By Sarah Everhart
The article is not a substitute for legal advice. See here for the site’s reposting policy.
The legal specialists at ALEI are dedicated to educating farmers and landowners about the importance of having a simple written farm lease. A good farm lease clearly delineates responsibilities and prevents conflict by anticipating the future needs of both parties. For all of those who missed the webinar, here is a rundown of some farm leases dos and don’ts:
· Do seek legal advice before signing a farm lease. Although it is possible for parties to create their own lease, it is not advisable. Most attorneys are experienced at writing and defending leases and can help draft or negotiate terms to reduce legal disputes. It is always going to be cheaper to hire a lawyer to draft a lease than paying a lawyer to go to court to fight about a lease. To find an experienced agricultural attorney check out the Agriculture Section of the Maryland State Bar Association’s Legal Services Directory, available on the ALEI website.
· Do communicate with the other party about your long-term goals for the farm and include provisions related to those goals in the lease. While landowners and farmers will have different priorities when leasing, most parties share a desire to enhance the quality of the land while allowing for maximum profitability. If a landowner wants to restrict certain farming practices such as tillage or the application of certain nutrients, those restrictions should be in a lease. One strategy to encourage communication is to agree in the lease to meet (annually for example) to discuss soil test results and conservation practices/planning. If a landowner wants the right to come onto the property to inspect and/or take samples, he or she should clearly preserve that right in a lease. If conservation practices are installed, the maintenance of those practices should be accounted for in the lease.
· Do have a definite rental term and a mutually beneficial rental rate. Landowners should consider terms other than year-to-year and whether a longer lease term will motivate a farmer to use better farming practices. Choosing the type of leasing arrangement and rental rate can be a challenging part of the leasing process. Both parties should carefully contemplate their options for choosing the right rate; a good source of information is the University of Maryland’s Grain Marketing website (https://extension.umd.edu/grainmarketing).
· Do consider the inevitably “what ifs.” A good lease should include reasonable terms to address late rent payments such as a 5-day grace period or a late rent penalty. The section of the lease which deals with breach should also be clear and allow parties an opportunity to give notice and remedy the issue prior to filing an action in court. Another important “what if” to address in a lease is insurance. Landowners and tenants will want to have insurance policies in place to protect the permanent assets, personal property/equipment, and crops. An insurance provision will ensure that both parties have adequate coverage in place.
· Do have good termination and renewal sections in the lease. Termination and renewal are often sources of conflict for parties to a farm lease and should be considered from both perspectives. Farmers need to fully understand a landowner’s right to terminate, for example, before they plant a crop. A Maryland farmer with a lease that has a definite term or end date who plants a crop that won’t be harvested until after the lease end date will have very few legal rights to that crop if the lease is properly terminated.
· Don’t sign a lease you don’t understand. There is no need for a lease to contain legal jargon or complex terms. A good attorney can interpret and explain any terms that you don’t understand but that advice needs to be sought before signing.
· Don’t expect the legal system to help you in the leasing process. There is very little actual law pertaining to leases and little the judicial system can do for parties without a lease or with a poor lease. Both parties need to work with legal counsel and with each other to create a lease that works for their individual situations. Further, agreements outside of a lease are typically inadmissible in court and should not be relied upon to strengthen a leasing arrangement.
· Don’t be afraid to enter into a lease. Although historically many farming deals were sealed with a handshake, leasing, like many other facets of farming, has evolved. Farmers and landowners need to think of a lease as a tool to establish their goals, protect their interests, and preserve their right to make a profit.
For more information on leasing including a leasing guide with form leases, videos, and more, go to ALEI’s website (www.umaglaw.org).