Creating Successful Leasing Arrangements Wesley Tucker Agriculture Business Specialist

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Creating Successful Leasing Arrangements Wesley Tucker Agriculture Business Specialist University of Missouri Extension. Tucker Farms Tunas, MO. Rental Arrangements. - PowerPoint PPT Presentation

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Farm Leases Little Things = Big Problems

Creating Successful Leasing Arrangements

Wesley Tucker

Agriculture Business SpecialistUniversity of Missouri Extension

Wesley TuckerAgriculture Business Specialist

Tucker FarmsTunas, MOWesley TuckerAgriculture Business SpecialistRental ArrangementsRental agreements create a relationship where both parties have the opportunity to gain from the strengths and assets of the other party.Wesley TuckerAgriculture Business SpecialistExperts tell us that positive relationships have:Trust and supportHonesty and accountabilityRespectResponsible partiesNon-threatening behaviorShared interestsCommunication

Wesley TuckerAgriculture Business SpecialistWhat makes an agreement work? The most successful relationships occur: when the parties have complimentary goals. when parties are willing to compromise as necessary.when parties communicate effectively.Wesley TuckerAgriculture Business SpecialistLaws and CustomsStatutes and Common LawBinding contract, violationsTermination noticeTenant liable for rentPossession/right of entryProperty damageSubleasing/soil fertility

CustomsDont have to followWesley TuckerAgriculture Business Specialist6In general, the following are laws that apply:A lease is a binding contract and the terms become a binding agreement. Violations or breaking of the contract becomes a breach of contractThere are some legal requirement relating to termination notice and term of oral contracts

The tenant is liable for the agreed upon rent

Some law applies to right of possession for the tenant and there may be restrictions on the landlords right to enter the property while the tenant possesses it.

Tenant is not liable for wear and tear but is liable for deliberate or negligent damage

Customs:Typical of what most follow. Court may consider local custom in disputes, but if both parties agree they do not have to follow customs.What makes a good lease?Its not easy!Takes lots of hard workCareful thought by both parties

Generally a good lease is:Landowner & tenant both agree its fair Both clearly understand each others expectationsWesley TuckerAgriculture Business Specialist7People (landowner or tenant) when they have problems with a lease often ask, What are you supposed to do?

There are no ruleswell not exactly.There are actually very few laws that apply to most of the concerns that occur in rent agreements. Some statues and common law law cover contracts, legal notices and a few other items. There are also some customs that have been used that many follow. However, most things are actually left open for the owner and tenant to agree upon. If they agree and both believe it is fair, then it is generally a good lease. There are only minimal legal requirements and the custom do NOT have to be followed.What makes a good lease?Verbal or Written Discuss the details

Wesley TuckerAgriculture Business Specialist8People (landowner or tenant) when they have problems with a lease often ask, What are you supposed to do?

There are no ruleswell not exactly.There are actually very few laws that apply to most of the concerns that occur in rent agreements. Some statues and common law law cover contracts, legal notices and a few other items. There are also some customs that have been used that many follow. However, most things are actually left open for the owner and tenant to agree upon. If they agree and both believe it is fair, then it is generally a good lease. There are only minimal legal requirements and the custom do NOT have to be followed.Benefits of a Written LeaseWhat? Dont you trust me?

Documents AgreementPrevents misunderstandings (communication)

Forces Consideration of All DetailsMuch easier before one party gets upsetMinor details = explosive problemsWesley TuckerAgriculture Business Specialist9The first objection to signing an written agreement is often What? Dont you trust me? Trust has nothing to do with it. Documenting the agreement is important for the reasons previously stated.

In addition a written agreement forces both parties to think of the details that are often overlooked and may cause problems later on. Completing a written document requires that they understand and agree upon the details. Working them out ahead of time before people get mad will be much easier.Oral/Verbal LeaseTermMore than 1-yr invalidYear-to-year tenancy

Binding on heirs or new ownerWhat was agreed? Cant testifyWesley TuckerAgriculture Business Specialist10What about oral farm leases? Much farmland has been rented this way. While they have worked in many cases, the potential for problems is huge.

An oral lease is binding upon heirs or new owners. Problem is what was agreed upon. One party to the lease cannot testify as to what the other party agreed upon. Can lead to serious problems if there is a disagreement or one party dies.

How Do I get Out of ThisYear to year terminates at anniversary with 60 day WRITTEN notice, otherwise it is continuous.Month to month terminates with 30 day notice.If an agreed date is set for termination then no written notice is necessary, tenant must vacate without notice.Wesley TuckerAgriculture Business SpecialistWhen Does This StartTenancy begins on day the agreement is made, not on the day possession is given.Wesley TuckerAgriculture Business SpecialistWritten LeaseMinimum RequirementsName, Addressall partiesProperty Legal DescriptionDuration (term) of LeaseExtremely important considerationPromote investment/Land valueTermination clause or amortization of investmentsRental Rate Rent Payment ArrangementsSignaturesWesley TuckerAgriculture Business Specialist13Term of the lease: A written lease can be for more than one yearLandowners should seriously consider the term of the lease. Short term leases do not promote investing in improvements of the land. Long term leases may appear to lower the value of the land because it has obligations. Can be dealt with by a termination clause in case the property is sold and a corresponding amortization schedule of the tenants investment.

Names and addresses: Including spousesProperty description: Not only legal description but other descriptive terms are good to include. Address of farm, FSA farm number, Commonly recognized name such as John Smith Farm.Rental rate: Crop-share splits or amount of cash rentRent payment arrangements: When rent is due. Where? If rent payment is crop share, where is it to be delivered? Etc.Signatures: Of both parties (spouse signatures should be included)

Minimum requirements, doesnt have to be complex document. However, a number of other items should be agreed upon and included.Special Agreements:Entry rightsSubleasingInsuranceUse of buildings & grain binsFencesRepairs, maintenance, mowing Hunting RightsFertilityOther special agreementsWesley TuckerAgriculture Business Specialist14Other items to be included (will be discussed individually in following slides). NCR publications include blank form that address most of these and other items.

Fertility is a Difficult IssueWesley TuckerAgriculture Business SpecialistWhats It Worth?

25 lb of N7.5 lb P2O522.5 lb K2O1000 lb bale of grass hayN - $5.32P2O5 - $4.12K2O - $12.37Total = $21.8130%N=$0.71, P=$0.55, K=$0.55Wesley TuckerAgriculture Business SpecialistN = $0.70P = $0.36K = $0.79Things Dont go as PlannedSituations changeDeathIllnessMemory lossAccidentFinances fall apartWesley TuckerAgriculture Business SpecialistIf There Is A ProblemWhy is there a Problem?Separate People from ProblemPerceptions Emotions - CommunicationFocus on Shared Interests not Individual PositionsHe wins vs. I winWork toward Mutual GainOriginal Objective gain from strengths & assets of one another

Wesley TuckerAgriculture Business SpecialistRental arrangementsIts the legal stuff.Have things in writing.Keep it simple if possible.Think about your family.Its the money.Its the relationship.Keep it honest.Keep it open.Keep it positive.

Wesley TuckerAgriculture Business SpecialistDeveloping a Lease AgreementNorth Central Farm Management Extension Committee - Pasture Leasehttp://www.aglease101.org/DocLib/docs/NCFMEC-03A.pdf

Wesley TuckerAgriculture Business SpecialistLivestock Lease AgreementsSituation: Farming is capital intensive

Land, Machinery, & Breeding StockLeasing land is common, why not cattle?Young Producer vs. Ready to RetireWesley TuckerAgriculture Business SpecialistCrop Share Agreements Determine a Fair SplitLandownerTenantLand XXXLabor XMachinery XXSeed, Fert., etc. X XTotal Contribution XXXX XXXXShare 50% 50%Wesley TuckerAgriculture Business Specialist22One method to judge or test fairness is to use a 2-column worksheet, one column for the landowner and one for the tenant. List each partys contributions under the appropriate column. Use the desired return on each persons investment. Include cost items like taxes, repairs, fuel, etc. that they incur on their contribution along with the value for labor and management. Split the cost items they share according to the agreement. Total the two column and compare the total to the rent agreement split.

If its cash rent they will base it upon the productivity of the soil. Livestock Share Agreements Whats a Fair Split?LandownerTenantLand XXMachinery X Breeding Stock XXXLabor XSeed, Fert., etc. _______ XTotal Contribution XXXXXX XXShare 75% 25%Wesley TuckerAgriculture Business Specialist23One method to judge or test fairness is to use a 2-column worksheet, one column for the landowner and one for the tenant. List each partys contributions under the appropriate column. Use the desired return on each persons investment. Include cost items like taxes, repairs, fuel, etc. that they incur on their contribution along with the value for labor and management. Split the cost items they share according to the agreement. Total the two column and compare the total to the rent agreement split.

If its cash rent they will base it upon the productivity of the soil. Livestock Lease AgreementsImportant to consider all details in advance

Whos responsible for:Damaged MachineryFence RepairReplacement FemalesBull Expense

Wesley TuckerAgriculture Business Specialist3/26/201225

Lease HuntingWesley TuckerAgriculture Business SpecialistQuestionsWesley TuckerUniversity of Missouri Extension451 S. AlbanyBolivar, MO 65613

417-326-4916

tuckerw@missouri.edu

Wesley TuckerAgriculture Business Specialist

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