April 4, 2019
Flooding and Cropland Lease Questions
Now that the flood waters have receded and the things that needed to be addressed immediately have been taken care of, folks are moving on to what I’d call the secondary concerns. Understandably, one of those deals with farm leases. The following information regarding leases was taken from an article by Allan Vyhnalek, Agricultural Economics Extension Educator with Nebraska Extension.
A common question is, “Should leases be adjusted for flood damaged ground?” The short answer is, “It depends.” Each situation is different. This article will help land owners and tenants sort through the factors to reach a rental rate that is fair for both parties.
One of the first questions is, “How bad is the damage and who is going to fix it?” Flood damage can be categorized into two distinct types… one is the ‘hard’ work and the other is the ‘heavy’ work. The ‘hard’ work probably will not be avoided. This usually includes hand labor and light work with equipment to remove branches, corn stalks, debris and sediment deposited in the field or minor erosion in a field.
The ‘heavy’ work may or may not need to be done at all, each field will be different. This work includes heavy equipment like bulldozers, scrapers or graders to take care of major erosion or sedimentation problems. It might include moving topsoil, removing sandbars, and fixing holes, gullies, and scouring caused by the flooding.
In both cases, the party primarily responsible for completing this work is the landlord. The landlord bears the responsibility to provide the tenant with the land ready to farm. Desiring a positive long-term landlord/tenant relationship and knowing the work needs to be done in a timely fashion, most tenants will probably provide most if not all, of the ‘hard’ work described above. When that happens, is it appropriate for the landlord to acknowledge and compensate the tenant for that effort? Most would say yes.
“When should rental rates be adjusted?” If the arrangement is a conventional crop share lease, the rental rate may not need to be adjusted. Since crop share lease arrangements share production risk between the landlord and tenant, if the production varies, the amount received by each party varies based on production. An adjustment in the share received or a payment from the landlord outside the lease might be appropriate if the tenant provided some or all of the hard or heavy work to make the land farmable.
Crop insurance policies contain preventative plant provisions which could lead to an insurance payment, even though nothing was planted. This will only apply to those with an insurance policy and payment size, if any, depends on the rules contained in the preventative plant provisions. We encourage those with crop insurance policies to contact their agent about preventative planting rules.
For cash rents leases, is it appropriate for the landlord to receive a full cash rent payment in 2019 if the land was damaged by flooding? Due to the language in the lease contract, full payment will likely be expected. However, is that equitable to both parties? Good landlord and tenant communications will be key to arrive at an equitable payment for 2019.
Begin that conversation now instead of waiting until next fall. Waiting will likely result in a hardship to at least one of the parties. The language contained in the lease needs to be examined. If the lease does not specifically address weather-related events prior to planting, the amount paid might vary.
Under contractual law, if an event renders the property unusable for the entire growing season, the tenant may have a case for vacating the premise and not making any lease payments for 2019. However, seeking release from a property under these terms may have a devastating effect on the relationship between the tenant and the landlord in the future.
One suggestion for adjusting cash rents in 2019 is to look at some way to adjust cash rent based on actual productivity. Another possibility is to use some measure of total revenue on a per acre basis. Setting up some type of flexible cash rent that takes into account the date of planting, damage to topsoil, sand deposits, and other aspects that might affect yields.
One factor that will enter in this discussion is “Do you have crop insurance?” With cash rental leases, the tenant is the holder of the crop insurance policy. If the ground is not farmable and the tenant is not making a cash rent payment in 2019, the tenant may consider personally assisting the landlord with the ‘hard’ and/or ‘heavy’ work.
The tenant may also consider contributing a portion of the preventative planting payments to help pay for repairing the flood damaged farmland and/or to cover the landlord’s taxes on the land. For crop share leases, both the landlord and tenant could both have crop insurance, which will likely include a prevented planting coverage.
For either type of rental arrangement, have good communications with your insurance agent. In addition, good communications between the landlord and tenant on issues like this will go a long way towards an amicable resolution to the extreme conditions in 2019. Also be sure to visit with the Farm Service Agency to understand any implications on changes to a crop lease agreement.
There will be situations where the cost of doing both the ‘hard’ and the ‘heavy’ work can be documented and submitted to Farm Service Agency for Emergency Conservation Program payments. The key point is to document your work, including pictures (before and after), tracking equipment used, supplies, and labor.
If you modify your 2019 rental agreement, get it in writing. Stress may be high, you will want to make sure both parties are fully aware of what they are agreeing to. In summary, 2019 may be the year that both parties need to share the pain of the March flooding. Good communications between landlord and tenant is the best practice so both parties are satisfied with the results of the lease now and in the future.
If you would like to visit about this issue, the team of Agricultural Economics Extension Educators working in in this part of the state that can help include: