When the time comes to negotiate land leases, landowners are met with a large number of options when it comes to making adjustments to their agreements. Here are a few of the things to consider before leasing your land!
1. Figure out your lease termination date.
Your lease termination can depend heavily on what you are leasing. Mineral rights leases can last years or decades. Crop and livestock agreements can vary from seasonal to multiple-year agreements. Think carefully about the kind of agreements you already have on the property. The kind of agreement you have established may have opt-out clauses, early-termination penalties, or potential restrictions on your ability to negotiate with others in the cases of mineral rights; long-term crop or livestock agreements may involve agreements surrounding fencing, the status of the land, and general upkeep.
Make sure that you have read through the documents and understand all of the timelines being presented. You should have a plan well before a term of a lease expires. Give yourself roughly 20% of the time of the lease for a period to begin a full review of your documents to make sure that all of the I’s are dotted and T’s are crossed.
If you have a twenty-year lease agreement with a windmill, solar, gas, or oil company, the time you take to review your rights can save you a lot of last-minute panic over complex documents. If you have a seasonal agreement, a 30 or 60-day review can give you time to work through all of the details. Never leave yourself too little time to make sure that you have asked all the right questions to protect yourself.
2. Confirm the fair market value of leasing your land.
The value of your land for lease is something land professionals can often help provide for you. Is your land an ideal place to locate an energy agreement? Are there already well approvals? Does your land sit in an area where wind or solar placement can be beneficial? What if the rough terrain with hardwood trees presents perfect opportunities for companies looking to establish carbon credits? You can have the companies themselves tell you what your land is worth or its best uses, but knowing for yourself allows you to negotiate from a place of strength rather than weakness.
When it comes to negotiations for livestock and crop leasing, does a bad year prior indicate that your land lease is worth less? It may be more important to establish the long-term trend against the market. How valuable of a producer is your land in comparison to other properties of similar size and makeup? If you know the value of your land, then you can be sure you’re getting the best deal.
3. Draft up a written lease agreement.
Handshakes and verbal confirmation don’t count for anything in this day and age. Major agreements regarding mineral rights don’t settle for a handshake or a verbal agreement but can use language that is difficult to navigate. If you aren’t sure of what you are signing, make sure to ask for help rather than sign a multi-decade-long agreement you might later find was negotiated poorly.
If you negotiate too hard, these companies may form agreements with you and never develop your land. If your agreement is too low, development may occur but you leave money on the table. By working with a land professional you can find the right amount to get the agreement that serves you well.
When it comes to livestock and crops, history is full of handshake agreements. That simply won’t work there, either. In order to protect yourself from liability and ensure you receive proper compensation, a written agreement is required for any leasing plan to succeed.
4. Review the lease agreement you signed.
As your lease agreement comes to a close, you may be asked to renew the agreement. Before you renew with the same farmer or company, go back through your prior agreement. Did the other party fulfill their end of the agreement? Were payments prompt? Were there delays, problems, or damages to the property that lowered the amount of revenue you received?
These are important questions to ask yourself before you renew an agreement. If you want to continue working with the company or individual who prior held the lease, you might look to rework the documents to cover issues you did not discover in the first term of their lease. If you were required to improve the property without compensation, it may require an increase in the rate of the lease.
5. Verify lease insurance.
You never want to see a driver on the road without insurance, since if you are in an accident with them your insurance could take the hit. Before you sign anything with a company or farmer, take a few seconds to check their insurance to ensure you’re covered. Make sure your farmer’s crop insurance satisfies the requirements of your lease, and that if they have a bad season, your payment is protected.
If you agree with a company over a longer term, make sure there is an in-place insurance agreement that protects you against default. These are standard questions to ask and help protect your property before you make an agreement that could turn sour.
6. Develop a strong relationship with your leasing client.
The new growing season might feel far away, but now is a great time to grow a solid relationship with your farmer. Show them you care about your land, and you’ll find yourself in a mutually beneficial relationship. Building a personal relationship makes it easier to find out how things are going and to get solid results for the farmer or rancher and yourself.
If you are leasing your land to a company, build a relationship with their representatives in your area, and make sure that you are aware of their projects ongoing. The more you know about the company and how they are doing, the better your interactions will be!
Leasing your land and receiving rental payments for part of your land can be a way to offset your own costs and lighten your load. It is a great solution for many who are waiting to develop the land they have, or in the case of mineral rights, looking to make long-term decisions that can generate passive income. Keeping a few rules of the road in mind is all it takes to make sure that your plan is a success!