For those of you who have been in the cattle production business for any amount of time, you have probably been burned once or twice by a handshake lease deal gone wrong. With the more traditional farmers and ranchers aging out and the young bucks stepping in, I (unfortunately) expect those handshake deals to be less and less respected as the years pass. Below are a few items to consider and some key terms to include when creating a written lease agreement for both landowners and tenants.
If you are a landowner with more acreage than you need, leasing your property can benefit you by bringing in a little bit of extra cash, but it can also take a load off of your back by passing on some of the caretaking responsibilities to an extra set of hands – the tenant. The main benefit to a tenant is obvious – they are able to utilize more land than they currently own without the upfront capital investment that comes with purchasing land outright.
In many states, lease agreements must be in writing to be enforceable. Even if it is not required in your state, a written lease agreement is essential if and when push comes to shove. If you are a tenant, you should also consider recording your lease or a memorandum of your lease in the county deed records where the leased land is located. There is generally no requirement to record a lease agreement, but doing so can protect a tenant in a number of different scenarios.
The most important reason to record your grazing or crop lease is to put other people (third parties) on notice that the lease agreement exists. Perhaps the most common issue with leases for farmers and ranchers arises when the leased property is sold to a third party or the landlord passes away. In either situation, if the third party stepping into the landlord’s empty shoes was not aware of an existing lease, there may not be any legal means of protection for the remaining tenant. If, however, the lease agreement was recorded prior to the change in land ownership, the tenant should be protected by the existing lease terms.
Below are a few key provisions that should be included in all grazing or crop leases:
- Terms of payment. Payment is usually made on a monthly or annual basis. The methods of calculating payment vary and may be based upon either a price per acre, price per head, price based on growth or some combination thereof. The actual price is heavily dependent upon the location and condition of the land. Consider requiring a damage or rent deposit at the time the lease is signed.
- Property description. It is extremely helpful to have a good legal description of the property included in the lease agreement. At a minimum, the number of acres and a physical address should be included.
- Stocking rate. This term will be very important to the landowner to prevent overgrazing. Consider the breed, weight and general requirements for the cattle that will be grazing, as well as any limitations present (drought, wildfire, types of grass and forage). Landowners should be sure to draft this provision in a manner that allows the stocking rate to be updated based on a change in conditions.
- Limitations for use of property. If limitations are not included, then they do not exist. Specify the type and quantity of animals to be grazed, the number of hay cuttings per year and whether off-road vehicles can be driven on the premises. Be sure to specify if only certain people have the right to access the property and if there are any areas that are excluded from the premises. If you do not want the tenant to hunt on the property, that should be spelled out as well.
- Maintenance. Spell out who is responsible for fence, gate and road maintenance, as well as any other structures on the premises that may be utilized by the tenant.
- Assignment/subleasing. Specify whether it is OK for the tenant to assign rights or sublease to another tenant.
- Dispute resolution. Set a venue for any disputes, and consider specifying a method of resolution (mediation or arbitration instead of going to court). It is also helpful to state that a losing party is required to pay the attorney’s fees for the winning party in the event of a dispute.
- Liability and indemnity. Solid provisions shifting responsibility for damages can prove invaluable. Be sure to consult an experienced attorney for language that best suits your needs.
To protect the relationship between landlord and tenant (and to avoid a potential "he said, she said" debate later on), take the time to reduce your agreement to writing. This keeps everyone in check and honest at the end of the day.
