An Introduction to Farmland Lease Agreements
It has been said that a "contract is no better than the word of those who sign it." On the other hand, a written contract is still an essential business practice when leasing farm property. It forces detailed consideration, communication, and understanding by both parties. It serves as a reference in the event details are forgotten or there is a death of the tenant or landlord.
Additionally, and perhaps most importantly, by reducing their agreement to writing, the parties may be able to avoid much of the cost associated with litigating disputes regarding respective rights and obligations under the contract. Most of the time, if an issue is addressed in writing, parties will (and should) respect the plain language of the contract. The contract should encourage the most profitable, long-term operation of the farm and be beneficial for both parties.
Questions to Consider
- Are the returns proportional to the contributions both tenant and landlord make to the business?
- Will the lease prevent or discourage a tenant from operating the farm in the same way a well-financed owner-operator would run it?
- Are the best farming methods, conservation practices, and/or environmental practices utilized?
- What is the plan for needed improvements?
- Every contract or lease agreement will one day terminate; how is termination to be handled?
- What method(s) will be used to settle accounts?
The farm rental contract checklist will assist tenants and landlords to consider components of a well designed lease agreement. This fact sheet, along with any additional sample leasing materials provided by Michigan Farm Bureau, is not intended to take the place of sound legal advice provided by an attorney working with either party. Michigan Farm Bureau recommends that both parties consult an attorney prior to entering into a contractual agreement. It is advisable to have an attorney for one party prepare the lease, with a review by the attorney for the other party.
For more information, check out this publication from Michigan State University highlighting owner and operator considerations for cash cropland leasing.
These materials were adapted from a series of fact sheets produced under the Acker Professional Improvement Program, Department of Agricultural, Environmental, and Development Economics, The Ohio State University. Ohio State University Extension. They do not include all possible considerations for flexible-cash rent provisions or a number of other items that tenants or landlords may want to include in the written agreement.