Strong, written contracts can prevent some of the Boneheaded Business Blunders I made in my early years of ranching. My previous two articles have covered every brutally specific detail that I should have included in my former land lease contracts. This month I’m running down everything that needs to be in a custom grazing contract.
In the past I have made contracts too short and simple, in an effort to avoid overwhelming potential partners. I wanted them to think that working with me would be stress-free and easy. But in the years that followed, those contracts proved ineffective at solving disputes and protecting us from one another. Now I don’t hesitate to hand people 5-page contracts. The kind of people I want to work with will welcome the security of a strong contract and respect me for making sure my bases are covered.
These are just my thoughts and I am not a lawyer.
Before signing a lease contract, you should have your lawyer look it over and ask them if you have forgotten anything important! The legal fees are worth avoiding potentially expensive future issues. If you have not worked with an agricultural lawyer up to this point, definitely make contact with one. Using other people’s land and/or caring for other people’s livestock is legally risky! Even if you think you’re getting along really well with your potential partner right now, and you trust them to be fair to you, a lot can change over the length of a multi-year contract.
My custom grazing contract starts out with an introduction that includes an effective date for the contract, and the names and contact information for both parties (individuals or legal entities). It states that the Grazier, as an independent contractor, will utilize land that they lease or own to graze and care for cattle owned by the Owner.
1. Terms of the Agreement – Starting, Duration and Ending
My contract begins on the delivery date of the Owner’s cattle to the Grazier’s land and remains valid for one year from that date. You can change this to whatever length of time that you want. Some contracts just continue until someone decides to terminate it. This is nice for flexibility reasons, but it’s hard to make future plans for your business if your source of income could simply disappear at any time.
For a custom grazing contract, I like a one-year or one growing season deal that can be renewed annually. Land leases need to be a little longer, because it takes a lot more time and work to switch farms than it does to buy or sell or move livestock. You need more security when it comes to your land base, so I prefer a 3-year land lease.
If you’re starting a new deal with a new partner, be careful about committing for too long a term. If they turn out to be a nightmare to work with, or if you realize you need to switch gears in your operation, you don’t want to be trapped for another five years.
The contract must state procedures for renewal or termination. I require a written renewal to be signed no less than 90 days before the end of the current contract, or it will terminate at the end of the current term. This gives me time to make plans for switching groups of cattle, managing cash flow, and making new deals.
See 1.5 in this section? The contract includes, as an appendix, a listing of ear tag numbers for each animal of the Owner’s that is on the Grazier’s land. Any time animals are born, delivered or removed, this listing must be updated within 30 days.
Why this extra detail? I heard of a case a few years ago in which a dishonest custom grazier was secretly taking an owner’s cattle to the sale barn and pocketing the money. The owner caught on when a significant number of cattle in his inventory records could not be located.
Herd inventory is especially important with large herds. Putting color, age, sex, breed and other distinguishing traits on the listing helps ensure that no switching of ear tags takes place. Theft and fraud can also be combatted by requiring proof when a grazier reports an animal as dead. The owner can either require a photograph showing the ear tag or may elect to visit the grazier to inspect the carcass.
Here’s my compensation language:
The owner will be responsible for paying the grazier:
Husbandry fees of $1.25 per head per day (a “head” being defined as a bovine over one year of age) on days when no hay is fed, and $1.00 per head per day on days when hay is fed. The owner must also reimburse the Grazier for all direct livestock expenses, which include but aren’t limited to hay, hay transport, mineral, salt, ear tags, medication, veterinary bills, livestock trucking, breeding expenses and pregnancy checks.
The Owner must ensure that the Grazier receives the full balance of the outstanding bill within 15 days after receiving an invoice from the Grazier. If/when the contract is terminated, the Owner must remove all livestock prior to the last day of the contract.
Insurance is another important topic. The Grazier needs to have a general liability policy, and needs to list the Owner as an additional insured party. The Grazier does not provide livestock insurance on the Owner’s cattle. If the Owner wants livestock loss coverage, they must purchase their own. Both parties need to make sure that their insurance agents understand the deal and are able to provide effective coverage.
4. Liability and Risk of Loss
This section is about making sure the Owner knows about problems with stock. Specify what kind of communication are acceptable for “giving notice” of things required in the contract. Is texting or e-mail okay, or does written notice have to be mailed? Do verbal phone agreements stand, or must everything be written? I definitely recommend that everything be recorded in some written form. I save text messages, Facebook messages and e-mails from my contract partners. Not doing this in the past has caused me monumental headaches in “he said she said” situations.
Rights and Responsibilities
This part of the contract outlines what each party agrees to do as part of the contract. The first paragraph in this section is important because it provides an “escape clause” should one of the parties not hold up his/her end of the bargain.
5. Owner’s responsibilities
The primary responsibility of the owner is to promptly pay invoices.
6. Owner’s Rights
With responsibilities come rights. In my contract I’ve listed the owner’s right to visit the property where livestock are housed to make sure that the grazier is in compliance with the terms of the contract.
7. Grazier Responsibilities
The Grazier has a long list of responsibilities to fulfill primarily based on the management section. Check out my sample contract to see what I include.
Not that in 7.12 I include the kinds of records I will keep, including grazing charts, medical records and herd records. Be sure you are clear on what kinds of records must be kept to avoid any disagreements.
8. Livestock Management
I start by being clear that the Grazier has the right to make all livestock management decisions. This is another really important statement! Graziers should cooperate with Owners to decide on production practices that both parties are happy with, but not let the Owner dictate how the Grazier’s farm or business is run. That would make it more of a partnership or boss-employee relationship. The Grazier must have the ability to change management practices at any time whenever needed.
Next in this section, I lay out specifically how the cattle on my operation will be managed, and state that my adherence to these practices cannot be interpreted as negligence and cannot be considered grounds for termination of the contract. I describe my practices and rules for things like castration, breeding, antibiotic use, grazing, diet, calving, night checks, culling, and more.
Laying out this detail is important. Just because you think something is normal and acceptable does not guarantee that the cattle owner will think so too. For example, I do not mechanically wean calves. I allow them to stay with their mothers and they stop nursing when their mothers dry off. I don’t even think about it anymore. But for a lot of cattle producers, the thought of not weaning calves is insane. They might freak out if I tell them seven months after calving that I’m not weaning their calves.
If you are the Owner and are selling livestock or livestock products into a marketing program with production rules, make sure the contract requires your custom grazier to keep your herd in compliance with the program. Be sure to include that you have the right to visit your livestock
Don’t ever assume the other party in your deal is going to do something a certain way. Even if you don’t record every painstaking detail in writing, make sure you discuss everything before signing anything.
9. Relationship of Parties
In this section we agree once more on the relationship between Owner and Grazier.
The “independent contractor” part of the contract is important. During my ill-fated year of custom grazing without a contract, the owner of the cattle did not recognize my custom grazing activities as being separate from my work as an employee of a beef company they owned. As a result, the owner wanted a lot more control over my business and my production practices than I was willing to grant.
I learned that your contract needs to say that the Owner has no right to control, direct or supervise you, the Grazier, in carrying out the contract terms. The contract does not create any partnership, employment or joint venture.
This section says, in fancy legal terms, that just because somebody doesn’t enforce some certain provision or exercise some right they have under the contract, that doesn’t void all or part of the contract. Changes can be made to the contract during a term, by way of both parties signing an amended contract. The written contract in question comprises the entirety of the agreement between the Owner and Grazier and supersedes all prior oral or written deals concerning the subject of the agreement.
What I Forgot
One thing that should have been in my last contract is that the Grazier has no obligation to market the Owner’s livestock. I was willing to help my herd owner find buyers for cattle on my farm that he wanted to sell, but I did not want sole responsibility for that task. The owner saw marketing as one of my duties as the custom grazier. This was a topic that we hadn’t discussed and the contract was not clear about whose job it was.
It didn’t end up being a problem, but it was still a concerning oversight that could have become a problem between different people. To avoid these situations in the future my contracts will include this sentence something like this: “This contract covers everything that the grazier agrees to do. Anything not written down here is not the responsibility of the grazier.”
At the end of the contract, both parties sign above their printed names and roles in their legal entities. You may also have a witness sign if desired. For extra protection, you may want to sign in the presence of a notary, and/or put the contract on public record with your county clerk.
You have your own reasons for custom grazing. Read on to find out why Meg got into it.