Landowners often have varying degrees of participation in the operation’s of leased farmland. Typically, landlords in crop-share arrangements participate much more than landlords that use cash rent leases. Landowner participation can have significant impacts on the sustainability of an operation, due to the intrinsic interest the landowner has in the long-term productivity of the land.
A sharing of management can also be beneficial for some farmers that may be interested in adopting more sustainable practices but lack sufficient knowledge in this area, or a beginning farmer that might need further assistance. The parties to such a lease arrangement should review the legal interpretations regarding landlord-tenant relationships and those of partners.
Particular attention should also be paid to tax issues and farm program payments based on the participation of landowners. In general, landlords of cash rent arrangements are not considered actively participating in the business of farming as they do not take part in the risk of the operation. However, tax, social security, estate planning, and farm program issues for landlord’s in crop-share and livestock-share agreements will likely turn on whether their activities constitute material participation. To help clarify the matter, provisions specifically stating the intentions of the parties regarding material participation can be included in the lease agreement.
Depending on the degree to which you wish to participate in land use decisions, you may consider custom-farming instead of a lease arrangement. It is important to note, however, that in a custom farming scenario you will also be adopting all of the risk of the farm operation.