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Thursday, Oct. 23, 2014

The basics of farmland leases

Thursday, November 24, 2011

(Photo)
Jenna Smith
If you haven't already, now is the time for both tenants and landlords to be meeting to go over their farmland lease.

To help spark the interest of both parties getting involved in the process, I have dedicated the next three week's articles to farmland leases.

One of the first things I tell anyone involved with a farmland lease is to get it in writing.

By taking the time to write down the lease, you are able to get your thoughts down on paper so you can make a clearer decision.

Additionally, it gives you a record to go back to if a disagreement arises.

It also serves as legal proof of your agreement and provides a way for your asset to be handled in the event a tragedy would strike and your heirs are left with crops growing in the field.

It is best that when the lease is being written, the landlord, tenant and a notary or witness is present.

There are many types of leases out there.

There are cash rent leases where only one payment is due at planting time or one due after harvest. Some even involve several payments.

The advantage of cash rent is the landlord gets a stable income and the tenant has total management control.

The downfall for the landlord is they do not get the benefits of a good year while the tenant is faced with having to provide all the capital.

Crop share rents can be based on many factors, but often are based on the amount of equipment, time and financial capital spent to make the ground productive when determining the percentage split.

The advantages of crop share is that the tenant has less operating capital tied up, the risk is shared between both parties and the landlord will receive some of the benefits of a good year.

However, to make a crop share lease work, both parties need to realize that there is an increased need for good accounting to determine how to split all the various expenses that are incurred.

Flexible leases are somewhat new and have received a lot of discussion lately via the academic world. They take into consideration fluctuating markets and uncertain yields by not determining rent until after harvest.

Sometimes, they also include splitting government payments as part of a flexible lease.

The formula to determine the amount of income the landlord receives is determined at the time when the lease is being developed, so there is some price risk for the landlord since they will not know until the end of the year what they will receive as income.

One advantage is that the benefits of a really good year are often shared between landlord and tenant.

Now that you are aware of the different types of leases available, it is time to focus on what should be included in the lease.

Information on what should be included in the lease and resources that can be used to determine the values for leased land will be available in future columns.

As always, if you have any questions or would like information on any agriculture, horticulture or natural resource topic, then please contact your local Purdue Extension Office at 448-9041 in Clay County or 812-829-5020 in Owen County, or reach me directly at smith535@purdue.edu.

Purdue University is an equal opportunity/equal access/affirmative action institution.

Upcoming opportunities available to you through Purdue Extension include:

* Nov. 29 -- Owen County Extension Board meeting,

* Nov. 30 -- Goat and Sheep Webinar, Owen County Extension Office. There is no cost,

* Dec. 7 -- Goat and Sheep Webinar, Owen County Extension Office. There is no cost,

* Dec. 8 -- Crop Production Clinic, 4-H Fairgrounds in Alexandria, 9 a.m.-2 p.m. You can receive CCH, CEU and PARP credits for this and that determines the cost. Contact 765-641-9514 to register,

* Dec. 10 -- State Forestry, Crops and Entomology, Judging CDE, and

* Dec. 12 -- Last Chance PARP, Clay County 4-H Exhibit Hall. Cost is $10 for PARP or CCH credit. Call 448-9041 for more information.