- Understanding Important Terms and Concepts
- Understanding the Tenants Perspective
- Social Dimensions of the Landlord-Tenant Relationship
- Finding the Right Tenant
- Keeping the Right Tenant
Communicating effectively with your tenant is important for a number of reasons. Communication at the outset of the relationship is critical to ensure the goals and priorities of each party are understood and addressed in the lease agreement. Communication is also important during the lease term to aid the development of a long-term relationship, boost the tenant’s confidence in the landowner’s commitment to tenure security, and promote awareness of any weaknesses and modifications needed in the lease arrangement. Remember, a sustainable lease is only beneficial so long as it meets the needs of both parties.
This chapter primarily addresses the initial conversations between landowner and tenant, including the need for understanding some basic agricultural, conservation, and lease concepts; the importance of understanding the position of the other party; and the need for communicating your priorities and limitations to your potential tenant to find ways that promote profitability as well as sustainability. Continuing communication during the lease is briefly addressed below in the section on retaining a good tenant.
Understanding Important Terms and Concepts
In order to effectively communicate with your tenant it is necessary to speak the same language. This means gaining an understanding of, or at least knowing where to access information about, certain agricultural terms and concepts. You have already had an introduction to the fundamentals of sustainable agriculture and farm leases. Its not necessary to become an expert on sustainable agriculture and farmland leasing before talking to your tenant, but it is important to know where to look for additional information. Remember, there are some issues, such as legal matters, that may require professional assistance.
There are a variety of resources available to provide more in-depth information on specific agricultural topics. Many of these resources can be found under the Resources and Glossaries tabs in the left panel of the SALT website or, if not viewing this guide online, through the organizations and professionals described in the Introduction.
It is also beneficial to stay informed about agricultural policy and the economics of farming, including land values, rental rates, crop prices, and input costs, such as seed, fuel, and fertilizer. University Extension offices often conduct research and present information on the agricultural markets of specific states. This can be particularly helpful when negotiating cash rent or cost-sharing provisions.
- State-wide and county farmland rental rates are available here on a yearly basis.
The USDA’s Economics, Statistics and Market Information System (ESMIS) and Agricultural Marketing Service
- Provides daily and weekly reports on agricultural markets, production, and weather.
- Provides daily summaries of farm policy news regarding a variety of topics across the country.
Understanding the Tenant’s Perspective
Just as it is important to understand your own priorities it is also important to understand the needs and limitations of your tenant. As mentioned previously, a lease that encourages a tenant to adopt sustainable practices may require additional effort, and possible sacrifices, on the part of the landowner as some practices may create inconveniences and extra costs for your tenant. It may be necessary to alter certain terms to eliminate or mitigate the hardships created. This section discusses some common issues faced by tenants that may need to be addressed to promote the sustainability of the lease agreement. It should be noted, however, that different challenges will arise with different tenants.
This video provides information on how non-profits, universities, farmers, landowners, and the public can work together to help fulfill a land ethic based on good stewardship.
Engaged in Fierce Competition for Land
One of the defining characteristics of current farm tenancy is a fierce competition for land. Farmers are consistently under pressure to find more land to farm. In order to continue a profitable farming enterprise it is necessary for many farmers to expand the amount of land they farm. This is one of the reasons many farmers own their own land but also rent additional farmland. As farmers compete for limited land resources, the value of land and rental rates increase.
This competition for land provides you, as the landowner, greater negotiating potential. This means tenants may be more willing to go along with sustainable practices they might not otherwise consider. However, the farm operator’s need for additional land must be weighed against other characteristics of the tenancy situation that decrease a tenant’s willingness or ability to adopt sustainable farming. These other characteristics are discussed below.
Another consequence of competition for farmland is a lack of access to land for new farmers. However, this may, in itself, create opportunity for a landowner wishing to adopt sustainable practices and a new farmer looking for land. For instance, a beginning farmer might be more open to using non-conventional farming techniques than a large, established operator. Due to the fact that many new farmers lack start-up capital this may require you to consider additional cost-sharing and risk-sharing. But, this opportunity could produce a long-term relationship and encourage a beginning farmer to utilize sustainable practices. The benefits and methods of assisting a new farmer are discussed further in the final chapter, “A Few Additional Considerations.”
A Lack of Incentive (or Ability) to Adopt Sustainable Practices
Tenant farm operators typically have little motivation, or perhaps little ability, to adopt practices that improve the long-term sustainability of the operation. This is not, of course, necessarily because tenants are unconcerned with the impact of their practices, but rather because the terms of many leases combine with economic conditions to prohibit tenants from adopting long-term practices that can improve the sustainability of the operation. There are several factors causing this situation. Examining these factors can create a greater understanding of the obstacles faced by tenants and assist in developing creative lease arrangements to overcome these obstacles.
1. Short Lease Terms. Short farm lease terms give tenants little security that they’ll receive the benefits of long-term investments. In a recent Iowa State Extension survey 80% of the farm leases in Iowa were year to year leases, and of the remaining 20% the majority were for less than two years. Meanwhile, the benefits of many sustainable practices, such as crop rotations, take years to accrue. The combination of the time required to recognize benefits from sustainable practices and short lease terms is a principle contributor to the ability of tenants to adopt long-term sustainable practices.
The most obvious, and probably most effective, means for overcoming this obstacle is to increase the term of the lease. Other methods are available, however, for those unwilling or unable to enter a long-term lease. These primarily consist of sharing the risk of production, sharing the costs of production, or relying on specific conservation provisions. These alternatives to providing a long-term lease are discussed throughout the Key Considerations of Chapter Five.
2. A Lack of Specialized Skill and Equipment. In addition to more time, many sustainable practices require skills and equipment that are different from those required for more conventional agricultural practices. In addition, tenants are motivated to use their equipment on as much land as possible to get the most out of their investments. Tenants, on average have three landlords, and some have as many as twenty, and they don’t want to purchase different equipment for each piece of property.
Recognition of this limitation enables the development of creative solutions. Such solutions can include simply finding alternative methods of accomplishing sustainable goals within the tenant’s ability, sharing the costs of hiring specialized labor through custom farming or of leasing the needed equipment, and purchasing specialized equipment to be shared or leased to the farmer. It should be noted that this situation might also create opportunities for farm operators to specialize in providing sustainable farming practices to landowners.
3. A Focus on Maximizing Production. Increasing rental rates and input costs can also affect a farmer’s ability to adopt sustainable practices. These factors force the tenant to focus on short-term productivity in order to stay profitable and compete for additional land to farm. Rental rates are governed in large part by land values and the price of commodities. Land prices have risen dramatically in recent years, driven in part by land speculation, demand for open land for development and recreation, and biofuels production. In addition, commodity prices have seen record highs, but have also remained unsteady and unpredictable, which results in higher rents but not necessarily rents that match current commodity prices. In addition, as commodity prices have increased, so too has the costs of inputs, which eats into any revenue increases a farmer might have seen from higher commodity markets.
Potential Tenants May be Hesitant About Discussing Sustainability or Stewardship
Many farm operators are willing to consider sustainable practices but are hesitant to start a conversation about conservation or sustainability with potential landlords. In addition, many tenants consider land stewardship the landowner’s responsibility.
A Tenant’s Perspective:“We talked a little bit about things like ridge till and cutting back on how many chemicals I applied in one of our first meetings. I guess he thought I was trying to get at something because he immediately asked, ‘you’re not one of those organic farmers are you?’ and he didn’t mean it as a compliment. Right there I knew that I better just do what he wanted if we were going to make this relationship work.” — Iowa tenant (Michael Bell et al., Professional Development for the Adoption of Sustainable Agriculture on Rented Land, 10 (2001).
The prevalence of this type of situation means that you may need to initiate the conversation about ensuring the sustainability of the land. After all, as the landowner, you will retain the land after the lease expires, and you are ultimately responsible for the stewardship of the land.
Social Dimensions of the Landlord-Tenant Relationship
It is also important to recognize that farm leases do not take place in a social vacuum and the terms of a lease might depend more on social relationships than on economics. When dealing with close friends or family it is important to recognize distinct aspects of the relationship that might create tension regarding sustainable practices. This can help ensure sustainability while addressing potential relationship disruptions. It is important to have upfront discussions at the outset of the lease arrangement to address not only sustainability issues, but also the roles of each party in the lease relationship. Establish expectations and roles before entering the lease rather than run into problems during the lease term.
Finding the Right Tenant
As in any interpersonal relationship there are a variety of characteristics to look for in a tenant. Of course, it will be important to find someone that can meet the financial demands, primarily paying the rent, but there are other factors you might also consider. Because a stable, long-term landlord-tenant relationship is a key consideration in encouraging sustainable practices, it is important that the landlord and tenant be able to communicate and trust one another. Therefore, honesty and integrity may be just as important as having sound financial records.
The characteristics to look for in a tenant might also depend on the type of lease you decide to enter. For instance, if wanting to assist beginning farmer you should make sure they have an achievable business plan, even though they might not have the financial resources and equipment of a large operator. If looking to adopt organic production on the property you will need to find someone with the skills, or at least the desire, to do so. And, if dependent on receiving rental payments, it is important to look for a tenant with a sound financial record and references. No matter what type of lease you enter the importance of a tenant’s character and ease of communications with your tenant should not be superseded by a tenant promising “top dollar” that cannot follow through or that injures the resources of the property.
While traditionally landowners and tenants were often already familiar with one another, sometimes coming from the same community or family, it is becoming more common for landowners to use tenants with whom they have had little to no previous interactions. Under such circumstances, the landowner must find different ways to check the tenant’s ability to deliver on their lease obligations as well as their reputation as a tenant. It is becoming more common for tenants to provide a resume, and you should not feel uncomfortable asking for references, particularly from past landlords or employers.
It is also worth noting that the parties should discuss expectations regarding the farm operation and how the farmer’s performance will be measured. For instance, many tenants fear that their landlords will see the appearance of weeds on the property as an indication of poor farming skills or a lazy tenant. As certain sustainable practices may make it difficult to prevent or in some cases unnecessary to completely eradicate weeds, it is important to make sure the tenant knows that you will take such consequences of sustainable farming practices into consideration.
Overall, it is important to come to a win/win arrangement in which both parties feel they are receiving a reasonable return from the lease. It is important to remain flexible without losing sight of your priorities in order to reach a mutually beneficial arrangement. If either party feels as though the lease is unfair in some manner, it jeopardizes the relationship, the continuity of the lease, and the future sustainability of the farm.
Keeping the Right Tenant
Developing a sustainable lease that is profitable to both parties requires effort, particularly at the outset of the relationship. This makes it particularly important to retain a productive and honest tenant once a relationship has been established. It should also be noted that a landowner should not feel obligated to retain an unfit tenant. As a landowner, you are ultimately responsible for the stewardship of the land, and if a tenant does not comply with the terms of the lease or has irreconcilable views in relation to the operation of the farm, it may be better to end the relationship and find a new tenant. Of course, if ending the relationship is required, careful consideration should be given to your state’s lease termination laws — a subject of the following chapter.
There are several things that can be done to increase the continuity of the lease arrangement and further improve the landlord-tenant relationship. These endeavors not only aid in the sustainability of the farm but also reduce transaction costs in terms of time, money, and even reputation.
1. Maintain communications throughout the lease term. Communications can be set at regular intervals as specified in the lease arrangement or can casually take place at logical times such as before planting, after harvest, or at special occasions such as holidays or special family occasions. It is important to consider the content of required communications. For instance, requiring a report on certain aspects of conservation or nutrient management can emphasize the importance of these matters to the tenant while keeping you informed about important stewardship concerns.
2. Remain open to modifications.
As discussed above, the parties should try to address all possible situations that could arise under the lease arrangement. While it is not possible to predict all future events, it is possible to control how you react to changes in circumstances. Just as it is important to remain flexible in the initial lease negotiations to allow the tenant to accomplish sustainable objectives in a manner favorable to their particular circumstances, it can also be beneficial to remain open to renegotiations for matters that have not been addressed or arise due to altered circumstances. Again, the caveat must be included, that you, as the landowner, are ultimately responsible for the stewardship of the land, and any adjustments must be weighed in relationship to this duty. It also worth reiterating that any modifications to lease terms should be documented in writing and signed by both parties.
3. Allow for the correction of mistakes without destroying the relationship.
If the tenant is farming in a manner outside the scope of the lease arrangement, the tenant should be dealt with in a manner that enables them to fix the problem without harming your relationship. A provision in the lease agreement that gives you the right to terminate the lease in case of default but also allows a window of opportunity for your tenant to fix any breaches protects the land while promoting tenure security and an enduring landlord-tenant relationship.