How to Rent Land for Farming
As a farmer looking for land to rent, you may have to do some research to find a landowner willing to lease out their land for farming. Land managers and farm owners can be skeptical of farmers they don’t know for many reasons. But if you look in the right places, and find the right lease that works for both landlord and tenant, you may find the acreage you need and make a healthy profit doing so.
We’ll explore what it takes to get a tract of land rented and look at all the other variables you need to consider when renting farmland real estate, like lease types and liability coverage. Take a look at these important tips on how to get the acreage you need for a productive season.
How to Find a Landowner to Rent You Land
Whether you’re a new farmer or an experienced ag veteran seeking to expand your operation, you’ll need to work with current landowners and prove you’ve got what it takes — to be a good custodian of their land — and that you’re able to turn a profit too. There are a lot of different ways to go about renting and leasing. Here are a few ways to locate farm land owners who are willing to lease you land:
Check in with Farm Link online. The Farmland Information Center is a federal program acting as a “clearinghouse for information about farmland protection and stewardship.” They’re a great non-profit resource for beginning farmers.
Seek out farm incubators. Incubator programs may allow new farmers a short-term lease opportunity and offer training and farm business management classes. Graduates of these programs receive placement assistance.
Search for lease-to-own opportunities. When retiring farmers won’t be handing down their farm to the next generation, they may be willing to enter into a lease-to-own agreement. You’ll craft a lease that spans several years with an option to buy at the end of that period.
Understand Your Land-leasing Options
Farmers and ranchers seeking land have many leasing options for renting tillable acreage or pasture for livestock. Depending on the type of lease agreement you settle on, you may either rent outright or pay the landowner a share of the profits made from the venture. Here’s a look at some of the more common land lease agreements:
Fixed-cash lease. This is a set payment agreement that’s made up-front and does not allow for adjustment based on yield, market prices or crop production. This option puts all the risk onto the shoulders of the renter, as the landowner isn’t dependent on productivity for payment. Tenants can really benefit when the weather and other factors cooperate all season long.
Yield index lease. This flexible lease type determines the amount of rent to be paid each year based on the actual yield. Here, both renter and landowner share a burden of risk.
Price index lease. Rent costs for this lease are determined by the difference in year-to-year commodity pricing. When costs are consistent from one year to the next, that stability can reduce risk to the landowner and they may be more likely to agree to this lease type.
Percent of gross income lease. Basing rent off of a percent of the gross crop income for a given year, this option offers a more consistent payout over the years for the tenant. That’s because the rent adjusts up or down with both yields and pricing. Landowners may find rent prices fluctuating when annual rates vary significantly.
Base plus bonus lease. Another flexible rental price lease, this option allows the landowner to specify a base price for a crop and adds an additional percent due when the yield produces above the stated base.
50-50 share lease. The most common type of ag lease, the 50-50 crop share lease agreement splits the risk evenly between landlord and tenant. Income produced from crop production and the related expenses are divided equally between the two parties.
Purchase contract. This is a great ‘try before you buy’ option for farmers who don’t have the finances to purchase the property outright. It’s essentially an extended lease-to-own purchase agreement, with all the caveats and restrictions found in a conventional purchase. They can be either long or short term in nature. Some commercial lenders will extend credit to long-term lease holders, particularly when the lease allows the tenant to build on the property.
The Importance of Insurance When Leasing Land
Because most lease agreements place risk and financial gain on both landlord and tenant farmer, both parties should insure carefully. A good commercial general liability insurance policy can go a long way in the event of a bodily injury covered loss or other accident. And if you and the landlord both work with the same insurance company you’ll have a better chance at finding complete coverage. Here are other reasons why insurance when leasing is so key:
Tenant personal property coverage. Similar to a typical renters insurance policy, tenant farmers will need a policy to cover their tools, equipment and personal effects stored or used on the leased property.
Crop insurance coverage. Dependent on the lease agreed to between the two parties, crop insurance can help protect against losses when crops cannot be brought to harvest because of a covered event. In cases when profits are split between parties, both entities should carry crop insurance to cover their portion of risk.
Peak season insurance protects your inventory. This key coverage can help you manage the spike in value of your operation prior to planting and right after harvesting.
Protection for the landlord’s structures. Outbuildings located on the leased land should be covered in the event that their physical property is damaged.
Finding land to rent out can be a challenge for new and experienced farmers, but when you do locate tillable acreage, remember to reach out to your American Family Insurance agent. They’re experts at crafting an insurance policy that meets the demands of your leased land operation and will help you to cover everything to minimize losses and maximize profits.