Whether you are a producer looking to expand your operations without buying additional facilities, or a farmer approaching retirement and considering renting your hog barns out, the following are key terms that should be addressed in any barn lease:
- Correctly Identify Parties. Make sure the person signing the lease actually owns both the barn and the ground under the barn or an access easement to the barn. Review an updated Abstract or owner’s title insurance policy to make sure the name on the title to the property matches the name on the lease. Never rely on property tax statements or the owner’s memory. If one person or entity owns the barn and another owns the ground, either have both sign the lease, or require the landowner to grant the tenant and/or the barn owner a recorded easement.
- From the landlord’s perspective, make sure you understand whether the tenant is leasing the barn as a producer who owns the pigs, or is a contract grower for another producer. In a contract grower situation, the landlord may be required to enter into a separate agreement with the producer, giving the producer the right to take over the lease if the contract grower violates their independent contractor agreement.
- Lease Term. How long will the lease last? Some leases are on a turn-by-turn basis, where one party must provide notice to the other a set number of days or one turn in advance in order to terminate the lease. Other leases run for a set number of years. These leases may include “evergreen clauses,” meaning the lease automatically renews for an additional year or years after the initial term unless a party notifies the other that they want to terminate the lease.
- Lease Rate. Most barn leases provide for fixed monthly rental payments. Though the parties may arrive at this amount based on the number of spaces in the barn, the tenant should keep in mind that unless the lease explicitly states otherwise, the landlord is entitled to the full rent amount even if the tenant does not completely fill the barn.
- Maintenance and Repairs. Who is responsible for maintenance and repairs to the barn? It is common to divide these responsibilities between tenant and landlord, such as the tenant paying for maintenance and minor repairs, and the landlord making major repairs. Also consider whether the tenant should have a right to make landlord repairs and charge the landlord for those expenses if the landlord fails to take care of them in a timely manner.
- Utilities. The lease should also state which party is responsible for utility costs. If the tenant is responsible for utilities, make sure the barn is separately metered from the landlord’s house and other buildings, or agree to a percentage of the total utility bill that will be allocated to the hog barn.
- Insurance. The tenant is almost always responsible for insuring the contents of the barn—the hogs—but the party responsible for insuring the barn itself varies. While some leases require each party to insure their own property, “triple net” leases require the tenant to not only pay for maintenance and repairs, but also insurance and property taxes for the barn. Accordingly, triple-net leases tend to have lower cash rent amounts.
- Indemnification. Typically, the tenant agrees to indemnify (hold harmless) the landlord from any liabilities arising from the tenant’s use and operation of the barn.
- Assignability; Successors and Assigns. Leases are usually written so that they are binding on the barn even if the current owner dies or sells the barn to another person. Tenants often want to be able to assign the lease without the landlord’s prior consent, but some landlords may push back on this provision, since it leaves the landlord with no control over whom they are entrusting with their barn.
- Put It in Writing! Don’t rely on “handshake agreements,” especially when it comes to real estate. Leases for over one year may not be enforceable unless they are in writing. You may trust the other party to the lease to be good to their word, but a hog barn lease is sufficiently complex that it is difficult to reach a verbal agreement that covers all the key terms. Furthermore, a written lease protects both parties in the event one party dies or becomes disabled and their affairs are taken over by their heirs or a conservator.
If you are considering leasing a barn, either as a landlord or tenant, discuss all of these key terms before reaching a final agreement. Also be sure to put the agreement in writing.
This information is general in nature and should not be construed for tax or legal advice.