Flexible cash rent for farms
Saturday, January 05, 2013 8:00 PM
Fluctuating markets and uncertain yields make it difficult to arrive at a fair cash rental rate in advance of each crop year. To address this problem, some landowners and tenants use flexible lease agreements in which the final rental rate is not determined until after the crop is harvested. The final rental rate is based on actual prices and/or yields attained each year. A recent survey showed that flexible leases accounted for nearly 12 percent of all cash leases in Iowa.
Flexible leases have the following advantages: 1) The actual rent paid adjusts automatically as yields or prices fluctuate, 2) Risks are shared between the owner and the tenant, as are profit opportunities, and 3) Landowners are paid in cash - they do not have to be involved in the decisions about crop inputs or grain marketing.
The North Central Farm Management Extension Committee has recently updated three lease bulletins that have been widely used by farm landowners and farm operators to evaluate lease arrangements. This article highlights the bulletin, "Fixed and Flexible Cash Rental Arrangements for Your Farm" (NCFMEC-01).
The purpose of this newly revised publication is to help grain farmers and landowners develop a fair and equitable cash rental agreement and assist them in making sound decisions based on a reasonable evaluation of resources. The first section of this bulletin (Part I) addresses whether a fixed cash-rent lease arrangement should be used. Part II discusses how to develop an equitable fixed cash rental rate. Part III outlines methods for developing a flexible cash rental lease and their advantages and disadvantages. Part IV discusses the importance of putting the agreement in writing. A sample lease form is also included.
This newly revised North Central Region bulletin titled "Fixed and Flexible Cash Rental Arrangements for Your Farm" is available at the "AgLease101" website under the "Document Library" tab at: http://www.aglease101.org/