[The Brazil Times nameplate] Partly Cloudy ~ 65°F  
High: 64°F ~ Low: 48°F
Saturday, Apr. 30, 2016

Land Lease Agreements

Tuesday, October 16, 2007

Farmers are still very busy in the field but it is time for both landlords and farmers to be discussing lease arrangements for the next year. This is a very sensitive topic and I personally/professionally always try to remember as an Extension Educator my job is to serve both the landlord and the tenant. An important legal date of Dec. 1 is approaching for landlords related to tenants for the next growing season. Since farmers begin making fertilizer applications, clearing brush, etc. in the late fall and early winter before soil conditions become sloppy or while the ground is frozen enabling field access, landlords must notify tenants prior to Dec. 1 if a tenant change is to occur.

Purdue Extension publication EC-713 entitled "Legal Aspects of Indiana Farmland Leases and Federal Tax Considerations" helps both tenants and landlords to be informed about Indiana lease laws.

What is printed in black and white on paper in cash rent and land value surveys do not always tell the entire story or convey the entire context of each person's personal situation.

Below are some of the factors I like to discuss with folks when I receive lease related calls from landlords and tenants.

Like anyone with an investment, landlords like to maximize their return on land.

However, it is very important to realize that when Landlord A receives $120/acre cash rent and Landlord B receives $105/acre cash rent that Landlord A may not be

getting the best deal. The land owned by the landlord is an asset that can be raped or mined much like a home or other business building that may or may not have hadproper upkeep.

If Landlord A's tenant is only fertilizing with nitrogen (N) for corn and not applying either phosphorus (P) or potash (K) to either corn or beans, Landlord A's soil is being mined of P and K that Landlord B would have maintained. The same holds true for lime applications.

Secondly Landlord B's tenant may mow road sides, cut brush, maintain waterways, field borders and repair broken tile. If the ground had been no-tilled for 10 or 15 years, the soil quality is much improved and a tenant change resulting in land being fall chisel plowed would result in lessening soil quality.

All of these factors have value that must be considered before one jumps to the conclusion that $120 is better than $105 per acre cash rent.

Too often, I receive calls from landlords where a previous tenant has done the proper management and performed honestly, and the landlord was lured into obtaining a higher cash rent by the current tenant which lasted a few years until soil test values forced the current tenant to renegotiate a lower lease similar to what the previous tenant paid.

The landlord either goes back to the previous tenant eating crow or now deals with less desirable tenant or must seek yet another tenant with unknowns. Good quality land is in demand and often there is not a problem finding tenants, but the landlord certainly must cope with more unknowns every time a tenant change occurs.

Research and surveys have suggested that as few as 20 to 40 percent of landlord-tenant relationships are documented on paper.

The common response is "if they can't be trusted on my word, then I should not be in the lease relationship" with the other individual. My first response, in a question, is what happens should the tenant or landlord pass away? Will other family members know the lease terms?

Secondly, having a lease may help to lessen the ugliness that occurs when lease disputes do arise. Most tenants have so many landlords wanting various factors that it is very difficult to keep all items straight.

Also a cash rent agreement does not necessarily indicate that the landlord must give up the right to all knowledge/input about yield or other cropping system factors.

Finally, when landlords desire to change cash rents, it is important to consider the agricultural economic climate.

The mantra of farmers is often that they never make any money. However there are good and bad years economically. Although commodity prices have had an excellent one year average, input costs have increased significantly as well.

Ultimately, the farmer bears more risk in the cash rent agreement. Variable leases have been implement by some, but keep in mind how this might impact you at the Farm Service Agency office related to payments when the lines of cash versus shared leases are blurred. Also keep in mind that the Purdue cash rent and land value survey information is an average. Most land is not just average due to natural factors or previous management for the good or bad.

You can contact the local Purdue Extension Office by calling 829-5020 x14 in Owen County or 448-9041 in Clay County for more information or publication copies regarding this week's column topic or to RSVP for upcoming events. It is always best to call first to assure items are ready when you arrive and to RSVP for programs.

While most publications are free, some do have a fee. All times listed are Eastern Time.

Upcoming Events

Oct. 19 -- Large Mouth Bass on Feed Workshop, Kentucky State University

Oct. 20 -- Sheep Shearing School, Wingate, 9 a.m.

Nov. 1-2 -- Mineral Education Workshop for Teachers, Terre Haute/Farmersburg

Nov. 3 -- Owen Extension Annual Meeting w/ Tom Turpin, 6:30 p.m.