LEASING
Negotiating a Fair Rental Contract
A Q&A with David Bau and Nathan Hulinsky
How do you define “fair” when it comes to rental contracts? DB: Fair means both farmer and landlord share the risks and rewards. A flexible contract gives the best option for both parties with the farmer having crop insurance and the landlord having a base or minimum rent. NH: The marketplace helps determine what is fair in the given year and the given area. As a farmer or rancher, knowing your cost of production is key. Ask yourself, what can I afford to spend on rent? Each farmer is different. Knowing your local numbers is important. Keep in mind the trends in your county or surrounding counties.
What does a fair rental contract look like? DB: A fair contract shares the risks and rewards between the farmer and landlord. A base rent covered by crop insurance and a flexible agreement works best.
10
PREPARE
December 2023
David Bau
Nathan Hulinsky
Both David and Nathan are extenstion educators with the University of Minnesota Extension
NH: The negotiated price is set when the farmer is comfortable with paying a certain amount and the landowner is comfortable taking the same amount. Factors to keep in mind are the length of the contract. Is it one, two, three, or more years? The first right of refusal is common to include in a contract. Also, the location of the land is important as well. Is the field right down the road, or is it 20 miles away? Proximity matters.
What questions should be asked as part of the process?
Where should people begin?
Is there a difference when negotiating farmland vs pastureland?
NH: You should start the negotiation process with your goals in mind. As a farmer, what is the most you can afford to pay for rent on a parcel? For the landowner, what is the lowest you are willing to rent a parcel for? Also, knowing your local rental rate trends is very helpful. However, we keep coming back to knowing your cost of production. This is critical to your success as a farmer.
NH: What prices do you find acceptable? How many years is the lease? How many acres? Does the landowner have any mandates for renting the land, crop type, tillage system, or anything else? Does the landowner want a crop share or other involvement with the farming business? Are there any fertilizer considerations?
NH: Data on pastureland is less available. The biggest difference is that in pastureland there are considerations for how many animals per acre, water source, and other feed. Who is maintaining the fences? The animal units per acre is a big difference. On cropland, a farmer simply rents acres and plants a crop. With pastureland, it is common to pay per animal and not per acre.
