Friday, December 3, 2010

Finding Land to Farm: Cash Lease

The next number of blogs will highlight some common ways to lease or own land. The postings will outline important considerations about each of these leasing options and paths to ownership.

Renting farmland is a common practice in U.S. agriculture, where more than 45 percent of the 917 million farmland acres are rented. According to the 1999 Agricultural Economics and Land Ownership Survey, 60 percent of farmland rent is paid in cash, 24 percent in shares of production, and 11 percent in a cash/share combination.
The various agreements for leasing and owning land are cash lease, crop share, long-term lease, lease with option to buy or right of first refusal, fee title purchase with seller financing and fee title purchase with agricultural conservation easement.  Today we'll look at cash lease.

Cash Lease
Most cash leases are short-term, requiring little commitment from either landowner or tenant farmer. Long-term leases can be an affordable way for farmers to use more sustainable practices and to invest more in their businesses. Many leases are based on a handshake. Verbal agreements are considered legal leases for one year, but this is NOT recommendable for either party, as conflicts can arise even among friends when terms are not clearly stated on outset. A written lease provides benefits and security for both parties.
Cash Lease Agreements
◊ Variable Duration
* Short term leases allow "trial period" for both landowner and farmer
*Long term leases are predictable for the owner and secure for the farmer
◊ Payment schedule can be negotiable
◊ Farmer and landowner know how much the rent will be

Disadvantages (if lease is short)

◊ Difficult to make long-term decisions and investments
◊ Lenders may balk at financing improvements
◊ Less incentive to use sustainable practices
To Impove the Soil
◊ No equity is built up (short or long lease)
◊ Landowner doesn't share risk if farmers has a poort crop or crop hasn't come in yet

No comments:

Post a Comment