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Lease Core Concepts

What is a contract? What makes a lease a legally binding contract?

A contract is an agreement for a legal purpose entered into voluntarily by two or more parties that creates obligations between them.  To be enforceable, a contract must meet certain legal criteria (i.e. it must have an “offer,” “acceptance,” and “consideration”; each of these terms has a specific legal definition).  In almost all cases, you should consult a lawyer to ensure that you have a legally binding lease.

The lease contract should contain, at a minimum, five essential components:

  1. who the parties are;
  2. a description of the premises being leased;
  3. how long the arrangement will last (i.e. the term);
  4. what the tenant will pay (i.e. the consideration); and
  5. the parties’ signatures.

In some states, to be enforceable, a lease that has a term longer than one year must be in writing.  Verbal agreements and oral contracts can be legally binding as long as they are “reasonable, equitable, conscionable and made in good faith.” Problems with oral agreements may arise if the parties remember the details of the agreement differently. If disputes wind up in court, the argument becomes one person’s word against the other’s.


Is an oral agreement binding?

A written agreement is preferable to an oral agreement in almost every case, and sometimes it is required.  While an oral agreement can be legally binding (e.g., if it governs a term that is shorter than one year and/or if it is “reasonable, equitable, conscionable and made in good faith”), it is often harder to prove than a written agreement.


What’s the difference between a lease and a license for farmland?

A lease is a conveyance of interests in property. A license is a permission to use the property. A license does not convey an interest or right in the property. This legal distinction is important. A license can easily be revoked, whereas terminating a lease is more complicated. Also, a license will end upon the sale of the property or demise of the licensor. Some public entities use licenses instead of leases for these reasons.


What’s the difference between leasing and renting a farm or farmland?

In practice, the terms “leasing” and “renting” are commonly used synonymously. As a technical matter, leasing typically implies use of the land for particular purposes for a longer-term period of time (e.g., a year or longer), while the term “rent” usually either means the money paid by the tenant or involves a short-term agreement (e.g., month-to-month).


Who is the landowner and who is the tenant? (And what if there’s more than one landowner and/or tenant?)

The landowner is the entity (for example, a person, company, agency, trust, or organization) that legally owns the property being leased. All owners should be listed in the lease as the landowner. The tenant is the entity (person, company, or organization, etc.) that is acquiring use rights and using the leased property. Here too, all tenants must be named. If the tenant is a group of farmers leasing as one entity, that entity must be named. If the farmers are leasing separately, each will have his or her own lease and be named as tenant on that lease. The parties named as landlord and tenant are jointly responsible for the terms of the agreement


Who should be named in the lease?

The legally responsible parties should be listed in the lease as landlord (or landowner or lessor) and tenant (or farmer or lessee). It’s important to clearly state the name and contact information for each party’s primary point of contact. Sometimes the contact person is a representative of the landlord, a land manager or lawyer handling the lease.

Before entering into a lease, both landowner and tenant should confirm that they are who they say they are and that they each have the authority to enter into the lease. For example, if a corporation or trust owns the property, then the tenant should confirm that the corporation or trust legally exists and that the person signing the lease has the power and authority to enter into the lease.

Most landlords are careful to check the credit and reputation of prospective tenants before entering into a lease. Tenants also should determine that their prospective landlords actually own the premises and are solvent. To avoid unintended personal liability, the named parties in the initial “recitals” should be consistent with the forms of the signature lines at the end of the lease.


If I’m leasing land and a residence, should I have a separate lease for the residence?

It depends. Sometimes it makes sense to rent the “whole farm” and sometimes a separate rental agreement for the residence is more appropriate


What is a lease?

A lease is a contract between two parties: the transferor of certain rights in property (the “landlord” or “lessor”) and the transferee, the recipient of those rights (the “tenant” or “lessee”). A lease signifies a transfer of certain property rights or interests.  An “interest” is any right, claim, or privilege an individual has toward real property (land and permanent fixtures). In the case of a lease, such interests are known as “leasehold interests.” A lease governs the relationship between the parties as well as their relationship to the real property covered in the lease for the time that the contract is in force.



What is a “leasehold interest?”

An “interest” is any right, claim, or privilege an individual has toward real property (land and permanent fixtures). In the case of a lease, such interests are known as “leasehold interests.”