Leasing - About

In the U.S., nearly half of farmers lease some or all of the land they farm.  Leasing is a reality, and it has both advantages and disadvantages over owning land.  Leasing land or a farm can be an attractive option.  It doesn't have to be complicated, although it can be!  And leasing doesn't have to be seen as "second best" to owning.  Increasingly farmers - especially new farmers - see leasing as a realistic and business-savvy option on their farming path.  Leases can offer you affordable, flexible and secure access to farms, land and buildings as well as higher net revenue during your start-up years.  As one farm management professional states, "control, not ownership, is the critical issue in efficient production".

Most farm advisors urge farmers to separate the business from the real estate.  As a tenant, you would rent the real estate but own your own business.  The landlord is not involved in your business unless your agreement is specifically designed that way.  You own the name of your business.  However, if the property has a name that you want to use for your business, this needs to be worked out between the parties.

What is a lease?  Put simply, a lease agreement is a contract between the property owner and property user.  It specifies the rights, limitations and obligations of both parties. In U.S. agriculture, the vast majority of leases are annual handshake agreements.  But that doesn't mean that's the best approach.  Most advisors will say, "Get it in writing."  More states are requiring written leases.  Most farmers want clarity and security.

In agriculture, leasing and renting are synonymous.  (In housing, rental usually is for a short term - month by month – and automatically renews unless terminated by written notice, whereas a lease is for a longer, specified term.)

Types of leases.  There are several types of agricultural lease arrangements, and they can be of almost any length.  (See more detail in Digging Deeper, below.) Basic types of leases are:

  • Short-term (annual to 3 - 5 years)
  • Long-term (5 - 99 years)
  • Rolling term (term "rolls forward" so that it's always, for example, 3 years)
  • Ground lease (long-term, where tenant rents the ground and owns the improvements)
  • Residential lease (sometimes separated from the land and farm structures)

Farmers can rent whole farms or land only.  They can also rent buildings, machinery and equipment, and livestock, although these are less common in our area.  Equipment is often rented from equipment dealers but could be rented from private owners as well.  Sometimes the residence has a separate lease that addresses specific state laws. Innovative leases can be very long-term (99 years).  They can include provisions for building equity and assuring continuing affordability for subsequent tenants.  Landlords and tenants can choose to share in the risk of farming and in investing in stewardship of the land.  Leases can be part of a farm succession or transfer plan.  There are different ways to calculate lease fees (the rent).

Landlords.  Nearly 90% of farm landlords are not farmers.  This means that current and potential landlords may not be familiar with farming realities.  People, organizations and public entities with agriculturally capable land have various motivations for making their land available for farming.  They can be supportive partners to farmers willing to forge and maintain good relationships with them.

 

Digging Deeper

1.  Advantages and disadvantages of leasing

2.  Types of leases and what is in a lease

3.  Determining and calculating lease fees (the rent)

4.  Types of landlords


Links to Further Resources

FarmLASTS curriculum This resource contains links to many additional resources about leasing, including lease examples, calculation sheets, etc.

Land For Good's lease resources: Guides, samples, online tutorial and more. 

Holding Ground: A Guide to Northeast Farmland Tenure and Stewardship, Chapters 4 and 5 deal specifically with short-term and long-term leasing.  Lease examples and sample stewardship standards for leases.   Hard copy available for purchase.  

CA Farm Link Guide  A comprehensive compilation of various tenure options with plenty of examples. Hard copy available for purchase. This guide is currently available in print only. Cost is $25 + shipping.  To order, contact Eric Winders, CA FarmLink Central Coast Regional Coordinator, eric@cafarmlink.org or call (831) 425-0303 

Equity Trust  This organization specializes in models for secure, long-term, affordable farmland tenure, including ground leases and easements.