A 12-Point Farmland Leasing Checklist for Tenants

Sep 27, 2022

Operating someone else’s farmland involves more than just signing on the dotted line and getting to work. 

When multiple parties are at play, conflict is inevitable. To avoid blowups in the middle of planting or harvest, sit down and get everyone’s expectations in writing. This can help set the owner’s mind at ease, so you focus your time and energy on farming the land.

Here’s a brief farmland leasing checklist to help ensure your agreement shows your commitment to fairness, sustainability, & good stewardship of the land. 

Why you need a written farmland rental agreement

As tempting as a handshake or oral agreement is, a written lease helps build a solid relationship with the landowner. People are selective in which parts of conversations they remember, especially when tensions are high. Written agreements provide a single source of truth for both parties. 

By working out your expectations before the season gets into full swing, you can set standards and resolve disagreements productively. Additionally, written agreements protect not only the original parties, but also assignees and heirs if the farm transfers ownership.

What provisions should be in a farmland rental agreement? 

There are a number of basic provisions every rental agreement should include: an accurate property description, the lease period, lease payment deadlines, and the type of lease agreement, to name a few. Here are a few additional things you should definitely cover before signing. 

  1. Agreement type

There are many types of farmland lease agreements, each with their own pros and cons: 

  • Cash rent, where the farmer pays the owner a flat rental rate

  • Crop share, where owners receive a share of the crop revenue

  • Flex rent, where farmers pay a base rent price, and then a bonus based on the gross value of the crop flex rent

  • Fixed bushel rent, where owners receive a percentage of the bushels to market and sell themselves

As the tenant, the type of agreement you use will depend on your risk tolerance. Cash rent agreements, for example, offer you the chance to maximize the upside in the event of a banner year. Crop share agreements insulate you from risk, but there’s also less upside. 

Make sure that the lease spells out the type of agreement and payment structure in black and white. For cash rent agreements, that should include the terms, due dates, and penalties for receiving rental payments. For crop share & flex agreements, specify the mechanisms for sharing production, USDA payment, and input costs.

2. Rental rate

Because of the inherent volatility of crop markets, determining a fair rate isn’t a simple process. Yields and prices go up and down year over year, and there are too many factors to accurately predict what the coming year will look like. 

That said, there are a few things you can do to make sure your landlord isn’t overcharging you: 

  • See what others are charging to lease their land

  • Look at average yields, corn suitability ratings, and share of gross crop value

  • Talk to other farmers to see what their return on investment has been

    3. Data delivery requirements

As much of a hassle as it is, landowners deserve to know information on yields, fertilization, and soil quality. It’s better to lay out those data delivery requirements upfront in black and white. That way, everyone is in the loop, and there are no surprises later in the season. 

4. Sustainability requirements

As tempting as it is to work the land hard and maximize yields, landowners have an interest in sustainable farming practices. It’s important to identify their expectations for tillage and soil health, specific types of crop applications, and reimbursement practices for unused nutrient applications, like lime.

5. Proof of insurance

Your landlord will almost certainly have insurance requirements. Use the farmland rental agreement to spell out which types of insurance you need, and who’s responsible for acquiring them. The two most common types are general liability insurance and crop insurance, but your landowner may have more specific requirements. 

6. Notification requirements & preferred methods of communication

As the tenant, it’s important to keep your landlord in the loop. Make sure you outline which events will require notification—like planting dates or harvest completion—and the specific channels for sharing that information with the landowner (e.g. phone, email, etc.). 

Legal considerations in a farmland rental agreement

Federal and state laws will require you to include specific provisions in your farmland rental agreement. While the following are examples of things you should consider, it’s important to bring professional legal counsel into the process—the following is not intended to be legal advice. 

7. Self-employment tax

Keep in mind that because you aren’t officially a farm employee, you will have to withhold your own taxes and pay self-employment tax. Your tax status may vary based on the type of agreement you sign, so consult your lawyer and tax advisor for specific instructions. 

8. Landlord’s liens

In Iowa, a statutory landlord’s lien exists for all lease types. The statutory lien is a lien "upon all crops grown upon the leased premises, and upon all other personal property of the tenant which has been used or kept thereon during the term and which is not exempt from execution." This gives the landowner preference over other security interests, such as those of lenders.

9. Capital investments

If you make any capital improvements on the property, like installing a new fence, you are eligible to be reimbursed for the cost of the improvement if the lease is terminated before the end of the lease term. The typical practice is to match the term with the estimated life of the capital improvement (usually according to the IRS tax depreciable life). So if the fence has a five-year life and you terminate the lease after three, the landowner will reimburse you for the remaining two years of value. 

10. Government program payments

As the active farmer, you’ll receive some of the operation’s government program payments; others will go to the landowner directly. It’s important to spell out which party will participate in which programs, including responsibility for eligibility and receipt of payments. This may require one party or the other to file an FSA-211 Power of Attorney Form.

11. Farm operation & maintenance

Operation and maintenance costs can easily balloon, especially as unexpected problems arise. As a result, it’s important to spell out who is responsible for what expenses, so there are no surprises down the line. 

12. Additional legal considerations

In addition to those mentioned above, your farmland rental agreement should include references to the following: 

  • Right of entry notice & requirements

  • Subleasing rights

  • No partnership created

  • Termination terms & clauses

  • Dispute resolution

  • Rights of continuation and succession

  • Right of first refusal and/or option to purchase

  • Hold harmless clause

  • Signatures

Final thoughts

Getting everything right in a farmland rental agreement may seem like a lot of upfront work. But trust us: it’s better to put in a little more work at the start to avoid conflicts down the line. 

Not only that, but setting clear expectations can help you avoid miscommunication and preserve your standing with the landowner. This will enable you to build a long-term relationship and continue benefiting from the profitability of the land.