Flexible cash rents can be good for both tenants and landowners, says Burton Pflueger, SDSU Extension farm management specialist.
A flexible-cash lease is a rental arrangement in which the landowner receives a predetermined cash fee from the tenant adjusted for changes in prices or yields. The tenant produces crops on the land and makes general management decisions as if the land were owned by the tenant. The landowner retains the right to share in the additional income resulting from unexpected increases in crop prices and above-normal yields. The operator has less risk than with a fixed-cash lease. Rent expense is lower if prices or yields are below normal.
In addition, under some types of flexible rent arrangements, the higher the yield, the more the tenant will pay to the landlord. This may reduce the incentive to manage for higher yield.
Flexible leases are more complicated than fixed leases, says Pflueger, who has written two publications that outline different types of flexible leases.
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Source: SDSU AgBio Communications