Have the talk: Good communication key to successful farm leases

U.S. farmers rent almost one third of the nation’s farmland. Of that share, almost 80% is owned by a “non-operator” or absentee landowner. That means many farmers today are likely to lease land from an owner who may not have operational knowledge of what it takes to manage crop land successfully.

This type of business relationship can create challenges for a farmer leasing from an absentee landowner. At the same time, it presents opportunities to the lessee working with an absentee owner. Good communication helps overcome those challenges and capitalize on those opportunities.

Account for farmland’s emotional ties

Farmland is a valuable asset with long-term value for the landowner. But absentee landowners also sometimes see farmland ownership as a way to maintain ties to a generations-old family farm. That creates an emotional connection to the land. The lessee often must recognize and respect that connection to maintain a long-term farm lease. Good communication is the way to make that happen.

“Even if the relationship to the land is generations removed, an absentee landowner often feels tied to the land and wants the best for it,” said Nationwide Agribusiness President Brad Liggett. “Maintaining a strong relationship with a landowner with such ties is a great way for a lessee to ensure he or she is doing everything to ensure the land will be well cared for in the long term.”

In some cases, that emotional tie to the land may come in the absence of knowing how a farm is operated and managed on a daily basis. Especially when that extends to how farmers manage risk through things like adequate insurance coverage, this can create conflict between the farm landowner and lessee.

“Around 45% of absentee owners have no prior experience with farming. This can lead to a lack of understanding about the risks and liabilities on a farm,” Liggett said. “It’s important to communicate often with an absentee landowner so he or she understands the importance of things like insurance policies necessary to ensure productivity over time.”

Key conversations for landowners and lessees

Farmland can offer both lessees and their landowners positive financial returns. But changes in operating costs for renting farmers can cut revenue potential and, in some cases, limit their long-term abilities to continuing to lease farmland. Especially in a time of cost inflation and rising cost for common crop inputs, that pressure can cut farm revenue and cap the long-term value of farmland. The right conversations between landowners and lessees can help prevent these cons for both parties. Those conversations should include:

• Short- and long-term goals for the land, including cropping plans and projected revenue
• Fixed and variable crop input costs
• Expected land improvements and who will pay for them
• Risk management costs, including for all annual insurance coverage
• Expected changes in land rent and lease terms based on crop revenue and expenses

“This kind of communication can help the landowner and lessee work together to come up with a strong long-term lease agreement that works for both parties,” Liggett said. “Having well-defined terms that cover the responsibilities of both parties can help make farmland leases a win-win for the landowner and the farm or ranch operator.”