Definitions
Maintenance typically refers to basic, routine upkeep to prevent the deterioration of the facilities, such as annual servicing or repainting. Generally, this is the Tenant’s responsibility.
Repairs generally keep the property in its ordinary, efficient, operating condition or restore the property to its original operating condition. Routine repairs such as a leaky faucet or broken fence rail are typically the responsibility of the Tenant. Major repairs (including replacements) such as new siding or roofing, heating systems, or foundation repair are typically the responsibility of the Landlord, unless otherwise expressly assigned in the lease.
Improvements can include new permanent structures, such as fencing or a barn, that materially enhance the value of the property or substantially prolong its useful life. A capital improvement can also be installing new plumbing or wiring, or an addition to an existing structure.
Landlords of agricultural properties have fewer legal responsibilities than do Landlords of residential properties. A Tenant under a long-term lease may be held to greater maintenance, repair, and restoration responsibilities than a residential or shorter-term Tenant.
Purpose
The purpose of this section is to agree on definitions, who is responsible for what, and any decision or approval processes.
This section of a farm lease can be challenging to write, and is subject to greater interpretation and potential for disagreement than most other lease provisions.
FAQs
The IRS treats repairs and capital improvements differently. A tenant can deduct the cost of repairs. In contrast, the cost of capital improvements are added to the landlord’s tax basis (relating to the value of the asset) in the property.
In a ground lease, the tenant leases the land (or “ground”) and owns the improvements on it. The parties might enter into a ground lease in which the tenant buys the house or a barn or builds a new structure on the leased land. The tenant may then sell the asset (for example, the house) and thereby recoup his or her equity. Ground leases are common in the commercial sector; less so in agriculture. However, they are a creative option. One advantage is that the tenant builds equity in the owned infrastructure. See Equity Trust for more information on ground leases for farming.
A lease should specify the answer to this question. Generally, if the structure was placed by the tenant at his or her expense, and it can be removed, it belongs to the tenant. The lease will say if and how it should be removed at termination, or how the tenant will be compensated for the investment.
Where the improvement is permanent there are several considerations and ways to address ownership and disposition. See the fact sheet.
Unless otherwise accounted for in the lease, a farmer’s soil improvements are not compensated. Some leases place a value on natural resource improvements as part of the overall calculation. See our fact sheet.
"Maintenance” typically refers to basic upkeep to prevent the deterioration of the facilities, such as annual servicing, repainting, or washing. “Repairs” generally keep the property in its ordinary, efficient, operating condition or restore the property to its original operating condition. “Improvements” can include new permanent structures, such as fencing, that materially enhance the value of the property or substantially prolong its useful life. A capital improvement materially enhances or prolongs the life of the property. For more on this topic, see our fact sheet Maintenance, Repairs and Improvements
Example Text
These text examples (in italics) illustrate what you might include in parts of this section. Example text is not intended as “sample” or “model” language, or as “best practice.” You may copy and paste example text into the template, then modify it for your working lease document. Or you can learn from the examples in order to develop your own text.
Text box “Maintenance and repairs”
- Tenant shall keep the leased Premises and any equipment leased or borrowed by the Tenant clean and in good working order, reasonable wear and tear excepted. Landlord shall maintain all buildings in structurally sound and weather tight condition.
- On or before January 1 of each year, the parties shall complete a “repairs, maintenance and replacement’ worksheet indicating the work to be completed, the estimated cost and the share of the cost to be contributed by each, including any labor.
- Tenant shall be responsible for all general non-structural repair and maintenance of Premises and for minor repairs of the buildings and their operating systems. Landowner shall not be responsible for minor or routine repairs or replacements.
- Landowner and Tenant will together inspect the Premises at the beginning of the Lease in order to establish and document the baseline condition of the Premises. Such repairs and maintenance shall be performed in a good and workmanlike manner.
Text box “Major repairs, alterations and improvements”
- Tenant shall not make alterations or improvements to the Premises without the written consent of the Landlord. Consent shall be obtained by submitting a written description to the Landlord of the proposed improvement including its location, proposed use, and whether the improvement is to be severed from the property at termination. Approved improvements shall be at the sole expense of the Tenant unless otherwise agreed in writing by both Parties.
- Lessee may erect non-permanent structures in compliance with the other provisions of this Lease. Lessee will own all non-permanent structures erected on the property and shall remove them upon termination.
- Landowner shall be responsible for major repair, rehabilitation or replacement of the structural components and operating systems upon the Premises which are pre-existing assets of the Landowner.
- Lessee must receive prior written approval from Lessor for the siting and construction of new permanent buildings of any kind and for any modification of existing permanent buildings that expands or alters the exterior of such buildings.