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Land rent contracts

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Rented some land this year for the first time and really enjoyed it. My landlord wanted me to sign a 3 year lease at a fixed rate this spring but I refused and only signed for this year. I'm wondering what you guys do? If I sign a multiple year lease but the rate is not flexible I know some years I will make money and some years I may not. I know farming is a big risk, but is a non flexible landlord worth the risk? Thanks for any advice. 

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Farming is always a huge gamble. If the field is of good soil type for what your growing and close I would do it in a heart beat. The next guy that knocks on his door may jump on a 3 year deal then what are your options if you need land?  

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Around here most landlords are not going to take less money because of anything. They don't really care if you make money or not and there is both the contract to protect them against the tenant trying to skip out and a set amount with raises built in should rents go up. After all, always another renter out there looking for a few more acres. Sense I retired from farming I let my nephew farm my land for free. But I do keep up with things. Only trouble here for a land owner is a lot of land is no longer eligible for CRP but that hasn't effected the price per acre.

Is there anywhere landlords base rent on the farmers profit or prices the farmer receives? They ain't making anymore land and there is always another guy wanting that land. I have been offered 3-5 year agreements by 2 different guys with set rates and built in raises based on inflation. I'll let my nephew keep farming it for now.

 

Rick 

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4 hours ago, oldtanker said:

Around here most landlords are not going to take less money because of anything. They don't really care if you make money or not and there is both the contract to protect them against the tenant trying to skip out and a set amount with raises built in should rents go up. After all, always another renter out there looking for a few more acres. Sense I retired from farming I let my nephew farm my land for free. But I do keep up with things. Only trouble here for a land owner is a lot of land is no longer eligible for CRP but that hasn't effected the price per acre.

Is there anywhere landlords base rent on the farmers profit or prices the farmer receives? They ain't making anymore land and there is always another guy wanting that land. I have been offered 3-5 year agreements by 2 different guys with set rates and built in raises based on inflation. I'll let my nephew keep farming it for now.

 

Rick 

Our neighbors rent out their farm and they have a flat per acre rate the tenant has some sort of bonus worked out based on yield or prices. Basing rent on farmers profit you better make sure you rent to the farmer that has his business running as efficiently as possible.

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I manage land for a living and have farmed as well. The best lease is the one that everyone makes money. Multi year leases benefit the producer primarily in the area of fertilization programs and management of debt service. The fertility program also benefits the landowner. Multi year leases look good on paper but are always in favor of a tenant. They can walk away any time for any reason particularly not getting financed. Never seen a landlord sue anyone for failing to farm a place. Flex leases are popular around here where a minimum cash is used with a rider based on anything above a certain yield. In regards to cash rents more and more landlords are moving to splitting the rent; 1/2 in the spring and 1/2 in the fall ; or all up front. Another factor is the term left on the farm bill. Most landlords and their agents are not leasing through (past) the expiration of the farm bill - which is the end of next year. Although there want likely be any major changes most people in the industry want to see what is going to be available in the risk management arena. All depends on what you can live with. From what I have been seeing rents have adjusted accordingly to the economic climate we're in. Some high rent landlords are still out of touch but most are reasonable in their expectations; especially if they have farmed before. I tell people its not the rent that is the problem; its the high costs of production coming from the inputs and other direct expenses.

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7 hours ago, BOBSIH856 said:

Our neighbors rent out their farm and they have a flat per acre rate the tenant has some sort of bonus worked out based on yield or prices. Basing rent on farmers profit you better make sure you rent to the farmer that has his business running as efficiently as possible.

I didn't mean it like you took it I think. Here most rents are so much an acre. That's it. Poor yields/prices don't factor end on the landlord's part.

 

6 hours ago, Delta88 said:

I manage land for a living and have farmed as well. The best lease is the one that everyone makes money. Multi year leases benefit the producer primarily in the area of fertilization programs and management of debt service. The fertility program also benefits the landowner. Multi year leases look good on paper but are always in favor of a tenant. They can walk away any time for any reason particularly not getting financed. Never seen a landlord sue anyone for failing to farm a place. Flex leases are popular around here where a minimum cash is used with a rider based on anything above a certain yield. In regards to cash rents more and more landlords are moving to splitting the rent; 1/2 in the spring and 1/2 in the fall ; or all up front. Another factor is the term left on the farm bill. Most landlords and their agents are not leasing through (past) the expiration of the farm bill - which is the end of next year. Although there want likely be any major changes most people in the industry want to see what is going to be available in the risk management arena. All depends on what you can live with. From what I have been seeing rents have adjusted accordingly to the economic climate we're in. Some high rent landlords are still out of touch but most are reasonable in their expectations; especially if they have farmed before. I tell people its not the rent that is the problem; its the high costs of production coming from the inputs and other direct expenses.

Here there have been a few cases that have gone to court. I got summoned to one by a lawyer of a former friend. I guess they expected me to lie and say that I had heard the verbal contract being made. Once I testified that I only knew what my friend had claimed took place the land owner's lawyer felt no need to cross examine. The friend won't talk to me. He did try jumping me in a store after that but backed off real fast when I asked if he expected me to lie under oath. Now I've also seen guys let farmers out of contracts when circumstances beyond the farmers control prevent them from farming a place. But they have to talk to each other first from what I've seen. We have enough guys here begging for land that it's not a problem. For as long as I can remember here at least it's always been 1/2 spring 2nd half fall for payments. Here rent is still (for the time being) based on CRP but that's starting to change as more and more land no longer qualifies for the programs. We also have a couple of guys here who try to convince land owners the land is worth less per acre than the going rate. When the land owner finds out they have been taken for a ride they generally find new tenants quick. One was farming about 2500 acres when I retired from the army, he's now down to just over 1000. No one except family will rent to him anymore.

 

Rick

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As a grower, hands down I would prefer a long term lease.  As a landlord, I would only want one as well.  The people wanting year to year leases only take from the ground and do not take care of it like their own.

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I only use 5 year lease for the land that I rent out.  100% payment in spring.  My tenant is very happy with deal.  

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Around here there is cash rent and On Shares.

Shares sets what percentage share both the renter/owner both pays and receives by agreement.

This puts part of the profit and loss potential, on both owner/renter.

Anything can be set up and it should be in writing and done by a lawyer as this is big business.

Farmers here only enter into long term contacts with very good farmers. If you lease to a farmer for three years and he goes Bankrupt after one, that guy can sublease the farm to someone else. That don't set well with some owners especially if the first farmer was given a lower price and now the rent is higher.

 

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I agree with using lawyer.  The lease agreement I use states if he goes broke he can not rent land out.  I have a great tenant who farmed the land for my mother for years.  I try to keep if fair so everyone is happy.  

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Thank you for the advice and knowledge everyone.  I went ahead and told him I would rent it for 3 years.

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Before entering multi year leases do you guys run some scenarios to determine if the flat rate rent will work for your operation? Example run some scenarios where crop price drops and inputs increase at what point with given rent is field not profitable? Or do farmers rely on more profitable fields to support less profitable ones or is everything based on total farm income vs expense?

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A few years back ($13 beans/$6 corn) producers down here would pay the high rent as long as they had some owned land with a lot of equity or some low rental units to create a weighted average of total rents that kept them profitable. Now I think the key is knowing your costs of production on each commodity you produce. Once you know that you can then determine what you can pay for a piece of ground. Gone are the days of renting something first and then trying to figure out how you can make it work. Enterprise budgeting is as important as overall cash flow. A place has to pay for itself; and each commodity unit on that parcel has to pay for itself. Staying in an unprofitable rental unit just to say your farming is insane.

 

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5 minutes ago, Delta88 said:

A few years back ($13 beans/$6 corn) producers down here would pay the high rent as long as they had some owned land with a lot of equity or some low rental units to create a weighted average of total rents that kept them profitable. Now I think the key is knowing your costs of production on each commodity you produce. Once you know that you can then determine what you can pay for a piece of ground. Gone are the days of renting something first and then trying to figure out how you can make it work. Enterprise budgeting is as important as overall cash flow. A place has to pay for itself; and each commodity unit on that parcel has to pay for itself. Staying in an unprofitable rental unit just to say your farming is insane.

 

Right on. I was using a six figure job to try to finance the farm the last two years and said enough farm is gone wife is gone stress free now! I go run a tractor for anyone now and don’t have to make decisions. 

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