"Flexible-Cash Crop Lease Agreement Template"

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Flexible-Cash Crop Lease Agreements
What Is A Flexible-Cash Lease Agreement?
A lease is basically an agreement that gives
Quick Notes...
the use of an asset to a lessee for a specific
period of time at a specified rate. A lease
The tenant produces crops on the land and
does not transfer title of owner- ship nor an
makes general management decisions as if
equity interest in the asset.
the land were owned by the tenant.
Labeling a document as a lease does not
Flexible-cash lease agreements involve the
necessarily mean it is a lease according to the
tenant paying the landowner a predetermined
Internal Revenue Service (IRS). Questions
cash fee adjusted for changes in prices and/or
concerning the IRS treatment of a lease should
yields.
be addressed by your tax management
professional. Also, the legalities of the lease
The landowner has increased opportunities to
should be addressed by professional legal
share in additional income under a flexible-
counsel.
cash lease agreement when compared to a
fixed-cash agreement.
A flexible-cash lease agreement is a rental
arrangement in which the landowner receives
a predetermined cash fee from the tenant
The types of land lease agreements vary
adjusted for changes in prices and/or yields.
widely in each locality and from one farming
The tenant produces crops on the land and
area to another, and are often based on long-
makes general management decisions as if the
standing traditions. Landowners and tenants
land were owned by the tenant.
can choose from three primary types of lease
agreements for crop production: crop share,
Advantages of a flexible-cash lease agreement
fixed-cash, or flexible-cash agreements.
over other types of agreements include:
The purpose of this publication is to help
1.
The landowner has opportunities to
landowners and tenants make informed
share in the additional income
decisions and to develop "fair" flexible-
resulting from unexpected increases in
cash lease agreements concerning crop
crop prices and extra-normal yields.
production. A sample flexible-cash lease
agreement can be found at the end of this
document.
Colorado State University, U.S. Department of Agriculture and Colorado counties cooperating.
Extension programs are available to all without discrimination.
No endorsement of products is intended nor is criticism of products mentioned.
A
griculture &
B
usiness
M
N
anagement
otes ...
.
Flexible-Cash Crop Lease Agreements
What Is A Flexible-Cash Lease Agreement?
A lease is basically an agreement that gives
Quick Notes...
the use of an asset to a lessee for a specific
period of time at a specified rate. A lease
The tenant produces crops on the land and
does not transfer title of owner- ship nor an
makes general management decisions as if
equity interest in the asset.
the land were owned by the tenant.
Labeling a document as a lease does not
Flexible-cash lease agreements involve the
necessarily mean it is a lease according to the
tenant paying the landowner a predetermined
Internal Revenue Service (IRS). Questions
cash fee adjusted for changes in prices and/or
concerning the IRS treatment of a lease should
yields.
be addressed by your tax management
professional. Also, the legalities of the lease
The landowner has increased opportunities to
should be addressed by professional legal
share in additional income under a flexible-
counsel.
cash lease agreement when compared to a
fixed-cash agreement.
A flexible-cash lease agreement is a rental
arrangement in which the landowner receives
a predetermined cash fee from the tenant
The types of land lease agreements vary
adjusted for changes in prices and/or yields.
widely in each locality and from one farming
The tenant produces crops on the land and
area to another, and are often based on long-
makes general management decisions as if the
standing traditions. Landowners and tenants
land were owned by the tenant.
can choose from three primary types of lease
agreements for crop production: crop share,
Advantages of a flexible-cash lease agreement
fixed-cash, or flexible-cash agreements.
over other types of agreements include:
The purpose of this publication is to help
1.
The landowner has opportunities to
landowners and tenants make informed
share in the additional income
decisions and to develop "fair" flexible-
resulting from unexpected increases in
cash lease agreements concerning crop
crop prices and extra-normal yields.
production. A sample flexible-cash lease
agreement can be found at the end of this
document.
Colorado State University, U.S. Department of Agriculture and Colorado counties cooperating.
Extension programs are available to all without discrimination.
No endorsement of products is intended nor is criticism of products mentioned.
2.
The tenant has less risk than with a
Flexed Cash Rent =
Base Rent x Current Year's Price
fixed-cash lease. Rent expense is
lower if prices and/or yields are below
Base Price
normal.
A variation of this method is to flex the base
Disadvantages of a flexible-cash lease
rent for prices outside a specified range.
Adjustments are made for incremental
agreement over other types of agreements
changes (up or down) in the price. The
include:
landowner and tenant must agree on the base
rent, what prices to use, and the incremental
1.
Flexible-cash rent increases risk for
changes. For example, cash rent will be $55
both the landowner and tenant.
per acre if the current year's price is within a
$3.00 to $3.50 range; for each $0.20 change
2.
The tenant may have to give up some
in price above or below the stated range of
benefits from higher yields due to the
tenant's management input, thus
prices, the rent would increase or decrease
$2.00 per acre.
reducing incentive to do the best
possible job.
Flexible-cash rents may also be adjusted when
the current year's price is not exactly equal to
3.
Flexible-cash rents are more difficult
to calculate than are fixed-cash rents.
the stated base price. No range of prices is
permitted before a change in rent occurs.
Lease arrangements may allow for
Developing A Fair Flexible-Cash Lease
adjustments to be made for any price change,
Agreement
for only an increase in price, or for only a
There are three primary methods that can be
decrease in price.
used to establish a flexible-cash rent for a
particular farm: (1) flexing for price changes
Flexing For Yield: This method calls for
only; 2) flexing for yield changes only; and
flexing the cash rent for changes in yield only.
(3) flexing for both price changes and yield.
A base rent is multiplied by the ratio of
Few, if any, methods for flexing cash rents
current year's yield to base yield. The base
concern unexpected changes in the cost of
yield could be each field's proven/historical
purchased inputs. Consequently, flexible
yield, the farm's proven/historical yield, or
rents should be periodically re-examined for
some other agreeable yield.
possible adjustments due to input costs.
County averages are generally not advisable
Flexing For Price: This method calls for
since they may vary tremendously from a
flexing the cash rent for changes in price only.
particular farm and they may not be finalized
It is best used in areas where crop yields are
until the next year.
quite stable. A base rent is multiplied by the
ratio of current year's price to base price. The
Flexed Cash Rent =
landowner and tenant must agree on a base
Base Rent x Current Year's Yield
rent base price and what current year's price to
Base Yield
use (i.e., Jones Elevator closing price on
December 31st).
Flexing For Price And Yield: This method
requires the landowner and tenant to agree on
2
a base rent tied to a base yield and a base
Put The Agreement In Writing
price for each crop. Any or all of the
It is highly desirable to put the terms of a lease
variations for flexing for prices or yield can be
agreement in writing. A written lease
used with this approach to calculating
agreement enhances understanding and
flexible-cash rents.
communication between all involved parties,
serves as a reminder of the terms originally
Flexed Cash Rent =
agreed upon, and provides a valuable guide
Base Rent x Curr. Year's Price x Curr. Year's Yield
for the heirs if either the landowner or tenant
Base Price
Base Yield
dies.
One variation of this method is to set rent
It is especially important to have the details of
equal to the value of a given quantity of the
a flexible-cash lease agreement in writing.
crop. The price used for determining the
The calculations of flexible-cash rent are more
value would be based on price quotations at a
complicated to figure and easier to forget than
particular location and period. For example,
for other lease agreements.
"the amount of cash rent shall be equal to the
value of 5,000 bushels of wheat based on the
Every lease agreement should include certain
July 15th closing price at Jones' Elevator."
items -- the names of the parties involved, an
accurate description of the property being
Another variation of this method is to
rented, the beginning and ending dates of the
determine a minimum base rent and then
agreement, the amount of rent being paid and
adjust it upward on a percentage basis as the
when and how it is to be paid, and the
value of the crop increases due to increases in
signatures of the parties involved.
price and/or yield.
Furthermore, other provisions (such as the
rights and responsibilities of both parties)
which provide for most of the concerns of
both the landowner and tenant.
Sources: "Fixed and Flexible Cash Rental Arrangements For Your Farm", North Central
Regional Extension Publication 75.
N
otes...
(For More Information) Contact: Jeff Tranel, Ag. & Business Management, CSU Extension,
N
etwork
(719) 549-2049,
Jeffrey.Tranel@colostate.edu
(Updated August 2008)
3
This fixed-cash crop lease agreement form is designed to provide the landlord
Flexible-Cash
and tenant with a guide for developing an agreement to fit their individual
Crop Lease Agreement
situation. This form is not intended to take the place of legal advice pertaining
to contractual relationships between the two parties.
Section 4, No. 4.8a
PARTIES INVOLVED
This lease is entered into this
day of
, 2
between
, landlord, of
(address) and
, tenant, of
(address) hereafter known as the landlord and the tenant,
respectively.
PROPERTY DESCRIPTION
The landlord hereby leases to the tenant, to occupy and use for agricultural and related purposes, the following described
property:
consisting of
approximately
acres situated in
County, Colorado with all improvements thereon except as
follows:
.
GENERAL TERMS OF THE LEASE
A. Time period covered. The provisions of this agreement shall commence on the
day of
(month),
2
. This lease shall continue in effect from year to year thereafter unless written notice of termination is given by either party
to the other
days prior to the anniversary date of the lease in any year of continuation.
B. Amendments and alterations. A written request is required for general review of the lease or for consideration of proposed
changes by either party
days prior to the anniversary date of the lease in any year of continuation. Amendments and
alterations to this lease shall be (1) in writing, (2) signed by both the landlord and the tenant, and (3) attached to all copies of this
lease.
C. No partnership intended. It is particularly understood and agreed that this lease shall not be deemed to be nor intended to give
rise to a partnership relation. Neither party shall have the right to bind the other without written consent.
D. Transfer of property. If the landlord should sell or otherwise transfer title to the farm, the landlord will do so subject to the
provisions of this lease.
E. No right to sublet. The landlord does not convey to the tenant the right to lease or sublet any part of the farm or to assign the
lease to any person or persons whomever.
F. Binding on heirs. The provisions of this lease shall be binding upon the heirs, executors, administrators and successors of both
the landlord and the tenant in like manner upon the original parties except as provided by mutual written consent.
G. Compensation for crop expenses. The landlord shall reimburse the tenant at the termination of this lease for field work completed
and for other crop costs incurred for crops to be harvested during the following year. Unless otherwise mutually agreed, current
custom rates for the operations involved shall be used as a basis for settlement.
AMOUNT AND PAYMENT OF RENT
A. Cash rent for non-flexible items are:
a.
Pasture............................ $
c.
Farmstead....................................... $
b. Hayland........................... $
d. Other
......
$
B. Cash rent on flexible items shall be calculated using one of the three methods below (unused methods should be stricken). Any
changes to the per acre base cash rent shall be made within
days of the anniversary date of this lease agreement.
I.
Flexing For Price.
Crops
Base Rent
X
Current Price
= Rent Per
X
Acres
= Adjusted
/Base Price
Acre
Grown
Rent
$
$
$
$
Total For All Crops
The current price for
(crop) shall be the price at close of day on
(day) of
month at
(location).
The current price for
(crop) shall be the price at close of day on
(day) of
month at
(location).
The current price for
(crop) shall be the price at close of day on
(day) of
month at
(location).
The current price for
(crop) shall be the price at close of day on
(day) of
month at
(location).
II. Flexing For Yield.
Crops
Base Rent
X
Current Yield
= Rent Per
X
Acres
= Adjusted
/Base Yield
Acre
Grown
Rent
$
$
$
$
Total For All Crops
The base yield for
(crop) shall be
(amount and units) per acre.
The base yield for
(crop) shall be
(amount and units) per acre.
The base yield for
(crop) shall be
(amount and units) per acre.
The base yield for
(crop) shall be
(amount and units) per acre.
III. Flexing With Other Procedure. The procedure, flexing for price and for yield excepted, for flexing cash rent shall be as follows:
.
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