Farm Land Use Agreement

Reviewed by Kelvin Leibold, Extension Farm Management Specialist 641-648-4850, kleibold@iastate.edu Originally created by E.G. Stoneberg, former extension Economist Fixed Cash Lease As part of a fixed cash register, the tenant pays a certain amount of rent in cash per year per year for the use of agricultural resources. The owner may impose certain restrictions on the plants that can be grown or on the work, conservation and pest control practices that can be applied. In addition, the tenant has carte blanche to plan the livestock harvesting and production program in the farm unit and receives the entire harvest and all related USDA program payments. The owner normally takes into account land and buildings and pays half of the costs of inputs such as fertilizers, seeds and pesticides when the harvest is divided between 50 and 50. Owners are usually responsible for drying, storing and marketing their share in the harvest. The tenant usually provides all the work, fuel, equipment and the other half of the shared expenses. However, there are many variations in the distribution of expenses. FM 1811 (AgDM C2-15), Iowa Farm Leasing Practices Survey and AgDM C2-30, Crop Share Commissions, provide more details on cost allocation under a fund-sharing contract. AgDM Decision Tool C2-30, Crop Share Lease Analysis, calculates landlord and tenant contributions to determine how profits can be distributed equitably. Land is an expensive resource.

A significant capital investment is needed to buy enough land to enable the farming family to earn a satisfying life. A typical full-time builder in Iowa today operates more than 800 acres. The average value of Iowa`s arable land exceeds $7,000 per hectare. As a result, the land investment for a commercial farm today can easily approach $6 million. A flex lease is a way to share the risks and opportunities of a crop production system. Often, the formula can promise a basic cash rental price, often paid in advance, with a possible bonus at harvest, depending on the gross value (yield price) of the harvest rent. Flex tenants can receive much higher rents, perhaps better than some of the highest cash rents in the area. In the event of a revenue disaster, the tenant is only required to pay the basic interest rate. This option has become very popular in much of Michigan in recent years, as commodity prices have risen much more than most forecasts. The use of this type of agreement offered the landowner high bonuses. The comfort level of risk-taking affects the flex rental decision, with some landlords preferring a guaranteed and fixed cash rent.

Click here to download the lease for cultivation There are key areas in the development of an agricultural lease that should be considered very carefully by both parties. The answers to these questions depend on the intention of the parties in the leasing agreement and the negotiating position of each. Conservation programs can offer short-term payments for adherence to certain practices and long-term benefits in the form of reduced erosion, increased fertility and cleaner water. If the incentive payments do not fully offset the additional costs or reduced revenues to the tenant for compliance with conservation practices, he or she may be reluctant to participate. . . .