This is a question that landowners need to ask, regardless of whether you’re renewing an existing agreement or signing with a brand new farmer. A solid written agreement helps keep everyone on the same page and make all your expectations clear.
At a bare minimum, farmland rental agreements should include the following:
However, these are just the basics. There’s a lot more that goes into a farmland rental agreement. Here’s our 14-point farmland rental agreement checklist that every landowner should review before signing on the dotted line.
There are many types of farmland lease agreements. Here are the most common:
Make sure that the lease spells out the type of agreement and payment structure in black and white.
Determining a fair rate is easier said than done, especially when the market can be as volatile as we’ve seen the last decade. Owners typically use the following figures as benchmarks for rental rates:
Additionally, lay out your payment terms in detail. This includes the method of payment, due dates, penalties for late payments, etc.
Your farmer should be completely transparent about how they’re managing your land. Include requirements for data sharing—like crop yield and fertilizer receipts—in writing. That way, you’ll never be in the dark.
Most farmers who aren’t landowners are incentivized to maximize their yields at the expense of land and soil health. To counter this approach, you need to list out your sustainability requirements in writing. You may also need to reimburse them for any additional applications used to nurture the soil.
It’s important to spell your expectations for tillage practices and soil health in writing, especially if your farm is no-till. You should require periodic soil testing by a third party to validate your farmer’s reports and, as mentioned above, always get those fertilizer receipts!
You should demonstrate that you have an appropriate amount of general liability insurance on the land you’re renting, as well as adequate crop insurance to keep everyone’s finances afloat in a worst case scenario.
Certain communications need to be handled in writing, others through a simple phone call. You may also prefer texting for certain notifications. Also, there may be certain times of day where you aren’t available. All of this needs to be explicitly stated in the agreement.
If you anticipate the farmer tenant to make capital improvements, you need to spell out terms of reimbursement in writing. For example, you would reimburse the tenant for the improvement if the lease is terminated before the end of the lease term. Because most farmland rental agreements will not cover the life of the capital improvement (using the IRS tax depreciable life as a guide), then you should assume that you will need to provide some reimbursement to the tenant at some point.
You should always include a statement that gives you the legal right to enter the property. If the farmer wishes for there to be a notice requirement, include that in the lease.
The IRS requires that you report farm income as self-employment income rather than passive investment income if you are a materially participating landowner (e.g. if you are participating in a crop share or fixed bushel agreement). As a result, you will have to pay self-employment tax; however, you may also be able to deduct certain expenses, like crop inputs, to reduce your taxable income.
For Iowa landowners and farmers specifically, there is a statutory landlord’s lien on all types of farmland rental agreements. The lien is “upon all crops grown upon the leased premises, and upon all other personal property of the tenant which has been used or kept thereon during the term and which is not exempt from execution.”
You must file a UCC1 form with the Iowa Secretary of State’s office within 20 days of the lease’s effective date to perfect the landlord’s lien.
Under most circumstances, a farm lease will automatically continue from year to year unless either party gives written notice of termination. The specific date in question varies from state to state. For instance, Iowa requires termination notices by September 1, prior to the end of the lease year.
However, if mutually acceptable to all parties, you can terminate or modify a lease at any time. It’s generally good practice to spell out the conditions for a custom termination so all parties know the expectations.
In terms of government program payments, some are made to the farmer directly, and others to the landowner. It’s important to spell out which party will participate in which federal farm programs. The designated party will be responsible for meeting eligibility requirements, reporting receipt of payments, and providing appropriate documentation to the other party as well as the appropriate government agency. In many cases, this will require the other party to also file an FSA-211 Power of Attorney Form.
All co-owners of the property—including both husband and wife—must sign the lease agreement. Additionally, if the farmer has any co-owners of their business, they also will be required to sign. This seems like a minor point, but you don’t want to miss deadlines because you couldn’t track down someone to get their signature.
See how CommonGround can help you make sure your land lease agreement is complete, contact us today!
