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No matter how well you know your landowner, never begin a farm lease without a signature on paper! Even if everything seems to be going great now, so many unforeseen issues can arise over the multiple years you’ll be bound by the contract. My 8-section lease contract is outlined below. Depending on your unique situation, your contract may be more or less complex.
Section 1: Description of Lease. “I, (your name) agree to lease from (landowner’s name), (number) acres at (property address/township/section/range).
Section 2: Lease Period. Establish the start and end dates for your lease, and how often it will be renewed or renegotiated. You and your landowner can choose a lease period that is ideal for both of you. However, I don’t recommend leases shorter than 5 years. It will take a few years before your work in setting up the land really pays off and gives you a return. If the lease ends before your landowner can see the significant improvement you will bring to the land, he or she might be less inclined to renew your contract.
Section 3: Liability. In today’s world of hair-trigger lawsuits, farm insurance coverage is a must. For example, if your cattle get out and someone gets in a car collision with one, getting sued could devastate your business. If your landowner has a valid farm insurance policy already, ask if the coverage can be extended to renters. This is the most inexpensive way to get protected. If the owner doesn’t have a policy and isn’t willing to get one, many agencies offer a “tenant/owner policy” for you.
Don’t confuse this with livestock insurance. Livestock policies only reimburse you for certain death losses; they won’t protect you from a lawsuit. Before signing a lease, either you or your landowner should talk to a qualified farm insurance agent to clarify coverage details. In addition, my landowner requested a separate statement in the lease that specifically frees him from liability if I am injured on his land. Cover your bases now to avoid headaches later.
Section 4: Payment Terms. Establish what your lease payment will be per acre. Base your negotiations on average pasture rent in your area and your farm feasibility analysis (covered in my previous article). You can probably convince your landowner to accept a lower payment for the first year or two, because the pasture quality will be relatively low to start. Increase the payment by a few dollars per acre in the later years, as your business becomes profitable and the land shows improvement. Seeing the scheduled payment amounts increase will demonstrate to the land owner that you believe in your ability to manage for profit.
Equally important is establishing how often payments are due. You can choose to pay monthly, quarterly, or yearly on a schedule that works around your other bills. Plan payments for times when you’ll be making money from selling animals or custom grazing. You may be able to delay the start of payments until animals are placed on the land. This strategy gives you free time to build fence and make other preparations.
As part of the payment terms, cover whether or not you’ll be responsible for increases in the landowner’s electricity, water and insurance bills resulting from your use of their land.
Section 5: Fencing and Supplies. Specify that all fencing and livestock-related supplies you’ll be using are your property, and will be taken with you at the end of the lease. You don’t want a landowner using you to fence their land, then kicking you out! All of my fencing is fiberglass poles and hi-tensile wire, plus temporary paddock divisions. With the possible exception of corner braces, it’s all quick and easy to remove if the need arises.
Section 6: Grazing Enterprise Management. This is a miscellaneous category for important things that don’t fit anywhere else. State that you have the final say in all decisions pertaining to how your animals are managed. If you will not have livestock on the property all year (summer stockers only, for example), designate when the animals will be there. I write in this section that I will contribute labor to any land improvements financed by the owner that will directly benefit my grazing operation, such as pond building. My leased pasture is joint-owned by three people, so I specify that all decisions made by the “acting landowner” (the one I deal with) are considered authorized by all owning parties. I also include here my requirement to access electricity for my fence charger. If there is no meter on the property, you must have permission to get one installed. You can put the new meter in your name and pay the bill yourself.
Section 7: Termination of Lease. Here’s the section about what happens if things go wrong. The lease contract is considered binding for the time period established in section 2, unless one of the parties fails to meet the written terms. In that case, my lease states that the other party may terminate the lease without making future payments (if any are applicable). For example, if your landowner decides to start row-cropping your pasture, you won’t owe him three more years of payments. You will need to decide what happens in case of emergency, such as drought, mass animal health problems, or personal illness. Will lease payments still be due in this situation? Make sure you clarify that you have time (at least 60 days) at the end of the lease to remove fencing, animals and equipment from the property.
Section 8: Signatures. You and your landowner will sign the contract, either in person or by mail. Ask a third person to sign as a witness. Make sure contact information for all three parties is included. You can have the contract notarized at your town hall or bank if you wish. All three people do not need to be present at the same place and time, but each must see a notary in person. Sign a copy for each party.
Don’t forget about your landowner once the contract is signed and you’re busy grazing. You’ve invested so much in starting a relationship with him or her, and now it’s time to make good on all of your claims to improve their land. Keep your landholder informed about your projects and progress, and you’ll be rewarded with a renewed lease.
Here are links to all the articles in this series:
Building Your Farm Business on Leased Pasture
Selling and Signing: Connecting with Landowners to Secure a Pasture Lease
Evaluating Potential Pastureland: Part 1, Part 2 and Part 3
A nice well written article Meg.