There are many components to consider when deciding to rent your farmland to another party. As a tenant looking to rent farmland, there is much to consider as well. There are tax considerations, which vary depending on the type of rental agreement utilized. Concerns for both parties exist regarding the risk involved in leasing the land. Environmental concerns and farm benefit programs are a few other items to evaluate. The list of considerations could go on and on, but one resounding factor that applies to all lease agreements is the relationship between the landlord and tenant. Finding the common ground between both the landlord and tenant happens when both parties feel their needs are met and are realistic and comfortable with one another.
The relationships between tenants and landlords are often long standing. This doesn’t usually happen by chance. Like any relationship, a solid base starts with good communication. When the tenant is clear with their intentions with the land and the landlord is actively communicating expectations, the relationship continues to be nurtured. Along with communication, respect for one another will go a long way. A landlord wants a tenant who respects them and their valuable asset that is being used. A tenant wants to be respected and trusted to care for the landlord’s asset like it was their own. Both parties should understand each other’s view regarding long-term care and improvements for the land to ensure that both do what they can to accomplish the common goals for the land.
Another consideration not yet mentioned that is very important to both parties is return on investment. There is no doubt that the landlord needs return on their investment in the land. On the flip side, to ensure the landlord continues to receive payment, the tenant also needs to earn a return on their investment in their farming operation. The tenant may receive a premium on their return due to the risk presented on their side of the business. For that reason, it is also important for the landlord to be comfortable with the tenant’s management style. The tenant needs to protect the land from erosion - both wind and water, nurture the soil and continue rotating crops grown to keep the asset in the best shape possible given the conditions. All these environmental facets fall on top of managing the actual crop itself. If the landlord believes that the tenant is doing what they can to protect the asset, the relationship continues to strengthen.
One aspect that is often overlooked is building the tenant-landlord relationship with the next generation when a transition of the farm is in the future. The senior generation may have a great relationship with the landlord, but if the junior generation has never met or communicated with the landlord, circumstances could change if something happens to the senior farmer. The relationship that was holding the working partnership together might no longer exist and the tenant may be in jeopardy of the landlord finding a new renter. Loss of farmland can significantly affect the farmer’s business, which is why it is crucial for the junior farmer to build his or her own relationship with the landlords. Building and maintaining a good relationship early will hopefully increase the landlord’s comfort level with the junior farmer and build confidence with their experience managing the farm.
Hearsay can be the killer of strong relationships, which brings us full circle back to the importance of communication. As far as communication between tenants and landlords, it’s safe to say there is rarely too much. That relationship is as important as the plants in the field, nurture it and watch it grow.