A lease term exceeding ten years will certainly provide a fair amount of tenure security. Many of the considerations addressed here are the same as those discussed for a lease term of three to ten years. However, there are some additional considerations for farm leases over ten years worth mentioning.
Addressing the Unknown
Entering a long-term lease forces both parties to think about their plans many years down the road. While not all of the possibilities can be foreseen there are steps you can take to address potential scenarios. The list below highlights some issues that should be considered in a long-term lease. These considerations are addressed further throughout the “Landowner’s Guide.” Click on a topic of interest to skip ahead.
- Can the terms, especially the rent, be adjusted?
- What if I sell the property?
- What happens if the tenant breaches the lease?
- Who can enter agreements with third parties regarding the property, such as easements, recreational leases andecosystem services contracts?
Long-term Land Use Planning
A long-term lease also allows you to include conservation provisions that address land uses several years down the road. While you always have this option, your tenant is likely to be much more willing to enter a lease with such provisions in a long-term arrangement. Long-term planning can include establishing crop rotations, incorporating livestock into the farm operation, and entering sustainable nutrient management plans.
Opportunity for Retiring Farmers with CRP Land
The Transition Incentives Program (TIP) allows retiring farmers with CRP land to gain two years of additional CRP payments if the land is leased for a period of five years or more to a beginning or socially disadvantaged farmer for the purpose of sustainable agricultural production. Click on the TIP link above for more information on program benefits and eligibility.
As discussed in the first chapter of “The Landowner’s Guide,” farm leases for a period longer than a year typically have to be in writing. This will depend on state law. Most states, including Iowa, have this requirement. There are exceptions, however. Indiana, for instance, only requires leases for a period greater than three years be in writing.
First, you should look at state laws regarding any limitations on the duration of a farm lease. For instance, the Iowa Constitution prohibits agricultural leases for greater than twenty years.
You should also pay attention to the state recording statutes. While it is a good idea to record your lease regardless of the duration, some states only require the recording of leases for a set period of years. Iowa recording statutes require farm leases, or at least a memorandum thereof, of five years or more to be recorded. Failure to record can result in the loss of lease rights to subsequent purchasers, and in some cases the landowner and tenant can be fined.
Ground Leases (Primarily used by Municipalities and Land Trusts)
If you are looking to enter an extended lease term it is worth mentioning the possibility of a ground lease. 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. 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 check state laws before proceeding.