10 Essential Elements Every Lease Agreement Should Include

The relationship between a landowner and a renter, like any relationship, needs clear communication. A well-crafted lease can help with that. 

There are several critical components to a comprehensive farmland lease. Whether this is all new, or you’re an old pro; you are seeking professional help; or taking the DIY approach, make sure your lease includes these basic elements. 

1. Write It Down

First of all, and this perhaps goes without saying, but, write it down. While less common today, handshake or oral lease agreements are still at play in American agriculture, but experts advise against them. 

“I hear about people using them because those are the individuals who call me with problems,” said Heather Gessner, livestock business management field specialist with South Dakota State University Extension.

Patrick Hatting, farm management specialist with Iowa State University Extension, said some people work together “like peas and carrots,” but it’s still a good idea to have the details worked out in writing.

“Why do you have a written lease?” he said. “It’s because you value your relationship. You want to create an environment where there are no misunderstandings.”

2. Use Legal Names

Now that you’ve agreed to write a lease, where do you start? 

Start with the proper legal names of the lessor (owner) and the lessee (farmer/tenant). Frequently, one or more of those will be an LLC or a corporation, so list the actual legal entities, rather than the individuals who own the entities, as parties to the lease. 

You might think, “Does it matter if there are a few technical errors in the lease?” But when there is a legal problem, those little technical errors are what lawyers go after. 

A description of what exactly is being rented is normally the next component listed. Sometimes you will see “a field on County Road N” because there is no address. It’s a good idea to describe the field well enough that there is no doubt about what is being leased. 

For example: 80 acres at the northwest corner of County Rd N and Highway 36, Parcel ID #1-02-003-0004, USDA Farm #1234. You can always run with the legal description, but that can be a page long and difficult to interpret.

3. Dates

The start and end dates of the lease term should be listed, including whether the lease renews automatically. If it renews annually, one party is normally required to give the other party at least 30 or 60 days’ notice if he/she wishes not to renew. There may be laws in your state as to when nonrenewal notices must be given to a tenant, so don’t run afoul of state laws with your lease language.

4. Rent

The rent is obviously an important piece of the lease. Is it cash rent per acre, cash with a bonus, a portion of the grain, or some other formula? Regardless of what it is, make sure the compensation is clearly defined.

Also include when rent payments are due. The cash rent could be due before the crops go in, after they come out, half before and half after, or any other dates that are mutually agreeable. Crop shares will be delivered whenever Mother Nature allows harvest to happen. You might want to mention that in some years, there may be no harvest at all. It could also be useful to specify in the lease where the grain is to be delivered. Specify who gets government payments and in what percentages. Finally, include what happens with future CRP payments if the landlord decides to take the field out of production.

5. Operator Duties 

The operator duties section protects the landlord. It states the obvious: The farmer will plant and harvest crops in a timely manner. The farmer will not allow public use of the land, build unauthorized structures, or dump hazardous waste on the farm. The farmer will comply with federal and state laws on the application of fertilizers and pesticides. Some leases say that the fertilizer levels will be at least the same at the end of the lease term as they were at the beginning.

6. Landlord Duties 

On the flip side of operator duties, the lease should state some landlord duties. This could include requiring the owner to disclose the existence of any wells, underground tanks, or waste disposal sites on the property. Landlord responsibilities may include helping fund drainage improvements or terracing maintenance. They may also include a duty to facilitate sign-ups for government programs or to not interfere with crop production. 

7. Fertilizer Payments

The lease should spell out who will pay for fertilizer and in what percentages. That may be different parties, depending on the fertilizer. Generally, the farmer is responsible for annual nitrogen, while occasional lime may go to the landlord. Crop-share rent often includes sharing the cost of fertilizer. So, come together on a methodology for fertilizer funding before writing up the lease.

8. Insurance 

Always address insurance in a lease. We live in a litigious country, where injured people (or their families) frequently look for someone else to pay for their damages. This could be a third party riding a four-wheeler across the farm and hitting an old strand of fence wire. The farmer could turn the tractor over on a poorly maintained terrace, or the landlord could flip an ATV when driving across a newly deepened drainage ditch. The lease should spell out a requirement for the farmer and the landlord to maintain comprehensive liability insurance. 

9. The Hold-Harmless and Indemnity Clauses 

Another way to mitigate risk is called a hold-harmless clause. It will state something along these lines: Provided both parties are in compliance with the lease agreement, the landlord and the operator release the other party from any claims for recovery for losses, damages to personal property, or injuries or deaths occurring on the farm.

Another clause normally paired with a hold-harmless clause is called an indemnity agreement. Basically, each party agrees to compensate the other party for any losses to the extent those losses are directly caused by the first party’s breach of the contract. 

For example: If the landlord puts on a fireworks show in the middle of the wheat field and it burns down, the landlord will have to pay for the damage.

10. The End of the Lease

Spell out what happens at the eventual end of the lease. After proper notice is given, the landlord reserves the right to reenter the property, show it to new tenants, or begin tillage or fertilizer application. The operator will typically reserve the right to harvest the final crop, even if that harvest must occur after the official end of the lease term.

Lastly, the lease may talk about transfers of interest. Normally, the tenant agrees not to sublease the farm to another farmer without permission of the landlord. If the landlord sells the property, the new owner will be subject to the existing lease. Also, heirs of either party will be subject to the lease.