Flexible Lease Agreements Offer Alternatives

  • Flexible cash rental lease is potentially fairer to both the landlord and the farm operator
  • Best way to establish base rental rate is to have a rental rate per acre that is agreeable to both landlord and farm operator
  • Flexible lease agreements, as well as all land rental contracts, should be finalized with a written agreement

With the occurrence of much higher crop input costs in recent years, some flexible cash leases have been modified, and are now based on gross revenue triggers that exceed the cost of production, rather than on crop yield and price triggers. In this type of lease the landlord only receives additional cash rental payments beyond the base rent when the final gross revenue per acre (yield x price) exceeds the established cost of production for the year.

Typically, the added flex rent payment to the landlord would be a set percentage of the added gross revenue per acre above the established cost of production per acre, which is typically about 30% for corn and about 40% for soybeans, with a maximum rental rate per acre. Just as with crop yields and prices, determining the established cost of production for a crop for the year can be a challenge. Some possibilities would be to use cash-flow statements for the year prepared by a farm-management advisor, ag lender or the producer themselves. Again many universities and farm-management associations have average cost of production data available. There also probably needs to be allowances in a flexible lease to allow for added costs or expenses due to weather or emergencies.

There are many other variations to setting up a flexible lease agreement between a landlord and farm operator. The big key, regardless of the flexible lease agreement, is that both the landlord and tenant fully understand the rental agreement and the calculations used to determine the final rental rate. It is also very important that flexible lease agreements, as well as all land rental contracts, be finalized with a written agreement. These written agreements should be notarized, with both parties receiving a copy of the agreement.

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