Farm Lease Agreement

In the simplest form of lease, a tenant will periodically pay a landlord cash for use of the land. However, it is not unusual for a tenant and landowner to negotiate payment as a share of what the farmer produces. While this can be more risky for the landowner, it allows the farmer to reduce upfront costs and can protect them in the event of crop loss.

Cash Lease – With this type of lease, the farmer pays a fixed price to the landowner based on the size of the land offered. It can be per acre or for an entire farm. Payment is made periodically (yearly or monthly) and is fixed, meaning that the rent does not change based on factors like crop, yield, or market price. The farmer must pay rent regardless of their success or failure.

Crop Share Lease – With a crop share lease, the farmer and the landowner share the expenses of the farming operation and in exchange, the landowner takes a portion of the crop(s) as payment. This type of lease can benefit both parties by reducing the farmer’s risk while increasing the landowner’s potential gain.

A farm lease is not strictly limited to one or the other of these structures. Farmers and landowners can negotiate a hybrid structure that includes elements of each to best suit their individual needs.

Many states have tax incentive programs aimed at preventing agricultural lands from being overdeveloped. If the land being leased is part of such a program, there may be restrictions on how it can be used and how it must be maintained.

Violating terms of an incentive program can jeopardize the landowner’s tax status so it is important for the landowner to clearly communicate any use restrictions upfront and in the lease. Restrictions will vary by state and incentive program.

By law, the right to water use is determined on a state level and is typically tied to the land itself.^[1] Each state and region will have its own regulations. As such, the landowner must delineate in the lease where the tenant will source their water and to what extent the landowner will supply related infrastructure.

Some states and regions require additional permits for large scale irrigation or significant water withdrawals. Both the landowner and the farmer will want to confirm that the availability of water is suitable for the intended use and that each party’s responsibility with regard to water supply and permitting is clearly defined in the lease.

Several states have placed a limit on the number of years that a farm lease is valid for. While a lease may be renewed, if the term of a single lease exceeds the state limit, the lease may be legally void.

States with maximum lease terms

• California: 51 years^[2]
• Iowa: 20 years^[3]
• Minnesota: 21 years^[4]
• Wisconsin: 15 years^[5]

Intended land use and the extent and type of the farming operations will dictate what language will need to be included in the lease. The document should reflect each party’s responsibilities in the following areas if they apply:

• Liability insurance
• Workers compensation
• Nutrient management plans
• Soil erosion mitigation
• Pesticide application permits

Specific details addressed in each lease will depend on individual circumstances.