For assistance in developing an equitable rental agreement, contact the Farm Management Specialist at your local University of Missouri Extension center. The center also has standard lease forms available that are useful for recording your agreement. These forms are MU publications NCR77, Cash Farm Lease (with flexible provisions).
Refer questions pertaining to the law of lease-contracts to your attorney. Consult your attorney on all legal problems.
To arrive at an equitable lease, the interested parties should talk over the basic considerations involved in the leasing arrangement and in managing the farm. They should then make a contract, preferably written, based on these considerations.
The length of the lease is important. A long-term lease is often necessary to develop a profitable business over time because of the need for permanent capital investments. The tenant will not want to share investment in permanent facilities on a short-term lease. Usually, landowners favor a short-term lease on the basis that a longer-term lease lowers the market value of the farm because it cannot readily be sold. This problem can be solved by including a termination clause that would apply in case the farm was sold.
The lease agreement can be for either one year or longer, as desired. Most agreements include an automatic renewal clause and also allow some flexibility in the terms of the lease if the parties under contract give adequate notice.
In some communities, it is customary to give notice that the lease is to be terminated prior to wheat sowing time in the fall or by March 1 in the spring. But failure of either party to give this notice does not necessarily indicate a desire that the lease be continued. Consequently, it is desirable to state in the contract the procedures to be followed for terminating or continuing the lease contract.
Basically, there are three methods of paying rent:
1) Crop-share rent -- Characteristics of this lease are that each party receives a share of the crop as earnings for their contribution in land, labor and capital. Normally, crop-sharing involves grain crops such as small grains, corn, milo, soybeans and land used to participate in government programs. Remaining areas used in producing forages (hay and pasture) are normally cash rented. Livestock buildings also are sometimes rented to the tenant.
The landowner's share of the crop depends on the contribution made toward production of the crop. When crops are divided 50-50, the landowner normally pays 50 percent of the cost of fertilizer, seed and chemicals in addition to providing the land. In other instances, the landowner may or may not share in cash production costs and receives 1/4 to 1/3 share of the crop as a return to land.
2) Livestock-share lease -- These leases vary considerably because of differences in contributions made to the business by each party. The owner normally furnishes land and buildings, while the tenant furnishes major portions of the crop machinery. Livestock is owned jointly. Production costs such as feed, veterinary and medicine, other livestock expenses, fertilizer, seed and chemicals are shared equally.
Livestock machinery and equipment may be jointly owned. Labor costs are shared according to the agreement as are repairs and upkeep on permanent buildings. The landowner usually pays for construction of permanent buildings, or arrangements are made to reimburse the tenant in case the lease is terminated. Livestock and crop sales are divided according to the terms of the agreement.
3) Cash lease -- The cash lease is normally uniform and relatively simple. The tenant pays the landowner a cash sum per acre or a lump sum for his or her investment in farm resources. Provisions in the lease generally state the terms of agreement. For example, the landowner may have some restrictions on the use of land or fields for certain crops. Also, the agreement might state the degree of productivity to be maintained. Provisions should also state the amount and method of paying rent.
In many instances, tenants provide equipment that legally become permanent fixtures on the farm. Disagreements can be avoided and the farm's resources more fully used if both landowner and tenant agree on needed improvements and further agree on an amortization schedule. The compensation schedule should be based on the local situation and the individual farm.
Farm account record systems are available at your local University Extension center.
Rental arrangements involving livestock-share leases are more apt to be considered partnerships than the crop-share arrangements, but such arrangements are more likely to be considered modifications of the landowner-tenant relationship as traditionally established under the crop-share lease.
Issued in furtherance of Cooperative Extension Work Acts of May 8 and June 30, 1914, in cooperation with the United States Department of Agriculture. Ronald J. Turner, Director, Cooperative Extension Service, University of Missouri and Lincoln University, Columbia, Missouri 65211. • University Extension does not discriminate on the basis of race, color, national origin, sex, religion, age, disability or status as a Vietnam-era veteran in employment or programs. If you have special needs as addressed by the Americans with Disabilities Act and need this publication in an alternative format, write ADA Officer, Extension and Agricultural Information, 1-98 Agriculture Building, Columbia, MO 65211, or call (573) 882-8237. Reasonable efforts will be made to accommodate your special needs.