5 things to agree on with a renter before renting out your farm
August 31, 2021

5 things to agree on with a renter before renting out your farm

If you have decided to rent out your farm, you want to ensure that you are getting the best value for your farm. In most cases, it’s not just about the state of the land as it is now but also how it will be when the lease agreement is over. For that reason, you need to be on the same page with the renter before you both sign the lease.

Here are five things you should agree on with the renter before you rent out your farm.

1. How will the rent be calculated and paid?

Not all land rates are priced equally, and you may be surprised to learn that your land rate can vary from your neighbors land significantly. This is because land rate calculations depend on several factors, including the land yield, the soil quality, the slope, and more.

You can look at survey data from the United States Department of Agriculture’s National Agricultural Statistics Service for information such as farm’s real estate value by state to help you determine a fair renting price.

After agreeing on the rental price, you should decide on payment terms, i.e., how often you would like to be paid by the renter. Finally, you can agree on other rental terms, such as any consequences of late payments for the renter.

2. Who will be in charge of repairs, maintenance, and improvements?

As time passes, there will be a need to repair and maintain old tools, pieces of equipment, and other items on the farm. You have to decide before signing the lease on whose cost they will be. The other thing you need to agree on is who will be in charge of capital improvements.

What are capital improvements?

In this case, capital improvements refer to adding permanent structures to the farm and/or restoring aspects of the farm. These additions and restoration can serve several purposes, including prolonging life, adapting the farm to new uses, and increasing the value of the farm. For example, if the renter wants to build a silo on the farm to increase the storage capabilities of the farm, are you or the renter responsible for the costs?

3. Will you use General Liability Insurance?

The moment you lease your farm out, it becomes commercial property, and as a business, you may be liable for any injuries that occur on your property. In that case, if a farmer gets hurt or property gets damaged, it may be up to you to cover the costs of repairs or medical bills to the injured. A General Liability Insurance or a Commercial General Liability Insurance is a type of insurance coverage covering claims of bodily injury or property damage on your property. By getting this kind of cover, your insurance cover can help you pay for any damages and injuries, which can save you a lot of money.

As you can imagine, it is crucial that you get General Liability Insurance coverage on your farm for the duration of the lease. The question becomes, who will pay for insurance cover? You and your tenant can agree on the terms of the cover so that you can both rest assured that you are covered. For example, you can agree to split the costs, so you are both paying for the insurance. If there are other types of insurance covers you need, consider asking your insurer if you can get a bundle.

4. Who is responsible for soil management?

When finding the value of your land, you will often have to look at factors such as the yield of your land and your soil quality. Now consider that after every plant and harvest season, some nutrients from the soil are used up, and your soil becomes less fertile. Additionally, without the proper soil conservation measures in place, you also lose nutrients in your soil. This means that without proper soil management, there is a chance that your soil will depreciate as the soil quality will be lower, and consequently, the yield may be lower.

What is the tenant responsible for?

If you set a soil management plan in the lease agreement, the tenant should be responsible for carrying it through so that the soul quality does not deteriorate over time. Since you cannot be at the farm overseeing this all the time, you have to make sure that you use other measures to ensure that the soil quality is high.

First, check the Fertilizer Removal by crop application Ag PhD tool to know how much nutrients are removed during the last crop season. Next, check the soil nutrient profile, for example, by having your soil tested. This can help you check if the farmer is implementing the soil management plan or not.

Why is soil management important?

The benefits of soil management fall into two broad categories. It increases the profits, for example, by increasing yield and reducing fertilizer costs. Secondly, it improves the environment, for example, by reducing soil erosion and improving the soil quality. Soil management is important because it’s not just about helping your land now but ensuring that it remains valuable long term.

5. What are the termination conditions?

First, how long do you intend to lease the land for? Alternatively, how long does the renter intend to rent the farm? Secondly, what are the reasons listed that could lead to the termination of the lease before the agreed-upon time? Finally, what procedures should the renter follow if they want to terminate the lease early? For example, how much notice can they give you for the contract to be terminated?

Do you need help with tenant selection?

Looking for renters for your farm can be a tedious process. Try Cotton Grave Farm Management to get help to get through the tenant selection process. Additionally, they can also help you if you have a Crop Share Management agreement with the tenant. If you want more information, consider contacting us today.

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