Tuesday, December 7, 2010

Finding Land to Farm: Long Term Lease

As a continuation of this series, today we will look at long term leases.

This model is as close to ownership as a lease can get. The term is usually 40 to 99 years depending on state law. This is longer than the average mortgage. These types of leases may even be inheritable. They are used for publicly owned land and commercial real estate, but are less common in agriculture. They are sometimes used by cities and land trusts who own the land but wish to guarantee farmers lifetime tenure. Because of their longevity, the intent and clauses of leases must be very carefully drafted so they will last as long as the lease term.
◊ Offers most advantages of ownership without need for down payment or heavy borrowing.  Less common in an agricultural context.

◊ Some long-term leases are inheritable an dallow for transfer to the next generation.  Look at Missouri's real estate code.

◊ Because of their longevity, these leases can be highly complex.  The intent and clauses must be very carefully drafted to last as long as the lease term.

◊ Landowners are not often willing to make such a long-term commitment, or to risk little or no risk title for tenant financing.

◊ Tenant is subject to lease terms with must remain reasonable and prudent for duration of lease.  Multiple decades are a long time to plan for!

◊ Farmer's ability to recover equity in land may be limited, depending on agreement.

Tomorrow we will look at leasing with an option to buy.

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