When it comes to soil and water quality, how your renter farms makes all the difference. When it comes to a long-term property investment, taking the highest rent cheque is not always the wisest decision.
This site offers some resources for you to work with your renter on long-term investment in your property. There is evidence that rented land does not receive the same investments when it comes to soil health (cover crops or manure application) or erosioncontrol (tile drainage or other erosion control infrastructure).
Soil needs a long-term perspective, and that’s where you come in. As landowners, building long-term security into rental contracts means ensuring rental rates are economically sustainable to the farmer and allowing your farmer to invest in your soil. That’s a win-win for both parties, and for the environment.
Click and read through the menu on the right to find out how. Or browse through the Resources section above to find a sample long-term lease agreement, information on soil health and video case studies. You can also click on underlined terms to jump to the Glossary section.
63% of farmland rentals in Ontario are based on nothing more than a handshake. Some might say that creating a written lease will take time and money, or give the impression of mutual distrust. But in reality, the opposite is true.
They say that good fences make good neighbours and having a written lease can actually strengthen the relationship between a farmer and a landlord. The discussion that goes into writing the lease helps landowners and renters come to a mutual understanding, instead of basing the agreement on assumptions. If an issue ever did arise, a written agreement can protect both parties and will make it easier and more cost-effective to settle any dispute or misunderstanding.
As a landlord, you probably don’t want the hassle of finding a new renter every few years and, in the same way, farmers also want long term security in order that they can build up soil health and yields. Having a written lease that creates long-term security is a win-win, and not only for you and your renter, but for the environment as well.
Farming is an art and sometimes it is hard to tell just how well the farmer is doing. But the secret is in the soil. Doing frequent soil sampling will show you if a farmer’s management practices are improving the soil or not. An Ontario study showed that after farmers have rented a farm for more than 5 years, they begin to treat it with the same care as if they owned it. If farmland is an investment for you, then it is wise to invest time and energy into finding a good farmer who will in turn invest in your soil.
There are a number of soil best management practices that are promoted with government cost-share programs, Healthy soils hold together to minimize topsoil erosion and fertilizer runoff that can contribute to water quality problems, such as in the Great Lakes. To make healthy soil, it is important to balance pH, reduce soil disturbance from tillage, grow a diverse crop rotation, and cover the ground with crop residue or cover crops that protect the soil and also feed micro-organisms (which in turn create good amounts of organic matter that absorb water to further minimize erosion). Learn more about soil health here.
Talk with your farmer Farmers may see the value in a written lease, but since this is still not common practice in Ontario, a farmer may be reluctant or might be taken by surprise if you come on too strong. Start with a conversation to see if this is what your farmer would like, emphasize the benefits for the farmer and be sure to involve your farmer in every aspect of the process.
Determining a Sustainable Rent Someone could be the best farmer and soil conservationist in the area, and still go broke doing it. Because land prices and rental rates are not factored into commodity prices, farmers can be quickly caught in a cost-price squeeze. For agriculture to be sustainable, commodity prices and cost-of-production must to be factored into land rental rates. Other factors to consider when determining a sustainable rental rate include the productivity of the land, property taxes and the level of the renter’s investment in soil conservation. Landowners can share both the risks and the rewards of agriculture through creating a flexible rental rate based on a “base plus bonus” formula. Click here for examples.
Environmental Goals Begin the lease discussion with the intention of creating sustainability which, in this case, means long-term resilience to both weather and prices. Talk to your farmer about soil conservation strategies and find out if your farmer is aligned with your long-term goals. Some landowners and renters may wish for stewardship clauses to be included in the lease. If this is the case, it is better to stipulate the soil conservation practices and not the results, because most often the results will be out of the farmer’s control.
For landowners that live off of the property or for those that are unfamiliar with agriculture, it is important to learn about your renter’s farming practices and determine what kind of investments he or she is making into your property. Keep in mind that the biggest rent cheque to you does not necessarily mean the biggest investment in your soil. Best management for the soil includes manure application, leaving residue in top of the ground, planting wheat and cover crops or going no-till … and all of this costs the farmer more than you might think. A sustainable rental rate will factor in the amount of investment a renter is putting into the soil, so don’t be afraid to ask.
Getting on the same page Click here to download and print a discussion sheet to bring to your next meeting. Going through this check-list will cover off some of the most important points when it comes to farmland management:
Only 37% of Ontario farmland leases are written, and many of these might be just a scribbled note on a scrap piece of paper. Sometimes those notes are hard to hold up in court. It is strongly recommended to consult a lawyer but here are the necessary details to make the document legal:
The Parties Include all legal names and home addresses of tenant(s) and landlord(s).
The property Include a legal description of the property in question (lot, concession, roll number) and specify any buildings or areas included or excluded. It may be helpful here to include approximate acreage as determined by GPS to clear up any disagreements over size of the parcel.
The term Include the length of the lease and when/how it will be renewed. The more secure and long-term these agreements are for farmers, the more they can and will invest in conserving and improving soil.
The consideration: Include the rental rate and when/how it will be paid. For agriculture to be sustainable and for farmers to invest in long-term best management, rental rates must also be economically sustainable for farmers. Here are a few options:
- Cash rent A fixed rate built into the lease,
- Share-cropping Sharing in both risks and rewards with your farmer, splitting the profit, and requires more involvement in the day-to-day management
- Flexible rental rate A cash rate that is based on a formula and fluctuates depending on yields and crop prices. (See here for examples)
The signatures No document is complete without all parties agreeing to the terms with their signatures and the date. There may be reason to add spouses’ signatures and you could also add a witness for good measure.
Written leases can be this simple, but while you are at it, there are a few more details that may be useful to include:
Compensation clause If a tenant is investing in land improvements, like tile drainage or an erosion control structure, or even by adding manure, fertilizer or cover crops, it may be beneficial to include a compensation clause for the renter in the case of sale, early termination or unforeseen circumstances. It may also be prudent to include a clause requiring written permission from the landlord before the renter makes alterations to the property (eg. tree cutting or drainage alterations). A compensation clause can also be included for the landowner’s peace of mind, in the case that the renter causes unreasonable damage to the property.
A farmer started renting a 60 acre field on a deal that he would tile the farm and clean it up. The renter paid for the tile and signed an agreement that if the land were sold, he would be compensated a portion of the tile cost at a rate that decreased year by year. Having the written agreement has allowed him to put manure on the land when it becomes available and the soil is improving year after year.
Similarly, another farmer that rents a significant amount of acres near London makes sure that he gets a termination clause included in a written lease on all his rentals. It allows for the landlord to terminate a lease at the end of a calendar year provided that written notice is given before the beginning of September. If notice is given after that date, the clause states that the renter will be compensated for the expenses incurred in preparing the field for the next crop.
Termination clause This would specify the agreed upon circumstances under which a lease could be terminated early. This could include the sale of property (unless the lease was a provision of the sale) in which the renter may ask for the right of first refusal. A rental agreement would also be terminated if the renter fails to pay by the agreed upon date or if he or she disregards any terms of the lease (within 15 days of a written notice, for example).
Buildings on the property If there are buildings on the rental property determine who will use them and maintain them, who will pay insurance and utilities and if the buildings will be able to be sublet to another party.
Environmental stipulations This could include the stipulation of specific stewardship practices on the property based on an annual discussion (eg. the application of manure every three years or the maintenance of a windbreak) or could be as simple as having the tenant agree to adhere to ‘accepted farm practices and Ontario’s environmental regulations.’
Environmental stipulations may be helpful to environmental protection but are nonetheless secondary to the importance of creating long-term stability for investment in soil health. The longer a farmer expects to rent land and the more stable a farmers’ financial resources, the more he or she can invest in the soil.
In Ontario, it is still uncommon for leases to include stipulations of any kind, (83% of both oral and written agreements have no stipulations) but if both parties are comfortable with their inclusion in a legal written lease, it can create a shared responsibility for the health of the land and also for the environment. Start with a conversation and then bring the results of your discussion to a lawyer for further input and potential incorporation into the lease. It is important to stipulate the practice and not the result, because often times the results are dependent on weather and other factors.
Environmental stipulations could include: