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You could look at a hundred farmland leases from around the country and probably not find two the same. Some people have received samples from Extension offices. Others have pulled samples from internet sources or perhaps had lawyers draft their leases. Some leases are whipped up on the back of an envelope, and some are even verbal (which is risky these days). Regardless of where they come from, there are basic components that should be in every farmland lease.
First of all, you start with the proper legal names of the lessor (owner) and the lessee (farmer/tenant). Frequently, one or more of those is going to be an LLC or a corporation, so list the actual legal entities, rather than accidentally listing the individuals who own the entities, as parties to the lease. You might think, “What does it matter if there are a few technical errors in the lease?” Well, I can assure you that when there is an actual legal problem, the lawyers start going after those little technical errors for the purposes of forcing you to pay claims.
A description of what exactly is being rented will normally be the next component listed. Sometimes you will see “a field on County Road N” because there is no address. However, I recommend you describe the field well enough that there is no doubt what is being leased. For example, 80 acres at the northwest corner of County Rd N and Highway 36, Parcel ID #1-02-003-0004, USDA Farm #1234. You can always run with the actual legal description, but that is sometimes a page long and sometimes difficult to interpret.
The start and end dates of the lease term should be listed, and you need to spell out whether or not it renews automatically. If it renews annually, normally one party is going to be required to give the other party at least 30 or 60 days’ notice if he/she wishes NOT to renew. There are possibly state laws in your state as to when nonrenewal notices must be given to a farmer, so don’t run afoul of state laws with your lease language.
The rent is obviously an important piece of the lease. Is it cash rent per acre, cash with a bonus, a portion of the grain, or some other formula? The merits of those different scenarios have been thoroughly discussed in many other articles, so I won’t go into which lease compensation scenario is best. Just make sure the compensation is clearly defined.
The follow-up detail to the rent amount is, “When will it get paid?” The cash rent could be due before the crops go in, after they come out, half before and half after, or any other dates that are mutually agreeable. Crop shares are going to be delivered whenever Mother Nature allows the harvest to happen, and you might want to mention that in some years there may be no harvest at all. It could also be useful to specify in the lease where the grain is going to be delivered. Another thing to spell out is who gets government payments and in what percentages. Also, what will happen with future CRP payments if the landlord decides to take the field out of production?
Operator duties is a section that is pretty much there for the protection of the landlord. It will state the obvious, that the farmer is going to plant and harvest crops in a timely manner. The farmer is not going to allow public use of the land, build any unauthorized structures, or dump any hazardous waste on the farm. The farmer will comply with federal and state laws on the application of fertilizers and pesticides. Some leases say that the fertilizer levels will be at least the same at the end of the lease term as they were at the beginning.
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Speaking of fertilizer, this is another big topic. The lease should spell out who is going to pay for fertilizer and in what percentages. That may be different parties, depending on which fertilizers we are talking about. Annual nitrogen will generally be the farmer, and occasional lime may be the landlord. Crop-share rent is often going to include sharing the cost of fertilizer. So, come together on a methodology for fertilizer funding before writing up the lease.
On the flip side of operator duties, the lease should state some landlord duties. I have seen language requiring the owner to disclose the existence of any wells, underground tanks, or waste disposal sites on the property. The landlord responsibilities may include helping fund drainage improvements or terracing maintenance. They may also include a duty to facilitate sign-ups for government programs or to not interfere with crop production. (I once received an angry call from a farmer/tenant when he found a couple of broadhead arrows in the field, left there by hunters who I allowed on the property.) So, it’s not out of the realm of possibility of a landlord, or associates, to disrupt crop production.
Insurance should always be addressed in a lease. We live in a litigious country, where injured people (or their families) frequently look for someone else to pay for their damages. This could be a third party riding a four-wheeler across the farm and hitting an old strand of fence wire. The farmer could turn the tractor over on a poorly maintained terrace, or the landlord could flip an ATV when driving across a newly deepened drainage ditch. There are two solutions to address these risks. The first is for both the farmer and the landlord to maintain comprehensive liability insurance, which is normally going to be at least $1 million. The lease should spell out this requirement for both parties. The second lease clause to help with risk is called a hold-harmless clause.
A hold-harmless clause will state something along these lines: Provided both parties are in compliance with the lease agreement, the landlord and the operator release the other party from any claims for recovery for losses, damages to personal property, or injuries or deaths occurring on the farm.
Another clause that is normally paired with this one is called an indemnity agreement. Basically, each party agrees to compensate the other party for any losses to the extent those losses are directly caused by the first party’s breach of the contract. (Example: If the landlord puts on a fireworks show in the middle of the wheat field and it burns down, the landlord will have to pay for that.)
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You can spell out what happens at the eventual end of the lease. After proper notice is given, the landlord reserves the right to reenter the property, show it to new tenants, or begin tillage or fertilizer application. The operator will typically reserve the right to harvest the final crop, even if that harvest must occur after the official end of the lease term.
Lastly, the lease may talk about transfers of interest. Normally, the tenant will agree not to sublease the farm to another farmer without permission of the landlord. If the landlord sells the property, the new owner will be subject to the existing lease. Also, heirs of either party will also be subject to the lease. Most of these things are common sense but should be spelled out in writing anyway.