Shining the Light on Farmland Leases
Touching The 3rd Rail: Farmland
Leases
When you
think of “top secret” information, what comes to mind?
It might
surprise you to learn that some of the most closely guarded information in the
business world is not a password, account number, or safe combination, it’s
Farmland Lease Rates. Bet you didn’t see that one coming. These lease rates are
often set and then forgotten, never seeing the light of day again.
Surprisingly,
there is no clearing house of information or database of comps for landowners &
potential tenants to research when trying to determine a lease rate. The agreed
upon rates are, more or less, a shot in the dark and sealed with a handshake
between friends.
I could
write a book after all of the issues I’ve helped landowners through when it’s
time to renegotiate an existing lease or sell their property and the stories are
always the same. Mr. & Mrs. Landowner have leased their farmland to an old
friend for years and the lease rate has remained the same. Now Mr. & Mrs.
Landowner want to sell their farm and expect their friend to cooperate. Well,
Mr. & Mrs. Landowner are always shocked and dismayed when their friend will
not cooperate and will be farming the land for another year.
Without a formal, attorney-reviewed notice to quit, Mr. & Mrs. Landowner
are left with a tenant.
Or, Mr.
Farmer has been leasing a portion of his land to a tenant for many years.
Curious to know his land’s current value, he seeks professional advice &
opinion. Well, Mr. Farmer’s land value has grown exponentially over the past
few years, and the income he is receiving in rent falls greatly below what the
current market would bear. Mr. Farmer just learned he’s been missing out on
money for a long time! It’s always important to routinely review your leases
and adjust for current market value.
These kinds
of avoidable situations cause immense grief and pain when heirs inherit a farm which
has a poorly written or nonexistent lease. Farmland leases are commonly
informal, loosely defined, and can eventually harm the landowner if left alone
for too long. Lease rates should gradually inflate over time as land values
increase, ensuring that landowners are receiving fair, market rent for their
property. Unfortunately, more frequently than you might think, farmland leases remain
stagnant.
In my
professional opinion, there are two solutions for landowners and/or their
families to consider here.
1. Hire a farm manager or an attorney to
negotiate a farmland lease on your behalf. Many in agriculture tend to see this
expense as wasteful only to be burned badly when things go wrong.
2. if you already have a lease in place
that you have written or gotten off the Internet hire an attorney to tell you
what it means.
The moral of
the story, professional advice will be worth the investment. Consult an
attorney you trust to review your lease documents or draft them for you. Seek a
real estate professional to determine your lease rates, ensure your land is
being valued fairly. If anything, it will save your family time, even more
money, and stress when it’s left to them to maintain.
If you would
like to talk about the farmland market or specifically farmland leases give me
a call, I’m happy to help!
Brad
Neihouser
765 427 5052
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