It’s time to negotiate land rents

By Gary A. Hachfeld, University of Minnesota Extension

Fall is generally when many land rent negotiations take place. Landowner and tenant alike often find this task a bit daunting.

In Minnesota, there is no statute that sets a specific time for notification to the tenant regarding a change. A good rule of thumb is to write any of those types of provisions into the rental contract. Provisions might include a final date by which the landowner will notify the tenant if there will be a change of tenants.

Other provisions might include rent payment dates, plow-back provisions if there is a change in tenants, and reimbursement for crop inputs if the tenant or landowner requests a change of tenants after inputs have been applied. A written rental contract is needed. If there is no written contract or the contract has no specific date, common sense would dictate that the landowner notify the tenant of a change by the end of harvest at the latest. Notification should also be in written form.

A second issue this past year is flexible lease contracts. Farm Service Agency states that if a landowner utilizes a flexible lease based upon the tenant’s yield and price received, the landowner is eligible for a portion of the commodity payments. This can be troublesome for both landowner and tenant.

However, there is a way around this rule and a form of flexible lease can be utilized. For the yield portion of the lease, tenant and landowner can use a yield such as the average National Agricultural Statistical Service yield for the county where the land is located. For price, they can use the average price at the local elevator over a given period of time. As long as neither the contract yield nor the contract price are tied directly to the tenant’s actual yield or price, FSA will accept the lease as being a cash contract. Note that this is the current ruling under the current Farm Bill. The drafting of a new Farm Bill may change this, so be aware of rental provisions in any new legislation.

FSA also requires that all contract information, including land rent contracts, be completed and submitted to the FSA office by Sept. 30. If the deadline is not met, the tenant will not receive FSA payments. Tenants may want to set an earlier deadline to insure all forms are in on time.

Aside from all the rules and deadlines, mutual respect and good communication go a long way in land rent negotiations. Tenants need to take care of the land that the landowner has loved all these years. That means keeping the fertility up and the weeds down. Tenants need to pay rent on time and in the event of a good year, perhaps a gift of some sort to the landowner is in order.

Tenants may also want to share how input costs have changed over the past three years. Some tenants do this by way of a newsletter to their landowners. Landowners need to look not at how much rent they can get but rather at the character of their tenant and the nature of that relationship. Considerations include does the tenant pay the rent on time, take care of the land, send a present when they have a good year and share some of the challenges being faced regarding crop production?

University of Minnesota Extension has a publication titled “Cropland Rental Rates for Minnesota Counties” dated June 2007. For a copy, visit the Web site www.cffm.umn.edu under “publications,” and then “farm management.”

(Gary Hachfeld is an agricultural business management educator with University of Minnesota Extension.)