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Is your land lease legal?

Peggy Kirk Hall for Progressive Forage Published on 30 August 2016

A written contract can be a valuable tool for farmers, but many farm leases never end up in writing. Basing a farm lease arrangement on just a conversation and a handshake can be risky. Consider, for example, a verbal grazing lease that ended up in court because an extended drought substantially reduced the amount of forage and the parties couldn’t agree on how to handle the problem.

With a written lease, the parties could have avoided litigation by including terms that explain rights and obligations in a drought situation. Without a written lease, uncertainty and the potential for disagreement are far too likely.

Many state laws require written farm leases

Each state has a “statute of frauds” law that requires certain types of contracts to be in writing. Contracts pertaining to real estate or that can’t be completed in one year are often included in these laws. A verbal agreement that doesn’t comply with the state’s statute of frauds law may not be enforceable in a court of law.

For example, a farm operator who had verbally leased land for a five-year term couldn’t legally enforce the agreement against the heirs when the landowner died in the first year because state law required that the lease be in writing. Operating under a verbal lease poses a risk that the agreement won’t be legally enforceable. Check your state’s statute of frauds law to know whether your farm lease must be in writing to be enforceable.

Overcoming obstacles to written farm leases

Recent data indicates that only about one-third of farm leases are in writing. Farm operators and landowners share consistent concerns about written leases, but there are strategies for resolving these worries. Consider the following concerns and recommendations for addressing them:

  • “But we’ve always operated on a verbal agreement and a handshake.” Changing from a long-time verbal agreement to a written lease can be uncomfortable if one party opposes the change and is content with the status quo. An opposing party might also view moving to a written lease as impersonal or a sign of distrust.

    To address these problems, the party who wants to transition to a written lease can use professional advisers to “intervene” and facilitate the process. A farm manager, attorney or accountant can propose the use of a written lease, explain the benefits to both parties and offer a first draft of lease provisions. Delegating the transition to professional advisers can help avoid an awkward and uncomfortable personal situation.

  • “We don’t want everyone to know the terms of our lease.” Landowners and tenant operators often express concern about recording their written lease, a step that makes the lease enforceable against subsequent parties, such as future owners of the property. Some states require that a written lease be recorded in order to be enforceable.

    The fear is that recording will reveal confidential information about the arrangement, such as the rental amount. But the parties may file a “memorandum of lease,” which is a shortened form of the lease containing only information such as names and addresses of the parties, a description of the property, the date and duration of the agreement and rights of renewal or extension.

    Critical, confidential terms of the arrangement need not be revealed in a memorandum of lease. Some states have statutory requirements for terms that must be included in memorandum of lease, so be sure to check with state law before using this important tool.

  • “A written lease is overwhelming or has too much detail.” It’s true that farmland leases can be lengthy because attorneys draft comprehensive leases to pre-determine and avoid future problems. Learning about lease terms is one way to address this concern.

    There are many resources that explain lease provisions and provide “models” for reference. If a detailed lease stills seems overwhelming, consider making a gradual transition. Start with a simple lease containing the most important terms and include additional terms each year.

  • “I don’t want to pay for a written lease.” A well-written, tailored farm lease requires the assistance of an attorney. But an experienced agricultural attorney knowledgeable about farm leases can prepare a lease efficiently, especially for parties who’ve already educated themselves about lease provisions and discussed the terms of their agreement. And the cost of lease preparation is minimal in comparison to the cost of litigation that might result from the lack of a written lease.

If using a verbal lease, protect your interests

When the parties to a farm lease agreement can’t or won’t use a written lease, consider adopting practices that can minimize the risk of disagreements and litigation.

  • Define the lease term. One problem with a verbal lease is that it can be unclear when the lease agreement begins and ends and whether it has renewed into another term. In the event of a dispute, courts often look to indicators that the lease is in place. Possession of the property by the tenant and a lease payment accepted by the landowner are two common indicators.

    Understanding and taking note of these important events can provide clarity about whether the parties have begun or renewed the lease period. Maintain records of payment history and activities that indicate the transfer of possession, such as beginning fieldwork, spraying, repairing fences and moving animals onto the property.

  • Maintain records of the lease relationship. Good records that document the leasing history can help establish a “course of dealing” between the parties and show how the parties managed the lease or handled issues in the past. If there is litigation over the lease, a court might rely on proof of the parties’ previous courses of dealing to help resolve an issue.

    Good records can also be a useful point of reference for ensuring consistency in the relationship. Both parties should maintain thorough records of all payments, repairs, soil sampling, nutrient applications, seeding, improvements and other details about the leasing arrangement.

  • Maintain consistent communication. Don’t underestimate the value of good communication between the leasing parties. A landowner can provide a tenant with needed certainty by keeping the tenant informed of potential changes in land ownership or financial management.

    A tenant can keep a landowner apprised of the condition of the farm property by providing reports on a regular basis, especially in the case of an absentee landowner or a share lease. A report that includes pictures and a brief summary of improvements made, management practices adopted or share calculations will go a long way toward ensuring a solid leasing relationship.

A written farm lease is a valuable tool that brings certainty and legal enforceability to a farm leasing arrangement. Landowners and tenant operators should strive to overcome the obstacles preventing them from using a written lease. If it’s not possible to have a written lease, the parties can adopt several practices to help protect their interests in a verbal farm lease situation.  end mark

Peggy Kirk Hall
  • Peggy Kirk Hall

  • Assistant Professor of Agricultural and Resource Law
  • Ohio State University Extension
  • Email Peggy Kirk Hall