Leasing From Non-Farming Landowners, Part I

 

This series of articles presents considerations in working with non-farming landowners.  For new farmers interested in leasing land, we’ll go through some options for successful approaches to starting good working relationships.  Part I of this article series will focus on communication tools, and Part II (coming in about a month!) will focus on nuts and bolts of negotiating fair lease terms with landowners, for example, determining an equitable dollar value or other trade for rent.

According to the 2007 Vermont Agricultural Census, 277,673 acres or 23% of all land in farms in Vermont is rented or leased land.  This means almost a quarter of farmed land is, in the words of Randolph based farm attorney Annette Higby, “owned by those who do not work it and worked by those who do not own it.”    With so much of the agricultural resource base owned by non-farmers, it makes sense for the farming community to try to understand, what are non-farming landowners’ desires, needs, and expectations?

If you don’t want to read any further, at least read this:

A successful, long-term farm tenure arrangement between farmer and non-farming landowner depends on good communication, which can be used to determine whether or not the farmer can realistically meet the non-farming landowner’s goals and expectations, and whether or not the landowner or land can realistically meet the farmers goals and expectations.

Good communication can also be used throughout the lease terms to maintain a friendly relationship, ensuring issues are brought forth in easy conversation rather than letting them evolve into messy disputes.

According to the FarmLASTS project findings, communication should focus on six key points:

1.  Communicate with your landlord!

2.  Educate landlords about agriculture.

3.  Explain farm costs and any changes.

4.  Provide reports about progress, changes and challenges.

5.  Maintain the appearance of the property.

6.  Treat landlords respectfully, like family.

Why is communication so crucially important?   Lease agreements go sour when it is absent.  One of the most most common pitfalls in lease arrangements I’ve witnessed is where the farmer implements an alteration to the land that he/she thought was totally permissible, for example a structure is built, a woodland is select cut for firewood, or a field is tilled under —  but the landowner has a completely different view, becomes angered about what the farmer did, and the arrangement then goes south fast, often involving mediation, lawyers and the kinds of stories we’d rather leave untold.  This kind of situation can be prevented!   A simple conversation can be had BEFORE the improvement is implemented.  It might seem unnecessary, because maybe the same thing was agreed upon a year ago—but things change, people change, other family members of the landowner might want their say in things, and for all these reasons it is good insurance to have a simple conversation.

Here are three communication tools you can use:

1.  Before you lease, prepare a letter of intent that states your goals, values, strategies for caring for the land, what type of business you plan to operate, and what improvements will need to exist, or be made on the land.  This can be a generic letter, addressed “Dear landowner,” or “Dear Farmer.”

A generic letter of intent written by the farmer can serve as a good communication tool that presents the farmer as professional, and can give a non-farming landowner a degree of assurance that the arrangement is worth exploring further.

This type of letter serves as an excellent communication tool to address what most non-farming landowners have as foremost concerns.  Most want to be assured that the farm tenant is also an environmental steward and will care for the land.  Most will be very curious what type of operation is planned.  Most non-farming landowners will want to understand clearly how their land might be altered.

2.  The written lease agreement can be used as an excellent tool for communication, not just for negotiating how to start a tenure arrangement, but also for how to carry it on sustainably.

While crafting a lease agreement, try to include provisions that spell out processes for the farmer tenant and landlord to communicate.  In the lease, you can articulate the process for agreeing upon alterations or improvements.   Here is one example of a provision in the sample lease agreement in the appendix of the Legal Guide to the Business of Farming in Vermont:

“Farmer shall not make alterations or improvements to the Premises without the written consent of the Landowner.  Consent shall be obtained by submitting a written description to Landowner of the proposed improvement, including its location, size, proposed use, and whether the improvement is to be severed from the property at the termination of the lease…Landowner may approve, disapprove, require more information, or require certain modifications to the proposed improvement.  Farmers final written proposal including a clear indication of Landowner’s assent and signed by Landowner shall constitute written consent of Landowner…”

The above might seem “lawyery,” but it is nothing more than a sign that both parties are striving towards good communication, represented by a clearly articulated process spelled out in the lease for coming to an agreement when the appropriate time comes.

3.  Use common sense as a communication tool.   A conventional lease creates a natural degree of separation between a farm entity and a landowner, each with specific rights and responsibilities.  But it often also helps to forge a more informal relationship with a landowner.  Communicate as often as possible in an open, friendly manner, as common sense dictates is appropriate.     Farmers can recognize that non-farming landowners might not have a strong knowledge base about agriculture, but chances are if they are open to renting their land to a farmer, they have the desire to learn.

There is a great fact sheet published by Ohio Extension, entitled, “Managing Landlord-Tenant Relationships, a Strategic Perspective”   In it the suggestion is to:

Provide regular updates: Regularly update landlords regarding crop conditions and commodity markets during the growing season. Include photographs where possible. Anticipate the landlord’s interest in how the weather is influencing crops, when planting or harvesting will begin, and reasons for any delays in planting or harvesting.

Inform and educate: Particularly for absentee or non-farm landlords, you should provide information regarding agriculture and farming. Regular mailings of print media articles, newsletters, etc. both serve to educate landlords and demonstrate attentiveness. Consider developing a web site for informing not only absentee landlords, but their heirs who may inherit the property. Over informing may be the best strategy, particularly early in a new landlord-tenant relationship.

Of course there are landowners who are not as social, and could care less what kind of tractor implement is doing the haying, as long as the field gets cut and the rental payment comes in on time… But if the landowner is genuinely interested in receiving monthly or yearly updates on crop or livestock production, then it doesn’t hurt to give them.  The bottom line:  communicate naturally, regularly, and openly as possible with landowners.  They will appreciate it.  All parties to the lease will appreciate an arrangement that can continue without problems and keeps everyone happy.

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About Ben Waterman

Ben writes about land access, tenure, and stewardship issues that are relevant to new farmers in Vermont. He coordinates the Land Access Program at UVM Center for Sustainable Agriculture: http://www.uvm.edu/sustainableagriculture/?Page=begland.html=
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4 Responses to Leasing From Non-Farming Landowners, Part I

  1. I still run into this stigma of “non-farm landowners.” Maybe this comes from people perceptions about larger trends in agriculture across our country. I have read about the potential pitfalls of absentee landlords and I recognize the motivations for some to build equity in real estate. We also need to recognize that a farm business with tight margins can often benefit from NOT having to make the major investment in real estate. There is large amount of cash that leaves the business in the form of “interest payments” over the lifespan of a 20-30 year mortgage. That cash does not come back. In some cases owners will benefit from not making those investments, paying rental rates and retaining cash for operations or management compensation.
    This article helps with good suggestions to make that tenant arrangement work well for all parties.

    • Ben Waterman says:

      Thanks Mark,
      Another thing that is commonly stigmatized or avoided is a written lease agreement. One point I was trying to make in this article is that a written lease, while obviously a legal document primarily, is really nothing more than a great communication tool. It can help farmers and landowners talk about and agree upon what can or can not be done on the property. For areas where it is obviously tough to foresee exactly what will need to happen in the future, the lease agreement can outline an agreed-upon process for how and when future communication will take place, and how agreement on questionable issues can be obtained.
      Bottom line, if for whatever reason you don’t want to sign a lease agreement, at least use a model or sample lease as a template for conversation. That costs nothing and can save tons. Here is a good fact sheet on the basics of lease agreements and talking points within:
      http://www.uvm.edu/~susagctr/Documents/leaseagreementguide.pdf

  2. Pingback: Word of Mouth Ways to Find Farmland | UVM Extension New Farmer Project

  3. Richard says:

    “Leasing From Non-Farming Landowners, Part I | UVM Extension New Farmer Project” arethosemygardeninggloves was a superb article, can not help but wait to browse a lot more of ur blog posts.
    Time to waste a bit of time online lolz. I appreciate it -Agueda

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