This article first appeared in AgWeb.
When it’s time to sign a new farmland rental agreement, both parties can bring a lot to the table to make sure the cash rental agreement meets everyone’s needs.A few of the pieces of information that should be included also serve to demonstrate that you’re committed to fairness, sustainable farming, and the stewardship of the land.
Sustainable farming practices aren’t just another trending phrase: your farmland rental agreement is that document where you get to outline your shared expectations for soil health and tillage practices. Here’s how both sides of this negotiation can approach this conversation:
What Should Landowners Bring to the Table?
Terms and conditions. Farmland owners should make sure their lease includes language that explicitly describes the farmer and landowner relationship. Is your farmer agreeing to expand or maintain tillable acres? Are they also be contracted to maintain restricted grass waterways or mow alleys? Make sure these expectations are captured in the agreement.
Data delivery requirements. Your written agreement should include requirements for sharing information on yields and fertilization. This is a normal condition that helps ensure that everyone is educated about the land’s health and use.
Commitment to sustainable farming practices. This is an easy way to put your money where your mouth is. For example, Landlords should be ready to reimburse their farmer for applications of lime that support the land over multiple years when the nutrient hasn’t been entirely utilized by the end of the lease. They should receive a reimbursement for the estimated remainder of that application’s value.
Soil health. Especially if your farm is no-till, be sure you outline your expectations for tillage practices and soil health. This ties into more about data delivery above, but it can’t be overstated; make sure you get receipts for fertilizer application.
Proof of insurance. Finally, be sure to include insurance requirements. You should be prepared to demonstrate that you have an appropriate amount of general liability insurance on the land you’re renting. Your tenant should also be prepared to provide proof of adequate crop insurance to make sure no one loses their shirt in the season ahead.
What Should Farmers Bring to the Negotiation Table?
Farmers must be willing to show landowners how the asset is performing. Enter this negotiation with the understanding that you are asking to be the steward of what’s likely one of the landowner’s greatest assets. The farmland rental agreement is an opportunity to demonstrate that you’ll be attentive to the soil’s health and a reliable tenant.
You should list out your expectations of the landowner, especially communication-wise. Your farmland rental agreement should include …
- That you’ll notify your landlord when the crops are planted and when the harvest has been completed.
- Your preferred method of communication – if snail mail doesn’t work for you, or you’d rather hear from someone in an email than on the phone, be sure to say so.
Bring a plan for the year ahead. When negotiating a one-year lease, be ready to present your plan for the year ahead. It may be helpful to frame this task for yourself as a question: How do I set the expectations for that season so that this landowner will want to renew with me?
Make sure that expectations are aligned so that when lease renewal comes up, you find yourself meeting or exceeding the benchmarks you’ve laid out.
Here's a related topic!
Corbett asks attorney Dennis Composto, Esq. why it’s so important to have a written lease for a piece of property.
Have a Written Farmland Rental Agreement
Your farmland negotiation doesn’t need to happen in person – a call or email is no problem, especially if you’re not living in the same town. But all leases need to be in writing.
In 2019, there’s no good reason not to have your farmland rental agreement in writing to support the value of your land. Put your expectations for the land’s performance in ink and create a record of your agreements to strengthen everyone’s understanding of the land’s health.
Demonstrate to future farmers and landlords that you’re committed to sustainable farming practices, and protect all parties by communicating as much information as possible around your cash rent agreement.
At a minimum, lease agreement should include five things:
- The names of the landlord and tenant.
- A description of the property to be rented.
- The rent amount.
- The lease term with start and end dates.
- The signatures of both parties.
Additionally, landowners and farmers should consider adding more detail around expectations for data delivery, commitment to sustainable farming practices and soil health, proof of insurance, and frequency and types of communication regarding the farm and your agreement.
There are many measures on which a farmer might rank as a good tenant, but there are a few major markers that distinguish the good farmers our eyes. A great farmer should farm full-time, use high-quality equipment, be able to demonstrate they’re a good steward of the land, provide data and reports on improvements and, ultimately, act like your partner in your farmland investment. Learn more about finding the right partner for your farm in this blog post.
Farmland is an incredibly valuable and stable financial asset, in addition to often being a treasured family heirloom. Think long and hard before you sell. Aside from the emotional connection you may have to your land, the primary benefit of renting your land rather than selling it is that you’ll gain a relatively stable source of passive income. By retaining your land ownership, you’ll also preserve the value of your farmland for the next generation and the one after that.
Renting a farm out isn’t as big a challenge as it used to be, thanks in part to new technology and increased attention to farmland rental contracts. While traditionally, a lot of farmland leases have been negotiated at the local coffee shop and sealed with a handshake, more landowners and farmers are turning to technology solutions like Tillable to help them connect with good partners and ensure farm goals are documented and tracked.
A certified appraiser can help you determine the value of your farmland. Find one through the American Society of Farm Managers & Rural Appraisers. Getting help from a professional is useful because it’s often unclear what the market rate on an acre may be, since record-keeping and yield can be hard to track. Unlike many other assets, productivity growth plays a substantial role in determining the value of farmland. As productivity improves, output (yield) rises, and the value of farmland increases due to future production potential. This isn’t the case with other real estate investments, where income derived from the property is the exclusive driver of value.
Whether you’re a local landowner, remote farmland owner, or a farmer, you can arrive at a fair land rental agreement by leveraging a little data, defined goals, and clear communication. Plan the conversation carefully, and make farm performance and stewardship data a central part of the negotiations. Landowners and farmers should work diligently in their negotiations to understand what’s fair to each party (“fair” can mean different things to different people) and collaboratively determine how to reach that point. You can find more tips in our article, “How to Negotiate a Fair Land Rental Agreement.”
With Tillable’s Hassle-Free Lease, landowners lease their farmland to Tillable for 1 or 3 years. We’ll pay you upfront for the entire lease and manage your farmland—from finding a farmer to making sure your land is cared for long-term. This includes providing regular reports that document farm performance and ensure that good land stewardship is being practiced.