Prairie Farmer Logo

A farm manager provides advice for planning 2017 lease arrangements.

August 2, 2016

3 Min Read

Editor’s note: From the monthly management column, Land Values.

While it may be mid-summer, it’s time to be thinking about lease arrangements for 2017. Depending on the type of lease, i.e. cash rental, custom, crop share or a combination lease, it’s time to make sure the terms and condition in your leases for another year work properly for all involved. Here are a handful of important items to keep in mind.

1. Flex: keep it simple.

5_steps_rental_agreement_success_1_636057664483668678.jpg

If you’re dealing with a cash rental lease, it’s time to consider a flex/bonus rent provision which usually involves a reasonable base rent with some upside for all, which may also take operating costs into consideration. My recommendation is keep it as simple as possible. When it’s time to settle up, all parties should be able to easily calculate the bonus, if any.

2. Start talking now.

Starting early gives all the opportunity to get an understanding of the terms to see if they will be acceptable. Because of lower commodity prices and a very aggressive cash rental market, many land owners have gotten used to higher rental levels and are reluctant to lower rates. At the same time, farm operators may have stretched their financial capabilities to retain leases of a property. Knowing terms upfront allows the farm operator to visit his/her lender to discuss operating loans for 2017. Indications are this could be a tighter year than in recent history.

3. Get it in writing.

Being a country boy, I clearly understand in our culture, a hand shake is as good as my word. But we are in a new business climate and the use of a hand shake and an oral lease is no longer in everybody’s best interest. There can be confusion as to limestone application, depreciation schedules, how often soil tests are to be taken and who pays for them, and how repair and maintenance costs are handled, to name just a few items. Over the years the actual terms of the lease can become clouded, such that the possible language of a flex/bonus provision should all be in writing. Any oral leases should be replaced with written ones.

It is my understanding that under Illinois law any oral lease requires that the existing farm operator be legally served with a four-month notice of termination. The lease start date dictates the legal notice period. If any consideration is being given to selling the property, I highly recommend a written lease be in place prior to listing of the farm.

4. Don’t be afraid to seek help.

A good source for sample leases is www.farmdoc.illinois.edu, or contact a professional farm manager who can help.

5. Plan carefully.

What will happen with rental rates in 2017? That is a great question, with no definitive answer. Much depends upon commodity prices. Production costs are still high with some decline in fertilizer prices. On the average, I would say rents could remain much the same as 2016. At the end of the day, both the owner and the operator need to run the numbers with what is currently known and possibly projected and come to a written rental rate where both parties are winners.

Brownfield is a farm manager and owner of Land Pro LLC, Oswego. He is a member of the Illinois Society of Professional Farm Managers and Rural Appraisers, whose members regularly contribute to the Land Values column.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like