heaven!

Depending on topography, although total crop acres is low, and mentioned it is terraced, put in any lease, a crop rotation provision, maybe even a max. percentage of acres allowed in a ‘row crop’ at any time. No fall tillage if land is over ‘X’ degree of slope.

The above statements underscore the complexity of the rental decision. Much more than can be covered here. I strongly advise you to obtain input from those local to where the farm is located. Land owners, renters attorneys and lenders. Each will have their own perspective based on their experiences and what works in their favor, not necessarily yours. You will have to determine this on your own, possibly with guidance from an unbiased source such as the local county or area extension crops/ financial specialist.
Land rental values are determined first by productivity followed by local demand along with the owner’s desired rate of return on investment; usually determine by the interest rate offered on the next best investment with a comparable level of risk. Often, this is a CD. The renter is concerned with potential profit. When the owner is concerned with profit and a reasonable return, then they must take on a portion of the production risk along with the renter. Owners who are completely risk averse prefer straight up cash rent. Of course this results in a different type of risk exposure as it must be realized this places complete risk on the renter which may influence production decisions; ie fertility mining. The bottom line is that the assumption of risk must be compensated just like when you pay an insurance company to take on a portion of your asset or production risk exposure. Like shared risk when you buy insurance, land ownership-rent relationships don’t have to be to one extreme or the other but may be shared. Much of this will be driven by each person’s individual goals for the relationship, land productivity level and local conditions. Every form of rental agreement is successful somewhere. The ones that are taboo in your neiborhood may determine which may succeed in your area.
As for liability, a person’s level of liability is defined based on their
relationship with others. Your assigned legal liability is defined as what a reasonable person will do in a comparable situation to protect their cohort. An example
given your property contains an old homestead site is if an abandoned well exists it is your legal duty to inform users of your land of this hazard. You may want to consider the old foundation in a similar light. If you don’t and personal injury occurs as a result of the hazard you may be found liable for damages.
Renting 40+ acres for both production and hunting could prove challenging. It’s a small area. You may want to consider one dedicated use or the other. Another approach would be to allow hunting outside the cropping season. When ever you receive payment for use of your assets your commitment to that party to protect their well being is inhanced. Some states recognize this by providing legal protections when land owners allow public access to their land. When you charge for this access the relationship changes. Liability insurance only pays to defend you in a trial where your negligence is claimed. It also may pay if you are found guilty of negligence up to a defined limit but only if the instance is not excluded in the policy. Liability insurance doesn’t
cover accidents.
Fortunately resources are available to inform you of your options, rights and responsibilities in determining land rental rates, contract options and associated liability exposure.