Updated Cash Lease Considerations
Posted by jenreesources
Landlord/tenant workshops have occurred throughout the State and I hope you had the opportunity to attend one of them. Survey numbers from UNL and USDA (click on 2012 County Level Cash Rents) are available for starting points even though basing lease arrangements off the productivity of the land may be fairer. A 50/50 share lease is still the fairest lease arrangement yet I realize for a number of reasons many landlords are switching to cash rent. I also realize we continue to see situations of very high cash rent numbers. These numbers aren’t the norm and they don’t pencil out when cost of production is factored in.
In this post I wrote about considering cash rent based on the productivity of the land and provided a formula for it. Essentially take a 5 year Olympic average yield for the field. Multiply by an agreed price such as fall harvest price or whatever both parties agree upon. Then multiply by 1/3 and it gives you an idea of where to start. The price can be adjusted from there depending on if the tenant provides additional services, etc. Granted this formula isn’t perfect because a high average yield with a very high price can result in the high cash rents we’re hearing. It’s another formula to consider.
A flexible cash lease is another way to arrive at a cash rent price. These leases can be as simple or complicated as you would like to make them. Flexes can be made for yield alone but we wouldn’t recommend flexing on price alone. If you consider flexing on price, you should consider a combination with price and yield.
Communication is Key!
For both landlords and tenants: communication is key. I’m always amazed how many landlords tell me they don’t know the yields their tenants are receiving. If you don’t think your tenant will provide that every year by just asking for it, then build it into the written lease. Landlords, if there are things you want tenants to do like keeping the sprayer boom away from your plum bushes that you like to pick for jam or mow your ditches a certain way, you need to communicate those things to your tenant and/or build those things into the lease as well. Building all these unmentioned things into a written lease also greatly helps family members understand why things are done a certain way when the family member who is the landlord is no longer able to take care of these things.
Landlords: while you hear high crop prices, many of your tenants did not sell $8 corn; most sold at some price along the way.
Tenants: it is important to be fair with your landlords. In good years consider giving them a share of the profit-that’s another reason to consider flexible cash leases because these things can be built in to be fair to the landlord in good years and to the tenant in bad years.
About jenreesourcesI'm the Crops and Water Extension Educator for York and Seward counties in Nebraska with a focus in irrigated crop production and plant pathology.
Posted on December 3, 2012, in Cash Rent/Lease and tagged cash lease, cash rent, Crops, Extension, fair rent, farm, farming, flexible cash rent, Nebraska, Plants, renting crop ground, share lease, share rent. Bookmark the permalink. 3 Comments.