Keep these elements in mind to ensure the lease meets your needs
Farmland leases are becoming an increasingly common part of Minnesota's agriculture economy. Done correctly, land lease agreements can benefit both the landowner and the farmer-tenant - the landowner gets to generate income off the property, and the farmer can expand his or her operation without all of the risk or capital expenditure inherent in purchasing a plot of land.
Regardless of which side you're on, it is important to enter lease negotiations well-informed as to your rights under state law and the value of the property at issue. In most cases, it is best to have an attorney review your lease before you make a commitment. Still, having an understanding of the basics can help you feel empowered as you enter the process.
What types of leases are available?
There are many different types of agricultural land leases available, and which one is right for you will depend on the specific goals you are trying to accomplish. Generally speaking, though, most farmland leases fall into a few broad categories. The most common defining characteristics are (1) how the lease will be paid and (2) how long the lease term will last.
Where payment is concerned, cash leases and crop share leases are the most common varieties. In a cash lease, the tenant pays the landlord a specified amount of money in exchange for use of the land. This might be a monthly payment, a one-time payment or some other arrangement. The payment is the same regardless of crop prices or yields, and the landlord is not empowered to make decisions regarding production from the land.
In a crop share lease, the landlord receives a percentage of the crop (or the proceeds therefrom) in lieu of a cash payment. Both the landlord and the tenant may contribute inputs (e.g., seed, fertilizer, etc.), and, depending on the terms of the lease, they may also share in the management of the land.
As for durations, farmland leases usually either have "tenancy from year to year" or "tenancy for years." Tenancy from year to year means that the lease can theoretically last indefinitely - it renews automatically every year unless it is properly cancelled by either party. By contrast, tenancy for years means that the lease is for a fixed period of time (which could be less than a year or up to 21 years). The lease automatically terminates at the end of this fixed term, unless both parties agree to renew it.
What should be in a lease?
In short, the lease should contemplate any and all issues that are important to you. Your attorney can help you determine which particular lease terms are advisable in your individual situation. Most agricultural leases consider the following items:
- Time period: How long will the lease last? What happens if either party wants to cancel the lease? Depending on the nature of the lease, state law may not allow it to terminate before the crops are harvested.
- Property transfer: What happens if the landlord sells the property? Will the tenant still be able to farm the land?
- Right of reentry: Under what circumstances will the landlord be allowed to enter the property? What kind of advanced notice must be given? It is common to allow the landlord to enter for reasonable repairs, inspections, etc.
- Subleasing: Can the tenant sublet all or part of the land to another renter? If so, what are the guidelines for doing that?
- Binding on heirs: If either the landlord or the tenant dies, what happens to the lease? Usually, the lease terms are binding on heirs and successors.
Talk to an attorney
Of course, these are just a few of the many considerations that come into play when negotiating a farmland lease, and getting experienced legal help is always the best bet. Farmers and landowners in southern Minnesota can contact the attorneys at Gislason & Hunter LLP for assistance with leases, regulatory planning and any other issue affecting the agribusiness industry.
Keywords: lease, farmland, agribusiness