Cash for land | Living the Country Life

Cash for land

Few people are endowed with a green thumb. Even fewer have time to farm their property, even if they were. So instead, consider a cost rental lease agreement -- a situation where a farmer, looking for additional acreage to work, will farm your land and later pay you a cut of the crops' profit.

Getting started

First, understand that a rental lease agreement is by no means an exact science. There are inevitably going to be negotiations, particularly when it comes to finding the best balance of responsibility for costs, risk, and management. There are many varieties of these agreements as well, each varying in complexity and responsibility. The simplest of these is the fixed-cash lease agreement, where the landowner receives a set amount from the farmer regardless of how well the market is doing.

When looking for a starting point in your rental agreement negotiations, it may be best to find the going rate of other cash rental agreements in your area. From there, you can tailor your agreement according to any differences that your land has from others like it. For instance, if your land is found to have a nitrogen deficiency and needs more fertilizer than comparable land around you, you'll have to negotiate a decrease in rental costs to compensate for the cost of additional fertilizer. If your land is particularly fertile, however, you might be able to exact a higher rental price.

The good and the bad

While the basic principals behind this agreement are beneficial for both parties, there are obvious risks and downsides to consider too. In the case of the fixed lease agreement, good market years and better-than-average yields mean the landowner won't be seeing their potential profit. During poor market years, a fixed lease agreement may become unrealistically high for the farmer to pay. Even beyond the economic volatility of this plan, finding a cash rent that both parties find suitable may be exceptionally difficult.

Get it in writing

Aside from being a good practice in any legal undertaking, getting your rental agreement in writing encourages a better understanding by everyone involved, sets the original agreement in stone for when it comes time to revise or review it, and provides an invaluable fallback if anything does go wrong. Be sure to include the names and addresses of everyone involved, the number and description of the acres, the length of the lease and renewal options, and of course, signatures. It might be worth having a management professional or some form of legal counsel take a look at the final lease, or help you in making it legally sound.

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