A landlord-tenant relationship is the typical arrangement established where a farm operator works land ownerd by another. However, it is possible for a different type of relationship to exist. Other possibilities include a partnership, principal and agent, and employer-employee. Common employer-employee relationships that can might cause confusion are sharecropping arrangements and custom farming. It is important to understand how these relationships are formed and distinguished from one another, as well as the different legal consequences that arise from them. A few issues that rely on the type of relationship created include termination procedures, liability to third parties, tax liability, estate planning, and the availability of government farm programs.
Courts attempt to discern and honor the objective intentions of the parties to a contract. The most effective means of ensuring the intention of the parties is honored is to simply state those intentions in a written farm lease. Many form leases contain provisions expressly stating the lack of a partnership or agency relationship between the parties, the limited liability of one party for the other’s actions, and the tenant’s control over management decisions.
There are factors beyond explicit statements of intent that courts may consider when evaluating the type of relationship formed by a contract.
- Sharing profits
- Sharing control
- Holding real or personal property jointly
- Sharing bank accounts
- Sharing bookkeeping
- Using a company name to describe both parties
- Filing tax returns as a single entity
- Actions creating an expectation that one person can act for another
- Who benefits from the alleged agent’s actions
- Who makes management decisions
- Control of buildings used
- Manner that crop-share harvests are split
- Ownership of equipment used
- Whether operator resides on the property
- Which party has the right of possession
- Duration of the agreement
Both landlord and tenant should keep the concepts behind these relationships in mind as they develop a sustainable lease agreement. As discussed elsewhere, creating a lease agreement that promotes sustainability can require creativity and flexibility by both parties. In developing a creative arrangement attention should be paid to how courts might view the resulting relationship. However, the parties can take steps to help ensure the landlord-tenant relationship prevails, while still adopting creative approaches that further the sustainability of the land and the farm operation as a whole. Again, one of the most effective means of doing so is by using a written lease to express the intent of the parties.
The pages below offer greater detail and state specific information regarding the factors courts look at to determine the type of relationship, the legal consequences of the various relationships, and ways to ensure recognition of the type of relationship intended by the parties.