Highest Bidder is not necessarily the Best Bidder when leasing Cropland

One of my favorite clients (yes attorneys have favorites) is a cranberry and blueberry operation in southern New Jersey.  A few years ago while testifying at the state capital on their behalf regarding leasing government land for farming operations I had an interesting conversation with a legislator who could not understand why my client wanted a long term lease and may not be willing to pay as much as an out of state operation at auction for some state land that abutted their farm.

The State Senator had a point, it was his job to get the most amount of money for the state’s land.  That was his job.  My job was to explain that getting the highest price upfront was not in the best interest of the state and it is not in the best interest of the property owner in a lot of situations either.

More than once I have heard of a low bidder who has no other attachment to the land than to make money off of it using questionable practices such as ignoring soil conservation practices, failing to replace mineral content, over-applying herbicides on fields negatively affecting waterways and buffer areas and other tales of woe.

Low bidders often have one thing on their minds, get in, get planted, get harvested and get as much money out of the contract before moving on.  Landowners need to think more strategically and often enter into more complete contracts covering more than just acreage and price.

The 2017 Survey of Iowa Leasing Practices prepared by Iowa State University Extension and Outreach office shows some interesting facts about leasing.  Just over half (53%) of farmland acres in Iowa are leased.  Forty-four (44%) of all acres were leased for cash rent, Nine (9%) were leased on a crop share basis.  The trend of the past thirty-five years went from fifty-five (55%) of farms being owner-operated to forty-one (41%) owner-operated.

With more and more farmers allowing those with no ties or legacy to the land to operate across their fields, it is important to consider a few more issues than price to protect the integrity of the land the owner has been given to manage.  Three factors should be considered and memorialized in the lease: price, farming practices, and length/legacy.

Beyond price, the farm owner and tenant should discuss and memorialize in the lease how the soil and topography will be treated during the term of the lease.  Perhaps soil fertility will be tested at the beginning and end of the lease term and the tenant shall be responsible to maintain minimum levels of basic markers.  The parties should agree on tilling practices and how these might affect soil erosion.  Generally, the owner and tenant should discuss what kinds of herbicides will be used and if there are times of the year or areas of the property where the owner does not want any applications.

Concerns regarding legacy and length of lease should also be agreed upon.  In order to protect the land, an owner might factor in the length of a lease.  The Iowa survey shows that the average tenure of current tenants is 11 years for cash rent and 14 for crop share arrangements.  Sometimes leasing to a relative or trusted neighbor might justify taking less per acre in order to help ensure the land will be managed respectfully.

Regardless of who you rent to it is wise to ask the tenant for financial information about their operation, obtaining character references from personal and vendors of the prospective tenant and inspecting some of the fields they currently farm.

As the term of the lease proceeds communication between the parties can help the relationship run smoothly.  Perhaps the parties might plan an annual spring and fall walk or ride of the property to discuss any issues pre-planting or post-harvest.  Long term tenants renting off of family farms should ask to meet the farmer’s spouse or child to have them involved in the conversation if they can.

Cashing a few fat rent checks can do long-term damage to both the land and the farmer’s bottom line.  Consider more than price when leasing your land, your legacy, and the bottom line.