The Dos and Don’ts of Cash Rent Leasing

Cash Lease Farmland

We’ve covered the topic of leasing a number of ways—the main types of leases and their applications, how to arrive at a mutually satisfying landowner/tenant agreement, and the best way to go about deciding which type of leasing agreement is right for your situation. We’ve also talked a lot about the importance of writing down leasing agreements on paper, and this is worth re-visiting periodically. Far too often, we see years-long relationships go suddenly awry due to confusion caused by handshake agreements and faulty memories.
Given the various factors that come into play with lease agreements, it’s important to keep a few main Dos and Don’ts in mind. First, DO write it down. Doing so prevents confusion and clearly delineates the terms, that may be reviewed should issues come up.
DO consider enlisting the help of a third party in the process, not only to avoid any awkward conversations, but also to take advantage of the neutrality that the third party provides. UFARM land managers are well-versed in this task, and provide peace of mind to those entering into the agreement that all bases are being covered. Should an issue arise at some point down the line, it is much more desirable to call your land manager and let him take care of the issue than to threaten the relationship otherwise.
DO be specific in the lease terms. Leave no base uncovered. At the most basic, include the following: The names of the parties involved, an accurate description of the property being rented, the beginning and ending dates of the agreement, the amount of rent to be paid, a statement of how and when the rent is to be paid, and the signatures of the parties involved.
DO go further than this. Add in provisions regarding improvement provisions, and clearly set down the duration of the lease agreement including termination and renewal guidelines.
DON’T rush into any sort of contract. Weigh the options carefully, considering all the variables, such as cattle grazing, erosion issues, crop residue considerations, and types of crop that will be grown.
DON’T forget to lay out a clear, mutually-beneficial payment plan. Take into consideration that payment plans may need to coincide with sales of livestock or crops, and be further separated to help the operator from a cash-flow standpoint.
DON’T forget to include the following main terms in your agreement. Your land manager will be sure to help you with this:
– Parties to lease and description
– General terms
– Termination
– Operation and maintenance
– Landowner rights and government payment
– Arbitration of differences
Creating a leasing agreement doesn’t have to be a difficult endeavor. In fact, we hope this post provides you with a solid foundation from which to start building yours. We encourage you to contact us with your questions or concerns. Consider enlisting the help of one of UFARM’s experience land managers to help you create an exceptional leasing agreement that provides both you and the other party peace of mind for the duration of the leasing relationship and for years to come.
Source consulted: “Fixed and Flexible Cash Rental Arrangements For Your Farm.” North Central Farm Management Extension Committee. 2011. Web. 06 Dec. 2016.

3 Things to Consider When Negotiating Your Nebraska Farm Lease

farm lease

Of the numerous decisions to be made by farmers and landowners, many deal with farm leases. Often, questions arise when it comes to leasing matters, be they large questions (how much should I charge?) or smaller questions (are grain bins included in my lease?) However, it’s very important to know your leasing options, especially now when cash rents have remained high. Here are 3 key things to consider when you negotiate your farm lease, whether you’re the landowner or the tenant.

Calculating a Fair Rental Rate
Arriving at a mutually agreeable rental rate is important, and this determination can be complex. It is usually based on several factors, including the rental rates of the surrounding area to the ground in question, from information obtained from professionals such as farm managers and/or real estate professionals, survey data , percentage return on investment, or percentage of gross income, to name a few.
Farm managers often have valuable insight as to a piece of ground’s potential, and have many years’ experience in helping landowners and farmers secure fair rental rates that accurately reflect the contributing variables. They are readily able to determine the percent of gross income, for example, or to calculate the ROI you’d like to receive.

Determine Which Lease Type to Choose
Part of determining a fair rental rate will stem from what type of lease agreement is chosen. Whether it’s a crop share lease, cash lease, or flexible rate lease agreement, farm managers can help you determine which lease type best suits your needs, based upon your unique situation, the state of the market, and the like. From there, the distribution chosen will depend on the final inputs, such as the tenant paying all seed and chemical costs, while the landowner pays all the land and drying costs.

Determine the Details
Once it is decided which type of lease is mutually agreeable, farm managers are able to get the agreement written down on paper, with terms clearly determined ahead of time. Enlisting an experienced professional to help set forth the particulars of the lease agreement provides peace of mind for both parties should any issues arise down the road.
Leasing agreements should include more basic information, such as deadlines for termination, should one party so choose, as well as other particulars such as grain storage considerations (are grain bins included or excluded in the lease?) electricity matters (should a separate meter be maintained?) or improvement/maintenance of fences.
Having these details worked out on paper ahead of time is key to maintaining a good landlord/tenant relationship, and farm managers act as impartial third parties in such cases, working to prevent any misunderstanding down the road.

UFARM land managers have years’ worth of experience in helping Nebraska farmers and landowners sort through their leasing options, and setting forth clear terms that are beneficial to both leasing parties. If you have a leasing question, don’t hesitate to give us a call, and we can discuss what options are available to you and your farming operation.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Source consulted:Vyhnalek, Allan. “Frequently Asked Questions—Farmland Leases.” Institute of Agriculture and Natural Resources Agricultural Economics. University of Nebraska-Lincoln. Web. 22 Feb. 2016.

Types of Land Leases

Whether you’re renting out your farmland or paying rent, it’s important to know your leasing options. A variety of lease types exist, and based on your relationship with your landlord and/or tenant, both parties can opt for the one that suits them the best.

With the fluctuating land values and commodity prices that have characterized the past several years, lease agreements may have been changed, or may be due for one. The most important advice any land manager would give when it comes to lease agreements is for the agreement to be written down. As it stands, many lease agreements are between family members, or have been established for a number of years. While these handshake agreements do demonstrate good faith, when an issue does arise, it’s not uncommon for each party to hold differing recollections of how the lease was to work. Land managers are well-versed in helping you get that lease down on paper, as well as helping you sort through the necessary particulars prior to it.

That said, should you have an unwritten lease, it’s important to know the dates by which they must be legally renegotiated or terminated. These leases are automatically renewed for another year until proper notice has been received, either by the tenant or landowner. This termination notice must be given by September 1st, and the lease year legally begins on March 1st. Also, with unwritten leases, six months’ advance notice must be given in order to terminate the lease.

In the case of a written lease, the terms should already be included within the lease—usually one year, five years, or more. However, if it contains no renewal clause, a written lease terminates automatically on the last day of the lease period. For written leases, no notice is required from the landlord to the tenant that the lease will not be renewed unless the lease specifically states that notice of termination is required.

Another leasing option for farmers is the flexible rent lease. Fluctuating land values and crop yields can make it more difficult to come to a fair rental price agreement, and as a result, more farmers and landowners in Nebraska are turning to flexible rent leases. This type of lease reduces risk and optimizes profit potential for both parties by basing the final rent upon the actual prices and yields attained that crop year, rather than by a set rate prior to it.

No matter which type of lease agreement you choose, remember to work out as much of the particular details as possible. These include such considerations as who pays for grain bin storage and power, how irrigation costs are to be handled, etc. The most important thing is that both parties come to an agreement so there is no confusion if/when an issue arises.

UFARM land managers have years’ worth of experience in helping Nebraska farmers and landowners sort through their leasing options. If you have a leasing question, don’t hesitate to give us a call, and we can discuss what options are available to you and your farming operation.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Considering Giving Up Your Cash Rent Lease?

Cash Lease Farmland

As cash rental rates continue to increase each year, and in the face of continued low commodity prices due to high-yielding harvest expectations, more and more farmers eyeing their cash flow for 2016 are considering giving up their cash rent leases. Is this a sound decision, and if determined so, what do producers need to know before they part ways with their rented ground?

Farmers aren’t mistaken in feeling the pinch of ever increasing cash rent: According to data collected on average cash rent paid over the last decade by Nebraska Farm Business, Inc., the cost has doubled from $127.71 in 2005 to $258.11 in 2014, after peaking at $274.74 in 2013. This cost accounts for about 31% of the total cost of growing irrigated corn.

Landowners, too, have had to deal with issues of their own, as property and real estate taxes have continued a steady increase as well, and this has obviously entered the cash rent equation.

While giving up land is considered a last resort among most farmers, working for nothing—or even working to lose some money—is not a favorable option. Of course, this decision cannot be made without considerable forethought, and many times isn’t just about the numbers. The chances of ever farming the same ground again after giving it up is unlikely, and should the markets turn around, finding land to farm is difficult. A drought year or other weather disaster in another area of the Midwest can change outlooks instantly. Therefore, it’s no wonder this is a tough decision for many cash renters.

While each producer’s situation is unique, the decision to give up rented ground may come down to the overall financial health of the farm. If an operation is highly leveraged and much of its ground is concentrated around high-rent land, then giving up some of these acres may be necessary over an operation with less/low debt and fewer high-rent acres. Similarly, the age of the operation should be considered. A more established farmer with a higher net worth to fall back upon would have fewer reasons to give up rented ground than a beginning farmer with less net worth.

Should the decision be made to end a cash rental agreement, it’s important to remember that farmers and tenants must notify each other by September 1st . Under Nebraska law, a farm lease automatically continues from year to year unless a notice of termination is given by either party, and this notice must be properly served by September 1st, prior to the end of the lease year.

Owing to a number of factors, among them the nature of the relationship between the landowner/tenant, many farmers hire land managers to ensure that all necessary steps are taken to end a lease agreement. Hiring a professional land manager who deals with these issues on a day-to-day basis helps to make the overall action run smoothly, efficiently, and with as little headache as possible for all parties involved.

If you are in the difficult position of determining whether or not to end a cash rental agreement, please don’t hesitate to talk it over with a UFARM specialist. We are glad to help you weigh the costs and benefits, and determine the best option for the long-term viability of your farming operation.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Sources consulted:  Barrett, Tina. “Should You Give Up Your Cash-Rent Lease?” AgWeb.com. Farm Journal. 04 Aug. 2015. Web. 25 Aug. 2015.  Swoboda, Rod. “Lease Termination Deadline is September 1st.” Prairie Farmer. Farm Progress. 14 Aug. 2015. Web. 25 Aug. 2015.

How to Legally Terminate a Farm Lease

Lease

At some point or another, issues may arise between landowners and tenants regarding farmland leases. These issues are often complicated due to unwritten, verbal “handshake” agreements, where the involved parties have different recollections of what the lease entailed. Should it be determined by either party to terminate a farm lease, the issue may become more difficult to resolve. What should landowners know when it comes to legally terminating a farm lease?

First, it should be noted that a written lease agreement benefits both landowner and tenant, and both parties should attempt to create a written agreement if at all possible. This way, each party is able to outline their responsibilities, rights, desires, and needs ahead of the busy growing season. Being proactive from the start in avoiding potential disagreements ahead of time is the best practice.

Legally, it is important to know that, with unwritten leases, six months advance notice must be given in order to terminate the lease. In the case of a written lease, the terms should already be included within the lease. However, if nothing is specified, a written lease terminates automatically on the last day of the lease, with no renewal.

Despite the advantages of written leases, it is still common for verbal leases to be the norm in Nebraska, and legally, these are presumed to be year-to-year leases. These leases are automatically renewed for another year until proper notice has been received, either by the tenant or landowner. This termination notice must be given by September 1st, and the lease year legally begins on March 1st.

An example of terminating an unwritten lease may look like this: A termination notice received by September 1, 2011 would terminate the lease at the end of the current crop year–on February 29, 2012. The new tenant (or landowner) could take possession free of the lease March 1, 2012. However, termination notice received after September 1, 2011 would not terminate the lease at the end of the current crop year, but would terminate the lease at the end of the following crop year (beginning on March 1, 2012 and ending February 28, 2013).

In practical terms, knowing these important legal dates is key should the landowner wish to sell the land, or to raise the cash rent. In each of these cases, negotiations must take part before September 1st.

In the case of written leases, unless a renewal clause is specified within the lease, the lease automatically terminates at the end of the lease period. The tenant generally has no right to have a written lease renewed unless the lease contains a renewal clause.

Finally, the formal notice of termination should be written and sent as registered mail, with a copy kept for personal records. The six-month prior notice deadline for verbal leases applies to the date the notice is received by the tenant, not the date the notice is sent by the landowner.

Should you have questions regarding lease agreements, please contact us at UFARM—we are happy to address your concerns and answer your leasing agreement questions.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Source Consulted: Aiken, J. David. “Farm Lease Termination.” Cornhusker Economics. University of Nebraska-Lincoln Department of Agricultural Economics. 04 Jan. 2012. Web. 22 Jul. 2015.

Why Have Grain Bins in Your Farmland Lease?

Leasing Grain Bins

There are many things to consider when arranging a farmland lease. First, both parties must agree on which type of lease to use, whether that is a cash rental agreement, a flexible lease agreement, or some other arrangement. Then, other considerations come into play: farmland location, soil quality, land values, crop yields, personal goals, and the relationship between owner and tenant all factor into negotiating a successful leasing arrangement.

After all these factors are addressed, both landlords and tenants often overlook the issue of grain storage, and tack on grain bin rental as an afterthought. It’s important to remember to address this issue clearly up front, especially during bumper crop years, when grain storage needs suddenly loom large. The immediate need to address a shortage of storage can be stressful; it is beneficial for all parties to have a clear arrangement set ahead of time in order to avoid confusion.

Grain bin rental may either be a part of the farm lease or separate, and may even be leased to a different individual than the one renting the land.

Commercial grain storage rates generally run from 2-3cents per bushel per month, not including handling and managing fees, and bearing risk for storage losses. Since farm storage excludes those services, rates are generally lower, and may become a far more attractive option for growers during times of extra grain storage needs.

Determining a fair grain bin rental rate can be difficult, since it varies so much. Generally, the lease is written on a cash rent basis for a specific time frame on a per bushel basis. The size of the bin, convenience for loading/unloading, and the availability of heat, stirrers, and drying capabilities are obvious factors to take into account when determining a rental rate. When arranging grain bin rental leasing agreements, it is important to address insurance and utility responsibilities as well.

After these aspects are addressed, there are other things to consider, such as determining who is responsible for checking the condition of the grain being stored. Usually, it is the renter who carries out this task, but it is best decided when negotiating the lease. Access to the storage site is also an important consideration. Determine who will be responsible for snow removal and/or moving machinery?

When it comes to the electricity costs associated with aeration, the renter usually pays. The kilowatt-hours of electrical use may be estimated and found on the farm utility bill. If there is a separate meter for the bins, the cost may be observed directly.

Finally, the date and manner of payment for grain storage should be specified when negotiating the rental agreement. It’s also a good idea to agree on a date by which the grain is to be removed from the structure. Careful evaluation of the soundness of the storage structure should take place before it is filled, should any repairs or modifications be needed.

When it comes to leasing agreements, don’t forget about grain bin rental. Should you have any questions, feel free to contact a UFARM representative—we are happy to answer your questions.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Sources consulted: Edwards, William. “Renting Extra Grain Storage.” Iowa State University Extension and Outreach. Iowa State University Extension. Aug. 2014. Web. 15 Jul. 2015.

“Lease Options for Rural Property.” FCS Financial. FCS Financial. Web. 15 Jul. 2015.

 

Leasing Basics for Landowners

Leasing FarmlandAside from the day-to-day duties of owning and managing land, one of the more difficult aspects of land ownership deals with leasing farm land. Many landowners have difficulties coming to mutually acceptable agreements, getting those agreements on paper, determining fair rental rates, and determining what type of lease agreement best suits their needs. What are the leasing basics of which landowners should have a firm grasp?

The first is to know and understand how rental rates are set. The end goal is to come to an agreement that is mutually beneficial to both the landowner and tenant. As such, setting a fair rate is important. There are several factors landowners can take into account when determining this rate, among them are the rental rates of the local area, percentage return on investment, survey data showing rental rates, percent of gross income, and many others. Most land managers recommend that landowners estimate the rental rate based on three or four of these factors and then make a decision. Determining a local rental rate is fairly straightforward; ag loan officers from the local bank, ag real estate professionals, and professional land managers are able to supply the going rates for current lease agreements.

Additionally, the National Ag Statistics Service (NASS) releases land value surveys annually for consultation. This, along with determining your desired ROI and percent of gross income, are excellent ways to come to a fair rental price agreement with your renter.

With over half of the agriculture land in Nebraska rented, it’s important for landowners and farmers who lease land to recognize the importance of a well-written lease agreement. Where a handshake was enough in many cases in the past, the nature of farming today is a bit more complicated, and the necessity of having a well-designed legal agreement is paramount. Land managers are well-versed in helping you get that lease down on paper, as well as helping you sort through the necessary particulars prior to it.

Land managers are also able to help you determine if a flexible lease agreement may be the right choice for you and your tenant. The factors that have the greatest effect on rental price are land values and crop yields. As these vary year to year, it can be tricky for owners and the farmers who rent the farmland to agree on a fair rental price. To address this complex problem, area farm management experts increasingly promote flexible land lease agreements in order to reduce risk and optimize profit potential for both parties. A flexible land lease agreement is an agreement in which the rent is not paid until the after the crop is harvested. The final rate is then based upon the actual prices and yields attained in a year, rather than a set rate.

After determining the type of rental agreement come the particulars, such as who pays for grain bin storage and power, how irrigation costs are to be handled, and the like. These vary from farming “neighborhood” to neighborhood. The important thing is that both parties come to an agreement so there is no confusion if/when an issue arises.

There is no definitive right or wrong land rental rate, but taking the above factors into account will accomplish the most important leasing goal: A mutually beneficial and satisfactory agreement for both parties.

Source consulted: Vyhnalek, Allan. “Frequently Asked Questions—Farmland Leases.” University of Nebraska-Lincoln Agricultural Economics. University of Nebraska-Lincoln. Web. 17 Mar. 2015.

What Does A Well-Written Farm Lease Really Cover?

LeaseOne of the most overlooked aspects of farming deals with leasing agreements. With over half of the agriculture land in Nebraska rented, it’s important for landowners and farmers who lease land to recognize the importance of a well-written lease agreement. Where a handshake was enough in many cases in the past, the nature of farming today is a bit more complicated, and the necessity of having a well-designed legal agreement is paramount.

A leasing agreement, down on paper, benefits both landowner and tenant. Each party is able to outline their responsibilities, rights, desires, and needs ahead of the growing season, so there are no surprises that could compromise the good nature of the agreement. As anyone who has ever dealt with a difference of opinion could attest, proactively avoiding potential issues ahead of time can save time, money, and a great deal of headache for both parties involved.

What comprises a well-written lease? First, make sure the basics are covered. According to FarmProgress.com, this includes: “[An] accurate legal description of the land to be leased, the identity of the parties and their signatures, length of the lease, kind and amount of rent, time and place of payment, responsibilities of each party, an indemnification clause (whereby tenant agrees to compensate the landlord for any loss resulting from the tenant’s negligence, and vice versa) and any other special provisions the parties agree upon.”

In addition to these basics, it’s often good to recognize some commonly misunderstood landlord rights, so that the leasing relationship runs smoothly, and hopefully for many years. Usually these are addressed by a written lease, so that they do not become issues during the growing season.

One such misunderstanding regards farming practices; a well-written lease will make it clear that the tenant/farmer is in charge of how the land is farmed, unless otherwise agreed upon ahead of time by both parties.

Another issue that can arise is when the landlord can come onto the land; without a written lease, this can only be to make repairs or to collect rent. Should both parties like to amend this, it should be decided upon when the lease is put together.

Sometimes, the landowner decides he/she wants to sell the land before the lease agreement is up. It should be understood that the new buyer is responsible for the existing lease agreement.

Another important concept that written leases address is when a landowner can raise the rent, if so desired. In Nebraska, a landowner cannot raise the rent for the next year after September 1.

Finally, with rifle season just around the corner, it’s good to remember that landowners don’t necessarily have the right to hunt on the land they rent without the tenant’s permission. Addressing this in the written lease may help avid hunters avoid potential headaches the third weekend in November.

It cannot be overstated that good farming relationships start with a well-crafted lease, written down on paper. If you’re looking to update your leasing agreements, contact UFARM for advice on how to accomplish this goal. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

 

Sources consulted:“Five Myths of Landlord Rights.” Cropwatch. University of Nebraska Extension. University of Nebraska-Lincoln. 02 Oct. 2014. Web. 10 Nov. 2014.“Good Reasons for a Written Lease.” Prairie Farmer. Farmprogress.com. 05 Aug. 2011. Web. 10 Nov. 2014.

Leasing Land for Wind Energy Production

Leasing Land for Wind Energy ProductionFarmers and landowners generally focus on the land beneath their feet. However, with the increasing amount of wind energy development across the Midwest, many are starting to look at the wind above their heads. There are several wind energy farms across Nebraska and they continue to expand in may rural areas. While increasing alternative energy source options is a good goal, farmers and landowners must exercise caution before entering into any lease agreement should a wind farm company approach them about constructing a wind tower on their land.

Before leasing land for wind production, it is of critical importance for a landowner to seek sound legal counsel, preferably with an attorney well acquainted with these types of contracts. Obviously, the contract initially presented is often streamlined so that the project may move forward quickly. Landowners are told that the contract presented is standard and the same as all other wind tower contracts. However, each parcel of land, and each landowner, has a unique set of characteristics and circumstances. It cannot be overstated that each provision is, in fact, negotiable. Once signed, each party has a legal obligation to uphold their part of the contract; as such, it is crucial to make changes before signing the contract.

According to North Dakota State University Extension Farm Manager Specialists Dwight Aakre and Ron Haugen, these are the questions you should ask before signing the dotted line:

How much of my land will be tied up and for how long?

How much will I be paid and how will I receive payments?

Are the proposed payments adequate now and will they be adequate in the future?

Have all liability issues been considered?

Have I considered all contract specifications?

Are there any other considerations?

Under each of these questions is an array of more specific considerations. For instance, what is the duration of the contract? Who is responsible for the access roads, both during construction and maintenance? What about inflation? Will the placement of a wind tower incur more taxes for the landowner? Who is responsible for liability should a problem arise?

Additionally, for farmers, the presence of wind towers on or near their land could affect farming practices due to new maintenance roads, less ability to receive aerial spraying, improvement restrictions, and construction phase damage such as soil compaction.

While these factors, as well as the lure of additional income, are the top concerns of landowners when first approached about wind energy opportunities on their land, there are other very important factors to take into account. Some landowners site noise issues, visual pollution, shadow flicker, and electromagnetic fields that cause interference with electrical devices.

The demand for renewable energy sources is high and wind farms are providing needed economic development in rural areas, so wind energy corporations will continue looking at prime Nebraska real estate to feed the nation’s energy needs. Landowners need to be ready to make leasing decisions that work for them. If you have concerns about leasing decisions for your land, contact UFARM—to lend you a hand.

Source consulted: Aakre, Dwight, and Ron Haugen. “Wind Turbine Lease Considerations for Landowners.” North Dakota State University Agriculture. NDSU. Feb. 2009. Web. 15 Sep. 2014.

Determining a Fair Price for Farmland Rent

Farmland Rental LeaseAs we head into the final stretch of August, farmers are already looking ahead to harvest. While they focus on putting pivots to rest in the near future and begin pulling out the harvest equipment, it’s a good idea for farmers and landowners in rental agreements to remember that September 1st marks the date by which lease agreements must be terminated or terms and conditions changed, if it is so desired by either party.

In Nebraska and most surrounding states, an oral farmland lease begins on March 1st. Farm lease agreements are automatically continued year by year unless one party serves a termination notice or requests a renegotiation of the terms, and Nebraska law requires that this notice be served six months in advance of that date. Many rental agreements are oral agreements, and while it is always recommended that the terms of leasing agreements be on paper, it’s important for those without one to keep in mind that September 1st is fast approaching, should one desire to terminate or change a lease agreement. One of the most common disputes among parties with primarily oral farm rental agreements involve differing recollections of the terms of the lease; as such, farm managers strongly encourage that an agreement be put down in writing, even among family members, to avoid such disputes.

With that in mind, farmers and landowners each have an interest in ensuring that rental agreements are fair and mutually beneficial to both parties. Determining a fair price for farmland can be complicated, as many variables come into play, including farmland location, soil quality, land values, crop yields, personal goals, and the relationship between owner and tenant. Naturally, the factors that have the greatest effect on rental price are land values and crop yields. As these vary—sometimes quite a bit—from year to year, it can be difficult for owners and the farmers who rent the farmland to agree on a fair rental price.

To add to this difficulty, it’s interesting to note that a common way of determining a fair rental price—by comparing them with average county rents—isn’t always the best way. Illinois ag economist Gary Schnitkey found that, while the reported state and county land rent averages are accurate, they also mask a lot of variability among rents. From his findings, Schnitkey reports, “Only 35% of farm cash rents are within $20 of the average rent. This leaves many cash rents that vary significantly from averages.”

How then can farmers and landowners best determine a fair rental price for their farmland? Many are turning to professional land managers. Land managers deal with these types of situations on a daily basis, and are knowledgeable about all the tools available—such a flexible lease agreements—to farmers and landowners. They take into account each party’s unique circumstances and work with them to form a mutually agreeable arrangement, that best allocates risk and return for each. In situations involving family members, they are able to serve as an objective liaison who can effectively work out the rental agreement in a fair-minded way.

Are you wondering if your land leasing agreement is serving your best interests? Contact a UFARM land manager—they are happy to offer you sound advice regarding farmland rental agreements.

United Farm and Ranch Management (UFARM) is a Nebraska-based company devoted to meeting landowners’ needs. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s.Contact Us.

 

Sources consulted:

Caldwell, Jeff. “What’s ‘fair’ cash rent for your land?” Agriculture.com. 15 Nov. 2011. Web. 18 Aug. 2014.

Edwards, William. “Computing a Cropland Cash Rental Rate.” Iowa State University Extension and Outreach. May 2014. Web. 18 Aug. 2014.