Got your 2018 farm leases negotiated and signed yet? “How do you sign an oral or handshake deal?” you might wonder.
The answer is: You don’t. Those days are past, due to risks that must be assumed by land owners and renters. And here’s why — a checklist of important terms that should be in writing to protect both parties if an issue arises, according to attorney Cari Rinker, a principal in Rinker Law, licensed in Illinois, New York, New Jersey and Connecticut.
• Property description: Perhaps what land is and isn’t included in the lease needs clarification. A legal description and/or maps should be attached to the lease. In limited circumstances, a survey may be appropriate.
• Lease term: If you had prior oral leases, it’s possible the start and end dates weren’t clear. Clearly document the term of the lease and any renewal term.
• Payment terms: They should be clear (including when payment is due, where it should be sent, along with penalties/interest for late payments).
• Tenant reimbursements: Any responsibilities for landlords to reimburse tenants for improvements or operational expenses should be noted.
• Duties and prohibitions: Your lease should clearly describe responsibilities (e.g., maintaining fence lines, soil conservation, controlling noxious weeds) and prohibitions (e.g., use of certain chemicals, certain types of improvements, agri-tourism).
• Management: Who’s making what decisions for the farming operation? This is especially important for crop share or hybrid (flex) leases. This may affect whether the income is “active” or “passive” income for Social Security purposes. It may be especially important for landlord farmers closer to retirement.
• Termination procedures: The farm lease should include procedures for terminating the lease either voluntarily or involuntarily (in case of a default), including notice provisions.
• Insurance: Who’s required to have what kinds of insurance at what limits?
• Ability to sublease: Can the tenant-farmer sublease part of the property?
• Confidentiality clause: Some farmers prefer to keep terms of their lease private between the parties.
• Farmstead status: If the farm lease includes a house, it’s recommended that the farmstead have a separate residential lease.
• Intellectual property: Any use of a landlord farmer’s “brand name” should be documented with a separate trademark license agreement.
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Source: Rinker Law