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Everything You Need to Include in a Farm/Ranch Lease Contract – Part 2

By   /  May 7, 2018  /  No Comments

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Over the last few months, my Boneheaded Beef Business Blunders articles have related how I’ve been burned by ineffective land lease and custom grazing contracts. As a result, I’ve changed what I include in contracts. Here in Part 2 I share the rest of the topics I am now including in my lease contracts along with suggested language for covering them. Check out Part 1 here.

Animal Management

What types of livestock will be on the land at what times of year? Make sure you get it in writing that you are allowed to have bulls, you may winter cattle on the land, etc.

Include a statement that the landowner understands that reasonable animal impact will occur on the leased land. There could be mud, bare spots, manure, and animals vocalizing.

Be sure that you, as the renter, have reasonable freedom to operate their agricultural enterprise without hindrance. Include a statement that you have full and sole control over all cattle and pasture management decisions. The landowner and other land users may not interfere with renter’s ability to carry out any cattle/pasture management task within renter’s rights under the contract.

Be clear about how animals are managed.

You may want to create an “appendix” document to the lease contract that explains in detail the management of your animals, and make sure the landowner is okay with everything you plan to do. Don’t assume they will just leave you to do your thing, especially if the landowner has no involvement in farming. You don’t want to find out after signing a contract that your landowner is horrified by the concept of castrating males, or thinks outwintering animals without a barn is cruel.

Agreements on Specific Land Use Issues

State that any person affiliated with the renting farmer is granted access to the leased land at any time, with the farmer’s knowledge and permission, for farm work, purchase of products, or education. Include permission for the farmer to host pasture walks and educational events on the leased land, if this is something you want to do.

Record any days/times that the landowner does not want the renter and/or livestock on all or part of the property. For example, during hunting season, or from midnight to 5 AM except for emergencies.

This is important: Your contract should state that the leased land may not be modified, leased to, or used by any party for any purpose that interferes with the renting farmer’s rights or activities, as determined by the renting farmer. It could ruin your operation if your landowner suddenly decides to plow up your pasture and plant corn.

 

No modifications to the leased land will be initiated by either renter or landowner without discussion between and approval of both parties. You don’t want a landowner putting up a swimming pool in the middle of your pasture.

If applicable, state that renter will remove and redeliver cattle to the property multiple times during lease term. The contract remains in full force and effect at all times, regardless of when cattle are or are not located on the land. This is important for me because I have now gone seasonal. I don’t want anything being done to my leased area during the winter that will ruin its suitability for my summer use.

Damages

Specify who pays for animal damage to barns, fences, water sources, etc. and what does and does not constitute damage that must be repaired.

Include that hunters are liable for livestock injured, killed, or let out.

Landowners must ensure that anyone who comes on the property keeps all perimeter fence gates closed at all times. The landowner must not allow the fence charger to be disconnected from power, with the exception of during power outages on the property.

Consider a “Nondisclosure of lease terms except to government, legal, financial, insurance agencies.” Why? Say you sign one lease with one landowner for $35/acre, and one with their neighbor for $25/acre. If the neighbor with the lower rate finds out that you’re paying more to the other guy, that could create ill will. Putting a nondisclosure statement in the contract probably won’t stop small town gossip, but it’s worth a shot.

In Case of Injuries, Death or Natural Disaster

If the landowner dies or is removed from control of leased land through circumstances beyond his/her control, the party assuming control of leased land remains bound by this contract.

The renting farmer may temporarily suspend lease and remove animals in emergency situations, such as personal injury, natural disaster, animal disease outbreak, etc. In this situation, a decrease in the landowner’s compensation will be negotiated between the parties, because the farmer having to suspend production will create significant financial hardship.

In the event of disability, death or any other emergency that causes the farmer to permanently go out of business, the lease terminates without penalty, and the remainder of the outstanding compensation is cancelled.

End of Lease Considerations

What happens at lease end date? Does the lease terminate unless renewed, or does it renew unless terminated?

Here are things I suggest including:

The leased land may not be sold during the lease term to a party other than the renter. If the land is sold to the renter, the lease will be terminated early with no penalties, and the remainder of the outstanding lease payment is cancelled.

The renting farmer must be given the first opportunity to renew the lease or buy the land at a reasonable rate, and must decline to lease or buy at a reasonable rate, before it is offered for lease or sale to any other party.

The landowner may not terminate the lease or decline to renew with the intention of leasing or selling to another party within 1 year after end of lease with original farmer, unless farmer has chosen not to renew, or the farmer’s violation of lease terms caused early termination of lease.

Is this possible?

You may not be able to get your landowner to go for this, but to me it’s worth a shot. Remember, your job is to secure the most lucrative possible deal for yourself, not to represent their interests. That is their job and the job of their lawyer. I see these two segments as potentially protecting me from a richer guy stealing my land. Sometimes landowners will use you to whip a low-value property into shape, so they can then lease or sell it for a lot more money. It’s your responsibility to ensure that you will get a return on any investment you put into leased land within the contract period. But it would still be a slap in the face to have all of your hard work signed over to someone else.

If the landowner violates the lease or terminates it early through no fault of the renter, the landowner shall be liable for monetary damages suffered by the renter as a result of the wrongful termination of the lease. Such damages include but are not limited to lost profits and legal fees incurred in the defense of the lease.

The landowner must allow 60 days after lease end date for removal of cattle and supplies if the lease is not renewed.

Now you have everything I cover in my lease contracts. I welcome your thoughts and input on these ideas. We can all learn and grow together!

Stay tuned for my upcoming article on contracts for custom grazing.

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About the author

I graduated from West Virginia University in 2012 with a degree in livestock management, and a minor in agribusiness. While at WVU, I won a statewide entrepreneurship competition with a patentable device I designed for video-assisted cattle artificial insemination. I then spent six months interning for grazing expert Greg Judy in Missouri. Now I run Rhinestone Cattle Consulting, helping new and experienced farmers build profitable mob grazing beef operations. I offer artificial insemination, electric fence building and graphic design services too. I'll travel anywhere in the 48 states for on-farm consulting and speaking at conferences.

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