Recently, I have received several questions regarding the termination of verbal lease agreements. In talking to the parties involved, it becomes apparent that the issues could have been avoided if there was a written lease in place. I cannot stress enough the importance of having a written lease agreement. Changes in the structure of production agriculture have increased the need for persons entering into a contractual rental arrangement to have a written agreement. A written lease helps the prospective landowner and tenant think about and agree upon the essential considerations of leasing and operating the farm. Overall, you want to develop a lease which will combine the goals and resources of landlord and tenant into an economically acceptable package for both parties.
At a minimum, a written lease should include these five items. The more information that one can include, the better informed all parties will be, and future negotiations will be easier.
1) Names and description – Identify the parties entering into the lease contract and give the legal description of the property or properties involved.
2) Terms of lease – The term, or length of time the lease is to be in effect, should always be agreed on and should be stated in the contract. The lease agreement can be for either a one-year lease or a longer lease. Most agreements include an automatic renewal clause and allow some flexibility in the terms of the lease if the parties under contract give adequate notice.
3) Rental rates and arrangements – Rental rates and arrangements for payment or disposition of the rent are a significant part of any lease. Basically, there are five methods of paying rent: crop-share, cash rent, livestock-share, flexible cash rent, and farm machinery, equipment, and buildings rent.
4) Right of entry – Every farm lease agreement should include a statement giving the landowner legal right to enter the property. Without such a statement, a tenant has the right to treat any entrant on the property as a trespasser, including the landowner.
5) Signatures and dates – Signatures by each party are one of the five essential parts of the lease contract. The agreement becomes a contract when it is signed. All co-owners of the property, including a husband and wife, should sign the lease agreement when property is held in joint tenancy or tenancy by entireties.
A “complete” or more detailed written lease should contain these items.
1) Farm operating expenses – Reaching agreement on farm operating expenses provides an opportunity for the tenant and landowner to discuss and designate the share of cash production costs that are to be paid by each party.
2) Conservation and improved practices – To improve or maintain the productivity of the farm, conservation and improved production practices are usually warranted. Conservation and other improved practices require additional labor and expenditures. Give important consideration to questions such as who contributes the labor and cost of implementing the practice and how these contributions affect income for both tenant and landowner.
3) Improvements and repairs – Misunderstandings are prevented by agreeing ahead of time what repairs will be done, how much will be done, and what each party will furnish toward them.
4) Records – Farm records are a necessary part of farming. The tenant is the logical person to keep the records because he or she is usually in closer touch with the day-to-day operations.
5) No partnership – A lease does not create a partnership. A statement of this nature is advisable in any lease form.
6) Arbitration (settlement) – Differences of opinion can arise rather unexpectedly. For this reason, leases should be in writing. A written lease forces both parties to “argue out” their differences in most areas where differences may occur. This section is included to encourage the use of disinterested persons for settling differences promptly and in a friendly manner rather than by litigation.
7) Additional agreements and modifications – Any changes made after the initiation of the original contract should be made a part of the written contract.
If you are interested in obtaining a sample lease form visit aglease101.org. This website was created by and maintained by the North Central Farm Management Extension Committee. It contains free lease forms for cash, crop-share, livestock-share, and pasture rent arrangements. If you have any questions about the forms contact me, Karisha Devlin, at 660-397-2179
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