If a lease is terminated due to the tenant’s default, the tenant’s obligations depend on the terms of the lease. The tenant could be required to pay the rent for the full (or remaining) lease term as damages. Typically all provisions in the lease pertaining to termination would also apply.
In general, lease-to-own refers to methods by which a lease contract provides for the tenant to eventually purchase the property. One common lease-to-own strategy is to include an “option to purchase” provision in the lease. This clause states that the tenant may purchase the leased premises during a particular time period and according to terms specified in the lease. Another is with a “right of first refusal (ROFR)” written into the lease. With a ROFR, the tenant has an exclusive opportunity to make an offer on the property before it is offered to others. A third method that is sometimes seen as a lease-to-own method is a land contract. See our fact sheet Lease to Own (Coming Soon!)
Short-term typically describes a term of 1-2 years, sometimes up to 5 years. A long-term lease can be 10, 20, or 50 years, for example. Leases can be for up to 99 years; there are examples of leases for longer than that. Some states limit the term of an agricultural lease by statute. Typically, longer-term leases are more complex.
Recording a lease means that it (or a Notice of Lease) is submitted to the public record, usually at the local Registry of Deeds following the signing of it by both parties. Generally, recording of the lease protects the tenant against subsequent claims to the property. If the lLandowner dies or sells the property during the lease term, a recorded lease helps ensure that the new owner adheres to the lease agreement (if that is specifically stated in the lease). Some states require that certain kinds or length of leases be recorded, so parties should review their applicable state laws.
What’s the best way for the parties to a lease to communicate permission or approvals to each other (e.g., regarding a particular use of a barn)?
Approvals or permission for material changes or actions pertaining to a lease should be communicated in writing and delivered as required in the lease (e.g., by surface mail, email, in person). This way, whenever questions arise about who said what to whom, there is a record showing the timing and substance of the approvals.
Reserved rights might include rights to:
- use a portion of a barn that is part of the tenant’s leasehold
- hold a party on a certain hayfield
- extract minerals
- harvest timber
In this situation, the terms of the lease will govern. The lease will continue to apply to the subsequent owner if so stated in the lease. Or the lease may require that upon transfer, the lease terminates and the existing owner compensates the tenant per the terms in the lease.
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 this fact sheet.
Yes, a tenant can terminate before the end of the lease, but depending on how the lease is written, s/he may be liable for the remaining rent. A lease may permit the tenant to terminate at any time with notice. If the landowner defaults, as defined in the lease, this may constitute grounds for early termination without penalty to the tenant. See fact sheet “Termination…”.
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.
All agreements to use agricultural property should ideally be in writing. In some states, a lease for more than one year must be in writing. Any changes to the lease terms should be in writing. Also, any financial transaction such as for improvements should be put in writing. Major permissions (e.g., constructing an improvement, engaging in a use not clearly permitted, etc.) should be required to be in writing by the terms of the lease. Generally, such written documents should be signed by the parties.
The landowner may want to use the premises or a portion for certain purposes. If so, and if the tenant agrees, the lease should specify those purposes and who the additional users – beyond the tenant – will be. For example, the landowner may reserve the right to hold a wedding or barn dance within the leased premises. Or s/he may want to give the right to use one stall of a barn within the leasehold to a neighbor. If the landowner wants to retain the right to drive on any portion of the premises (such as to access another part of his or her property), this should be spelled out as a reserved right in the lease.
The best way to avoid uncertainty about permitted or prohibited uses is to be as clear and comprehensive as possible in the lease language. That said, it’s impossible to list or anticipate every kind of use. When in doubt, check with the other party, either according to the directions in the lease for doing so, or by simply asking. The adage that it’s “better to ask forgiveness than permission” is not a best practice when it comes to harmonious farm leases.
What is the definition of agriculture or farming – and what constitutes a “normal” or “generally accepted” farming practice?
The answers to these questions are not straightforward. Agriculture is defined differently in various Federal, state, and local laws and regulations. Perceptions of farming differ as well. For example, is agri-tourism farming? Is turning apples into apple pie on the farm an agricultural activity? Commercial composting? Horse boarding? Aquaculture? Ultimately, it’s up to the landowner and farmer to come to a mutually agreeable definition for them (provided that whatever they agree on does not contradict any laws).
Agriculture evolves, and farmers innovate to be viable. Farming practices considered customary by some may be questioned by others. Some leases simply permit “generally accepted agricultural practices,” while others are more specific. The parties may insert a definition of farming from a local or state regulation, or may use this section to expand or limit this definition through the permitted, restricted, and prohibited uses.
There are several factors to consider when determining the rent: market rental rates; the Landowner’s costs; the amount the tenant can afford to pay; and other costs or benefits the farmer or landowner add to the arrangement.
For a more thorough explanation, including alternative methods of payment, see the Determining Rent Fact Sheet (COMING SOON!) and resources in the Rent section of the Farm Leasing Tool (COMING SOON!)