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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.

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.

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.

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.

Center PivotLandowners are always endeavoring to get the most from their farmland, and this is especially true when negotiating cash rental rates with potential tenants. While there are many factors in play when it comes to lease rates, one of the most significant is whether or not their parcel of land is under center pivot irrigation. As many savvy landowners readily discover, there is a strong correlation between higher cash rental rates and the presence of center pivot irrigated acres.
Cash rental rates have been steadily rising over the last several years, and demand remains high for quality rental acres. Trends over the last several years, when rainfall has been adequate or exceeded expectations, suggest that would-be tenants have been willing to pay a straight per-acre rate for both irrigated and dryland corners in their rental agreements, since the yield difference between the dryland corners and the irrigated acres have been smaller.
However, after 2012’s severe drought, tenants are becoming more interested in negotiating rental contracts with per-acre rates based on the irrigated circle and the dryland corners, this according to survey results conducted by the Ag Econ Department at the University of Nebraska. The survey looked at the five reporting Agricultural Statistical Districts in Nebraska and found that in all five, the cash rental rates were an average of $9-$33 per acre higher when rates were based only on the center-pivot irrigated acres, and not the whole parcel.
Specifically, in the Northeast Nebraska reporting district, the results of the survey found that the center pivot irrigated only price per acre average was $397, versus $379 for the center pivot whole parcel average, a difference of $18 per acre. The difference may also be attributed to high demand for acres to farm and high competition to win leases in this part of the state.
Indeed, it has been noted that it is cheaper to buy an acre of untillable grazing ground in northwest Nebraska than to rent an irrigated farm acre in the eastern portion of the state for one year. The same UNL survey cited the going rate for the highest quality irrigated rental acre was $439, versus $379 sale price for a grazing acre.
So, what does this mean for landowners? Obviously, it’s a great economic benefit to have center pivot capabilities on your farmground, as tenants are obviously willing to pay more for irrigated acres at this time. Landowners seeking to maximize their land asset should take advantage of the economic benefits that come with irrigation. If your ground is dryland, it’s a good idea to evaluate it and decide if the benefits that come along with adding a center pivot are worth the initial cost. The findings of this survey and trends over the years suggest that the higher cash rent premiums that accompany irrigated land are worth the efforts.
Are you striving to make the most of your farmland? Are you wondering whether you are negotiating appropriate rental rates? Give UFARM a call. We have the experience and expertise to help you make the most of your farming operation.
Source:
“Center Pivot Rental Rates With and Without Adjustments for Dryland Corners.” Cornhusker Economics. Agecon.unl.edu. 31 Jul. 2013. Web. 14 Apr. 2014.

Tractor-Baling-smallerLandowners have many decisions to make when it comes to their land, the most important of which is deciding who will farm it. Do they farm it themselves, or should they offer it for lease? The options vary depending upon the situation of individual landowners. Lease agreements may be the best option for some landowners, who might not have close ties to their farms, or who are geographically distant from their land. However, if one of these options doesn’t seem like the right fit, are there any alternatives? For many landowners, custom farming is the answer. In cases where a landowner might desire to remain in control of all the farming decisions himself, but might not have the time or physical resources available, custom farming offers a practical alternative.

In a custom farming arrangement, the landowner pays a set fee to a farm operator to perform all the labor in crop production. The farm operator provides the machinery needed to farm the land and assumes only the costs associated with machinery repair and maintenance. All the other decisions are made by the landowner, who also pays for all input costs, including chemicals, seed, fertilizer, and crop insurance. The landowner also receives all the income from sales and all eligible farm program payments.

There are obvious advantages to custom farming for both the landowner and the farm operator. For the farm operator, there are significantly less price and yield risks than in a leasing situation, and little to no additional operating capital is needed. Custom farming provides extra income at a set rate. Landowners benefit from not having to invest in expensive machinery, or in its maintenance and upkeep. Many landowners favor not having to negotiate rental rates or collect lease payments.

If a custom farming agreement sounds like a good fit for you and your land, it’s important to have a written agreement in place that provides specific details of what is expected of each party. Knowing ahead of time the amount of acres and type of soil that will be farmed, the farming practices—including tillage, watering, and fertilizer practices—that will be used, and the tentative planting and harvesting schedule, is key to a good business relationship. It’s a good idea to outline a payment schedule as well. Clear, open communication will prevent any potential misunderstandings.

Determining the appropriate custom farming rate can be the most complicated part of the custom farming agreement. Reports that list the average rate for your area and crop are available from various sources.

Another option for landowners includes custom leases, where the tenant gets a share of crop, anywhere from 15% to 25%. This gives the tenant a vested interest in the crop. The tenant is responsible for the cost of all mechanical operations on the farm. Custom leases allow both tenants and landowners to share in the good years.

Many landowners turn to professional land managers to help them with these considerations. Land management companies are able to match up landowners with those who are seeking to do custom farm work. They are also able to draft the agreement and help to determine an appropriate and mutually beneficial rate for the work supplied.

As a landowner, it’s important to know all the options available to you. Custom farming provides yet another way for you to manage your investment. Do you have questions about custom farming? Let UFARM supply the answers! We’re here to help.

Source: Edwards, William. “Custom Farming: An Alternative to Leasing.” Iowa State University Extension and Outreach. Iowa State University. Sep. 2009. Web. 13 Mar. 2014.macld they lease it to anoth

Successful landowners know what it takes to build and maintain good working relationships with the producers who farm their land. With the high land values and cash rental rates of the last decade, it’s even more important for both landowners and tenants to go into their business relationship with clear goals and a well-defined agreement for how best to manage the farmland.

In many cases, today’s landlords are increasingly turning to professional farm management companies to help them navigate the decisions that need to be made regarding their farmland. Two main reasons account for this change. One is that agriculture is becoming more complicated and volatile. Anyone farming in the last decade, with its rapidly burgeoning land values and commodity prices, can attest to this. Another reason is that many of today’s landowners don’t have close ties to the farm. This may be the result of farmland being passed down to non-farming children or grandchildren, the landowner not being geographically close to the land, or the landowner acquiring the land as an investment, without any prior farming knowledge.

Landlord-tenant relationshipsWhatever the case, many landowners feel they lack the knowledge to farm the ground themselves, or to find someone who is both competent and trustworthy to farm their ground, and so they turn to the expertise of experienced professional land managers to do this for them.

One of the most important decisions that farm managers help their clients make is who to farm the land. Farm managers strive to take into account each client’s circumstances, gathering the pertinent information needed in each instance to make the right decisions. They ask many questions, finding out if the land has been rented to relatives or neighbors, and if the client would like to see that continue or not. Often, there are prevailing family concerns that need to be taken into account, and farm managers have experience when it comes to these often delicate situations.

Open, candid communication is the foundational component to successful relationships. This is especially true for landlords and tenants. A professional farm manager can be an effective liaison between landowner and farmer, securing a mutually beneficial arrangement for both parties. In many instances, an impartial third party negotiator is all it takes to encourage a positive landlord/tenant bond.

When it comes to landlord/tenant relationships, it’s important to negotiate a lease that is agreeable to everyone. Farm managers are knowledgeable about different type of leases. For instance, leases that share the profit and risk, known as flexible lease agreements, are becoming more commonplace. 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. This type of lease may be a good fit for both parties, and will further promote a healthy and open business partnership.

Are you a landowner? Are you striving to get the most out of your farm? Let UFARM help you determine which strategies are a good fit for you, your tenants, and your valuable land asset.