August 19, 2016
Farmland Leases in Nebraska
Over half of the cropland in Nebraska is leased to someone else who farms the ground rather than being farmed by the owner. This has generated many more questions regarding leases and unfortunately, more misunderstandings between landlords and tenants. Agricultural leases can be broken into three main categories.
• Cash Leases: where the landowner receives an cash payment amount which the landlord and tenant agreed on for leasing the agricultural land to the tenant. These are the simplest form of cropland lease and the most common leasing arrangement in Nebraska.
• Crop Share Leases: where the landowner receives a percentage of actual crop produced as payment for leasing the agricultural land to tenant. Landowner share input and production costs of raising the crop. The percent of the grain harvest received by each party should be comparable to the percent of the input and production costs each party contributes. If it is out of balance, adjustments need to be made in the way costs are shared or the percent of the harvest received by the landlord and tenant.
• Cash Lease with Flexible Provisions: where the landowner and tenant set a base cash rental rate, but the rental rate can flex up or down. Adjustments are most commonly made based on actual crop yields, prices, or a combination of the two. Final cash payment made to the landlord for leasing the agricultural land to the tenant may have premiums or discounts made to the base rate depending upon the agreements set up by the two parties. While more complicated, these leases allow the landlord to receive a higher rental rate when yields and/or prices are high, while receiving a lower rental rate when yields and/or prices are lower and the tenant is less able to afford to pay the full rental amount. Caps are often established to limit how much the base lease rate can flex up or down.
According to a recent survey, in northeast Nebraska, about two-thirds (68%) of all leases were cash leases, about one-fifth (19%) of all leases were crop share leases, and the remainder or 14% of leases were cash leases with flexible provisions.
Although the smallest percentage of all cropland leases were flexible cash leases, this type of lease is gaining in popularity because both the tenant and landlord share in the risks as in a crop share lease, but the landlord receives a cash payment and does not have to make marketing decisions for his or her share of the crop as in a crop share lease.
Regardless of the type of lease, it is important that leases be written. At a minimum, a written lease should include the following:
• It should be properly signed by both parties.
• It should specify a definite period for which the lease is to run.
• It should contain an accurate description of the property.
• It should state the kind and amount of rent and time and place of payment.
A written lease can also prevent misunderstandings or disputes about who can use the crop residues and how they can be used (grazed or baled), who can grant hunting privileges, and other issues that might come up regarding use of the land.
Another problem with verbal or “handshake” leases is any change to the lease or termination of the lease must be made six months prior to the end of the lease. In Nebraska, verbal leases are assumed to run from March 1 to the last day of February. In written leases, the lease expires on the last day of the lease or as specified in the lease.
So September 1 is an important date for anyone with a verbal or handshake lease. Any changes to the rental rate or termination or the lease by either the landlord or the tenant must be made by this date. If changes are not made by then, the tenant is not obligated to accept a higher rental rate or can negotiate a lower rental rate for 2017, unless it is agreed to by both parties, nor can they be removed from farming the rented land in 2017.
For more information on crop land leases, contact your local Nebraska Extension office.