- Tenure Security
- Reimbursement for Improvements
- Conservation Provisions
The first five considerations examined here are all meant to encourage and enable your tenant to adopt sustainable practices. This approach not only motivates your tenant to protect the farm’s resources but also aids in establishing a long and cooperative relationship between you and your tenant. The final section looks at mandatory conservation provisions.
The term, or duration, of the lease agreement is perhaps the most critical matter in encouraging the adoption of sustainable practices. The notion that a renter has little reason to care for the long-term use of property is as old as the landlord-tenant relationship itself.
Perspectives on Tenure Security and Stewardship from the Last 160 Years:
[H]e must be too improvident a man to be a good farmer, who should invest in the land capital sufficient for high cultivation, without some security that a change in the ownership of the estate . . . may not at any moment bring a notice to give up farm, improvements, and capital, and leave it all, uncompensated, to a stranger. — George Wingrove Cooke, Attorney, 1850.
The tenant who expects to remain but a short time on a farm has little incentive to conserve and improve the soil; he has equally little incentive to maintain and improve the wood lot, the house, barn, shed, or other structures on the farm. — Report of the President’s Committee on Farm Tenancy, February 1937.
I’m not going to want to put in hundreds of hours of sweat-equity into soil that I may not have next year. Why should I as a tenant build up the soil fertility of land that is not even mine just so he can rent it to someone else for more than I am paying and so that person can benefit by having richer dirt? I don’t think any rational person would be foolish enough to really build-up dirt that’s not even his.— Iowa farm tenant, 2001 (Michael Carolan, Barriers to the Adoption of Sustainable Agriculture on Rented Land, 70 Rural Sociology 387 (2005)).
Advantages of a Lease for Years
Short-term year-to-year leases have become the norm in Iowa as well as many other parts of the country. However, this is despite the many advantages that are offered in a long-term lease.
Improved Tenure Security
A lease of several years provides tenure security for the tenant, encouraging the adoption of long-term conservation practices that decrease soil erosion, build soil nutrients, and maintain farm structures. A longer tenure can also increase the farm operator’s connection to neighbors and the surrounding community. This aspect can encourage sustainable practices affecting off-farm environmental factors such as water quality and decreasing runoff from rainfall, as well as creating greater concern for the social and economic well-being of the community.
Reduced Transaction Costs
In considering the length of the lease term consideration should also be given to transaction costs and social capital, or good-will. A year to year lease requires renegotiation each year, which generally means providing a yearly notice to terminate. This not only costs time and money but can also decrease the trust and good-will between the parties. A lease for a term of years on the other hand, while requiring more initial effort and planning, can provide built-in adjustments for rent, eliminating the need for termination and renegotiation. The specific methods for doing so are discussed further in the “Possible Solutions” section below. It also creates longer term relationships, which encourages trust and ease of communication.
Automatic Extension Without Notice to Terminate: This lease shall continue after expiration of the initial lease period as a periodic lease for the same period of years as the original term and upon the same terms and conditions as the original lease, unless either party gives proper notice of termination or the parties sign a renewal of this lease one (1) year or more prior to the expiration of the initial lease term or any extension or renewal thereof. Proper notice of termination is written notice served in a manner prescribed by state law one (1) year or more prior to the expiration of this lease term or any extension or renewal thereof.
Option for Indexing Extensions: The annual cash rent of any extension or renewal, unless otherwise agreed in writing, shall be the fixed rent identified for the original term but adjusted according to the index set forth in the Fixed Cash Rent with Option for Indexing provision below.
These provisions are, admittedly, more complex than those typically found in form agricultural leases. However, sorting through and understanding the initial complexity can pay off down the road.
For instance, the second provision references an index that can be used to adjust the rent each year based upon agreed upon factors, such as commodity prices, yields, or simply the consumer price index. Such an index requires a little extra planning, but is commonly found as an option in Extension and state bar association form leases.
The index allows the parties to enter the long-term lease arrangements addressed in the first provision, provided, of course, that the initial lease term is for a term of three years or more. The one year notice period and extension for a term of years provides the tenant with the needed security to engage in long-term planning and invest in the sustainability of the farm. Further, the clause specifically mentions renewals in order to encourage the parties to recognize and address changes in circumstances early and in writing.
Disadvantages of a Lease for Years
There are also possible disadvantages to the adoption of a long-term lease. However, these disadvantages are not without solutions.
Effect on Renegotiating the Rent and Other Terms
One of the primary reasons landowners avoid the use of a long-term lease is to allow for renegotiation of the lease terms each year, especially the rent. This makes sense as the factors used to calculate farm rent, such as commodity prices, land values, and the price of farm inputs, are subject to change each year. Renegotiating the rent closer to the crop year allows the rent to be adjusted to more accurately reflect the land’s value.
- A rent adjustment index can be used to base each year’s rent on a formula that accounts for a variety of factors including commodity prices, land values, and the cost of farm inputs. Such an index should specify the particular market and time to be used and should be written in the lease agreement.
- Crop-share arrangements and flexible cash leases can also be used to ensure the rent matches the production and revenue from the farm operation.
- Conservation and nutrient management plans allow for periodic changes in farm practices during the lease term. The provision incorporating the plan can require periodic review and adjustment in cooperation with a third party, such NRCS staff. This allows you and your tenant to adjust practices to match changes in circumstances and technology.
Effect on the Market Value of the Property
Another reason landowners hesitate to enter a long-term lease is the encumbrance to the sale of the property created by a lease. The landowner is still allowed to sell the land, but the sale will likely be subject to the provisions of the lease. This means the new owner must honor the terms of the lease agreement. This can result in a lower sale price, or the landowner must negotiate an early termination with the tenant.
- Negotiate an early termination.
- Include an early termination provision. This, however, still limits the tenant’s tenure security, resulting in decreased motivation for long-term conservation. This makes the inclusion of a provision regarding reimbursements for unused portions of improvements particularly important. Such provisions are discussed in the next section.
- Grant your tenant the right of first refusal if you should decide to sell the property. This at least offers the tenant a chance to continue farming the property as an owner-operator.
Entering a Lease with an Untested Tenant
Landowners also have legitimate fears about establishing a long term commitment with an untested tenant. After all, like everyone else, not all tenants have the same values or the same knowledge, skill, and equipment. While providing secure land tenure is important for the promotion of sustainable practices, it does not benefit you or the land to have a tenant that does not live up to the agreement.
- Include specific clauses addressing the manner in which the tenant will farm. Again, conservation provisions are discussed below. Such clauses can require specific practices and establish a standard of stewardship that the tenant must meet.
- Include a provision for termination upon default. Such a clause can help prevent continued harm to your farm. However, you may want to consider a clause in this provision that allows the tenant a timeframe in which to remedy any breaches. This encourages tenure security and enduring landlord-tenant relationships.
- Another method to help ensure rental payment is to require the rent be payed at the beginning of the lease year. This can, however, be particularly difficult for new farmers or if additional investments are needed in order to adopt sustainable practices.
- Another way to help avoid such a situation altogether, is to check the operator’s resume or ask for references. An established farm operator will probably have other landlords that can provide background information on the potential tenant, and professional resumes are becoming more common. When dealing with new farmers that do not have an extensive history of landlords you should consider asking to see their business plan or for other personal references. Many organizations, including the Beginning Farmer Center and Farm Beginnings, offer business training for new farmers.
Long-term Ground Leases
If you are willing to consider a lease for more than ten years it is worth reading about ground leases. These are more commonly used in commercial leases, but are also used by municipalities and community land trusts on agricultural land. A ground lease is a long-term lease of land, usually for 99 years, where the tenant owns the buildings and improvements. At the end of the lease term the tenant is to surrender the land and the buildings, or renew the lease. While not practical for most landowners, it is a useful mechanism for those seeking to ensure continued agricultural production on the property. Conservation easements are often placed on the property at the same time. A sample ground lease and corresponding explanations are available from Equity Trust. Any parties wishing to adopt such a lease should seek the counsel of a legal professional before proceeding.
If a Long-term Lease Will Not Work for You
For one reason or another a long-term lease might not work for you. In such a case you should pay particular attention to other lease mechanisms that can encourage sustainable practices by your tenant. It is also important to recognize that while a longer term is perhaps the most significant factor to encouraging conservation practices it does not guarantee adoption, particularly in relation to practices affecting off-farm sustainability. For these reasons, it is necessary to look at other options to encourage sustainable farm practices.
Reimbursement for Improvements
Providing reimbursement for the unused portion of a tenant’s investment in the land can increase a tenant’s motivation to invest in the land even in the absence of a long-term lease. A tenant is unlikely to invest in improvements that will not show a return before the lease terminates, but a provision requiring reimbursement for approved improvements can change this.
In attempting to promote the sustainability of the soil, as well as other aspects of the farm, it is important to recognize not only structural improvements but also the benefits accrued through sustainable practices. Consideration should be given to providing credit for a tenant’s expenses regarding crop rotations and green manure crops that add nutrients to the soil after the lease terminates.
In considering reimbursement for improvements, it is important you discuss and put in writing what improvements are needed, the costs of needed improvements, and expenses to be contributed by each party. A lease supplement ensuring contributions to and reimbursements for conservation improvements is provided by Iowa State University Extension.
Sharing the costs of the farm operation can encourage the tenant to try sustainable practices. Typically, the parties share more of the expenses in crop-share leases than in cash rent leases. However, the parties are free to agree to cost-sharing arrangements in a cash rent lease as well. This can be particularly useful where specialized equipment, additional labor, or certification must be obtained. There are a couple of ways you can share the costs of sustainable production with your tenant. These include sharing in the necessary inputs to further the farm’s sustainability and simply reducing the amount of rent the tenant owes in order to encourage sustainable practices and improvements.
This option can be especially useful where the tenant lacks the capital needed to invest in the desired conservation practices. However, it may require additional time and effort in calculating each party’s contribution. This is especially relevant in a crop-share agreement where the parties deviate from typical cost-sharing arrangements to promote sustainable farming. Iowa State University Extension provides more in-depth information on “Adapting Crop Share Agreements for Sustainable and Organic Agriculture.”
There are a variety of expenses the parties might consider sharing. These range from typical farm inputs, such as seed and fertilizer, to specialized equipment needed for sustainable farm practices. In addition to monetary costs, you might consider contributing to the time required to improve the sustainability of the farm. However, particular attention should be paid to retaining the landlord-tenant relationship, as opposed to a partnership or share-cropper arrangement.
An Example: Integrating Livestock
Integrating livestock into a farming operation can improve the efficiency and sustainability of a farm operation. In addition, many landowners and farmers simply see livestock as an intrinsic part of farming. However, there may be additional expenses for a farm operation that has not previously involved livestock.
- Infrastructure for cutting and curing silage
- Winter feed
- Veterinary Expenses
- Management of rotational grazing
- Management of artificial insemination and choosing a male
Other issues to address in the lease:
- Livestock access to water resources
If you don’t want to alter the typical contributions of each party, another option is to simply reduce the rent in order to promote sustainable practices. This can be done in a couple of ways.
First, you can use a graduated rent. If your tenant is worried about an initial decrease in yield, a graduated rent will allow for a lower initial rental amount that will gradually increase in the years after sustainable practices are adopted. As discussed in the final chapter of this guide, this type of provision can also be useful in assisting a beginning farmer by slowly bringing the farmer up to full payments. Such a rent provision might look like this:
The total rental amount for the first year shall be reduced by 20%. This reduction shall be applied to the total for each subsequent year, but the reduction shall be decreased by 5% each year until the full rental amount is being paid.
Another option is to simply reduce the rent by a specific amount in the first year to account for the tenant’s cost in improving the land. The following provision is derived from Land for Good’s Sample Multi-year Lease Agreement.
Landlord recognizes that Tenant may incur start-up costs at the beginning of the Lease term related to improving the agriculutral soils on the Premises or making other improvements to the Premises. Toward that end, the first annual Lease fee, due on _______________________, will be reduced by $______.
Yet another way to share the costs of building up the soil and improving the resources of the farm is to reduce the rent to encourage specific practices. For instance, your lease might contain the following provision.
The rent for cropland acres planted in hay shall be reduced by 20%.
It should be noted in this last example that this will require the division of rental rates based on the type of land use. For instance, the lease could set the rental rate for cropland at $______ per acre, pasture at $______ per acre, and so forth.
Farming can be a risky business, and the more a farmer can reduce the amount of risk they face the more willing they may be try alternative farming practices. The primary way you can help reduce the risk faced by your tenant is adjusting the rent based on the amount of yield produced on the farm, the price received for the farm product, or both. The crop-share lease and flexible cash rent lease described at the end Chapter One, The Basics, both provide ways to do this.
A crop-share lease is a traditional method of distributing the risk between the tenant and landowner. Because the rent is simply a portion of the crop produced on the property, which the landowner then must sell on the market (or have the tenant sell, depending on the specific lease provision), the landowner assumes a portion of the risk for both the farm’s yield and the price received for that yield. This means if the tenant has a poor yield or prices are low, they don’t pay as much rent.
There are, however, additional considerations that must be taken into account when entering a crop-share lease. Typically, landowners contribute a share of the farm inputs and are more involved in land use decision-making. This added involvement and risk can affect social security payments, taxes, estate planning, and the distribution of farm program payments. As discussed in “Chapter Four: Farm Leases, Sustainability, and the Law,” you will be more likely to be viewed as self-employed and more likely to be eligible for a share of any farm program payments.
Flexible or adjustable cash leases provide rent based on the crop yield, the crop price, or a combination of these attributes. The risk in these arrangements can be based on the actual yield and revenue received from the farm or it can be based on a county yield average and the price of a predetermined market at a set time. If the tenant perceives added risk stemming from the adoption of sustainable practices, you will most likely want to ensure that the rent is based on the actual farm yield in order to reflect the tenant’s increased risk. However, again, this can impact the division of farm program payments between you and your tenant. If the rent is adjusted based on factors on the farm then the payments are divided. More information on this topic can be found in Chapter Four, “Farm Leases, Sustainability, and the Law.”
“Putting Together a Flexible Cash Farm Lease,” with Dave Baker of Iowa State University’s Beginning Farmer Center.
The comments in this interview illustrate a number of issues discussed above, including the importance of cost and risk sharing and the value of automatic rent adjustments that reflect actual yield and prices.
In addition, to developing a lease which encourages sustainable practices, landowners may wish to establish specific requirements or limitations in relation to areas of particular concern. Provisions directly mandating specific conservation practices can be useful, though it is necessary to take practical considerations into account before developing such a lease. For instance, certain practices may require special skills, additional labor, or specialized equipment. This may require additional discussions with the tenant and modifications to the lease terms in order to ensure an equitable and sustainable lease.
Good Husbandry Provisions
As discussed in Chapter Four, the covenant of good husbandry implied into farm leases by the law provides a community standard by which a tenant’s practices are measured. Similar provisions, using phrases such as “good and farmer-like manner” and “farm faithfully and in a timely, thorough, and businesslike manner,” are often included in farm leases and have correspondingly similar standards.
Just as with the good husbandry covenant, such provisions provide a degree of protection for a farm’s resources. However, as previously mentioned this protection likely only extends as far as community practices. This may be inadequate to protect the sustainability of your farm.
There are ways such a provision can help ensure a more sustainable operation. First, you can expressly establish a higher standard. Second, consider stating the purpose of the standard as relating to the conservation of the land’s resources and the long-term productivity of the farm. However, it is also important to recognize that different interpretations may exist regarding such standards, and the complementary use of specific provisions or plans are needed to clarify restricted and required practices.
Sample Good Husbandry Provision:
The tenant will farm in accord with the highest standards of good husbandry and will take all first-class farmer-like steps to ensure the conservation of the natural resources and the long-term productivity of the farm.
One method for including conservation practices in a lease is to incorporate a conservation plan. As discussed in “Farm Leases, Sustainability, and the Law,” conservation plans are sometimes required for participation in certain farm programs, but NRCS staff are available to assist any landowner wishing to develop a plan. These plans can be used to address a number of conservation concerns, including soil erosion, nutrient depletion, pollution from runoff, and water use and control. There is no set plan that works for every piece of land, but rather a conservation plan should be based on the circumstances of the land and the farm operation. It can best be utilized when developed in consultation with NRCS staff and the input of both landowner and tenant.
Similar tools that are worth consideration are Nutrient Management Plans and Pest Management Plans. It is important for any farm operation to address nutrient management in order to prevent pollution from runoff, as well as conserve farm resources. However, this is particularly important, and may be required, for operations involving livestock. NRCS will provide assistance in developing plans that can be incorporated into a lease.
Land Use Provisions
As discussed in “Chapter Four, Farm Leases, Sustainability, and the Law,” tenants are granted the right to use the land for agricultural purposes, and perhaps other purposes, as they see fit, unless the landowner places reservations on that right. You may want to consider doing this in relation to how certain pieces of land can be used, particularly if you don’t have a conservation plan addressing land use. Land use provisions can include, but are not limited to, specifying the fields that are available for cultivation, the crops that can be planted on cultivated fields, the maximum number of acres planted to a specific crop, or the crop rotations the tenant is expected to follow.
For example, a table such as this could be included in a long-term lease to establish specific crop rotations. The use of such a provision is not common, and it could also be addressed in a conservation plan. The completion of such a provision needs to be done in close cooperation with the tenant.
Field _______ _______ _______ _______ _______
Year 1 _______ _______ _______ _______ _______
Year 2 _______ _______ _______ _______ _______
Year 3 _______ _______ _______ _______ _______
Year 4 _______ _______ _______ _______ _______
Year 5 _______ _______ _______ _______ _______
Year 6 _______ _______ _______ _______ _______
Establishing Thresholds and Monitoring
Rather than mandate specific practices, conservation provisions can simply require certain thresholds be maintained or conservation objectives achieved. Such thresholds could include the testing and maintenance of crop nutrient levels or limiting soil loss to a designated amount. These provisions need to set forth not only the acceptable levels, but also the methods used for monitoring and remedial measures if the thresholds are not maintained or achieved.
This helps ensure the landowner’s concerns are addressed while providing flexibility to the tenant. It is, however, important that a lease ensure the methods used to meet the objectives do not harm the sustainability of the operation in other aspects. For example, requiring the testing and maintenance of nutrient levels in the soil might be supplemented by provisions limiting the manner in which nutrients are applied to achieve the desired levels.
Examples of Specific Conservation Provisions
The inclusion of provisions relating to specific practices can also be useful, particularly where a landowner has special concerns. Some of the issues might also be addressed in a conservation plan, discussed above, or in land use provisions that establish specific crop rotations or limit the amount of acreage for row crop production.
Information on the benefits of specific practices, how to implement them, and possible sources of financial and technical assistance can be found by contacting your NRCS Service Center or University Extension Office. There are online sources available through the Leopold Center for Sustainable Agriculture, and Iowa NRCS has sources on a variety of conservation practices.
Other lists of conservation provisions can be found at Iowa State University Extension’s Lease Supplement for Use in Obtaining Conservation Practices and Controlling Soil Loss and the Conservation Connect Leasing Checklist.
The provisions below are examples of those typically found in agricultural form leases. As can be seen these provisions often provide general guidelines and rely heavily on compliance with conservation laws and environmental regulations. These do play an important role in protecting the land from degradation, as well as the landowner from liability. However, as stated in the previous chapter, a reliance on incorporating conservation laws and regulations may not go far enough in ensuring the sustainability of the property.
Typical Conservation Provisions:
- To keep the lease premises neat and orderly.
- To prevent noxious weeds from going to seed on said premises and to destroy the same and keep the weeds and grass cut.
- To prevent all unnecessary waste, loss, and/or damage to the property of the landlord.
- To keep the buildings, fences, and other improvements in good repair and condition as they are when the Tenant takes possession or in as good repair and condition as they may be put by the Landlord during the term of the lease – ordinary wear, loss by fire, or unavoidable destruction excepted.
- To comply with pollution control and environmental protection requirements as required by local, state, and federal agencies.
- To implement water conservation and soil erosion control practices to comply with the soil loss standards mandated by local, state, and federal agencies.
- To generally follow Natural Resource Conservation Service and Farm Service Agency recommendations and to maintain all other requirements necessary to qualify current and future farm operators to participate in federal farm programs.
- To haul and spread manure on appropriate fields at times and in quantities consistent with environmental protection requirements.
- To take proper care of all trees, vines, and shrubs, and to prevent injury to the same.
- Not to plow permanent pasture or meadowland.
- Not to remove cornstalks, straw, or other crop residues grown upon the farm.
In addition, some provisions, such as those regarding a neat and orderly appearance and controlling weeds, may result in unnecessary herbicide application, destruction of wildlife habitat, or other non-sustainable practices in order to present a facade of a well-functioning farm.
The last provision listed above deserves special mention due to the potential increase in the value of crop residue. As mentioned in the previous chapter, Iowa has adopted a statute giving tenant’s control of any crop residue left after harvest, unless the parties have a written agreement showing a different intent.
The provisions that follow provide additional, and perhaps alternative, options. While they do sometimes rely on government standards and regulations, they also provide more specifics regarding certain practices. It is important to reiterate that the use of these provisions does not necessarily ensure sustainability, there are additional conservation concerns that can be addressed, and some of the provisions will not apply to all farm operations. Rather, the use of specific conservation provisions depend on the landowner’s values and concerns, as well as the abilities and constraints of the tenant.
Sample Conservation Provisions:
Conservation in General:
- The Tenant will keep the lease premises neat and orderly. The Landlord and Tenant recognize the possibility of weeds as the result of certain practices that promote the conservation and long-term productivity of the lease premises and will take this into account regarding the appearance of the farm.
- The Tenant will will leave a vegetative buffer _______ feet from any watercourse, stream, or river.
- Waterways removed by plowing, use of chemicals or other means shall be replaced at the tenant’s expense.
- Tenant agrees to implement a haying/ grazing plan approved by NRCS or landowner.
- Tenant shall clip waterways as necessary for maintenance of soil conservation practices.
- The Tenant will employ contour farming.
- The Tenant will employ strip cropping.
- No-till shall be used on designated fields.
- A cover crop shall be seeded on corn ground harvested for silage.
- Corn and soybean fields shall have sufficient ground cover at planting time to control erosion within soil loss limits set under the conservation plan.
- Erosion shall be controlled in farm pond watersheds.
- The Tenant will not burn or remove any crop residue, including but not limited to cornstalks, corncobs, leaves, straw, stubble, and stover, without the written consent of the Landlord.
- If any fieldwork is done in the fall, at least two-thirds of the soil will be left covered with crop residue.
- The Tenant will haul and spread all manure on appropriate fields at times and in quantities consistent with environmental protection requirements. At no time shall manure be spread on frozen ground or between the dates of ________________ and ________________.
- A cover crop shall be seeded on corn ground harvested for silage.
- No fall tillage should occur on soybean ground.
- Crop rotation shall be followed as selected by the landlord on designated field(s).
- Tenant agrees to test soil for residual nitrogen and phosphorus.
- Tenant will figure credits for manure and previous legume crops before applying additional nutrients.
- The Tenant will use mechanical and non-chemical means of control as the primary methods of controlling weeds on crop ground.
- Tenant agrees to minimize use of herbicides by employing integrated weed strategies as the primary means of weed control.
- Tenant agrees to minimize use of insecticides by employing pest management strategies as primary means of pest control.
- The Tenant will mow road ditches and field edges in accordance with local, state, and federal law and will not mow ditches, field edges, grass waterways, set-aside acres, and other areas of vegetation until after the nesting period for game birds and songbirds has passed.
- The Tenant shall not establish or maintain any commercial feedlot, which is defined for the purposes of this Lease as a confined area or facility within which the land is not grazed or cropped at least annually, and which is used primarily to receive and hold livestock that has been raised off the Premises.
- The Tenant shall not allow livestock access to surface water, including rivers, streams, lakes, and ponds, other than those constructed for the purpose of livestock watering.
- Tenant agrees to implement a haying/ grazing plan approved by NRCS or landowner.
Climate Change Mitigation & Adaptation
Learn more about how specific conservation provisions can aid in adapting to climate change and help mitigate further climate change on our Climate Change and Land Tenure page.
Increased communication has been shown to increase a tenant’s confidence in their landlord’s commitment to the continuation of the lease arrangement. Communications with your tenant can be done informally or can be required through formal reports and monitoring in the lease agreement. Using both ways will probably be beneficial.
Informal communications can occur through letters at holidays or other special occasions. These are by no means necessary, but it can help establish a confident, long-term relationship.
Communication can be required in the lease agreement. Such communications can be annual or semi-annual reports on farm operations. For instance, a provision might require your tenant to send you a report explaining the year’s crop plan, detailing how many and which acres will be planted to different crops. Provisions can also require monitoring of soil nutrients or soil loss with subsequent reports.
If you are unable to personally review and provide feedback to your tenant you might consider establishing an agent that will communicate with the tenant for you. This can provide a set of local eyes and ears if you’re not able to monitor the farm operations yourself.