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TYPES OF LEASES
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FARM LEASE TYPES
There are many types of farm leases used to lease farmland such as cash rent, crop share, flex cash rental, and custom farming.
Which type of farm lease you use can depend on many factors such as risk tolerance, tax implications and the type of farmland you are leasing. Since the overwhelming majority of farm leases today are cash rent leases, this is the type of lease Central States manages.
Cash Rent is the most popular and most frequently used farm rental arrangement. The landowner receives a predetermined amount of rent paid by the tenant regardless of price or yield. Cash rental agreements are typically one year and run from March 1 – February 28th. Rent is most commonly paid in full on March 1st of the crop season, but can be split. With this type of lease, the landowner has minimal risk.
The popularity of this lease arrangement is due in large part to the low risk to the owner of the land. The most critical part of this lease to the landowner is making sure they have current understanding of the local market in order to maximize their return yet still allow the tenant to be financially successful in order to maintain a long-term rental relationship. Hiring a management firm like Central States gives you this knowledge and peace of mind.
Crop share is a farmland rental agreement where the landowner and the tenant split the income and expenses from crops grown on the farm. An example of this would be a 50%/50% split. The landowner and tenant split the income and expenses equally. Included in the tenant’s share are the costs of machinery, fuel and labor. The landowner is responsible for the land costs and real estate taxes.
This is would be a basic crop share arrangement; however, there can be many variations of the crop share lease.
A flex rental agreement is another way for the landowner and tenant to share the risks and rewards of crop production. Typically, there is a fixed base cash rental price, and then a bonus would be paid after harvest. This could be based on gross value of the crop. Other flex arrangements would be a yield factor times the price of crop set at a certain time of the year.
Example: 65-bushel corn x $4.25 price per bushel = $276.25 per acre cash rent. This arrangement can have a cap and a floor where the tenant only pays a base cash rent if prices are poor and a ceiling price on rent if prices are high. There are many variables to this type of lease arrangement. Both the landowner and tenant share in the risk.
In a custom farming arrangement, the landowner receives the entire crop revenue. The landowner is responsible for all the input expenses and pays an operator to plant and harvest the crop. Payment to the operator is a percentage of the crop or a fixed amount payment for custom farming the land. One source to find the typical custom rates paid are available through Ag Decision Maker, Iowa State University.
Iowa Code 562.6 generally provides that Iowa Leases on farm tenancy automatically renew under same terms and conditions as the original lease unless either party provides written termination notice in the specific manner directed by statute on or before September 1. Certified Mail Return Receipt or in person.