What absentee owners should know when renting out farmland
According to the most recent statistics from the U.S. Department of Agriculture’s Economic Research Service, about 30% of all U.S. farmland, more than 280 million acres, is owned by absentee non-operator landlords.1 Absentee landlords are just that: owners that don’t reside on the property, but instead lease the land to another operator. These absentee landowners want to generate income and ensure the land stays in production. When it comes to protecting your client’s investment, there are some additional factors to consider. Continue reading to learn more about how to work with your clients and get started by visiting the Farmland Ownership Protection Agency Guide.
Farmland Ownership Protection Agency Guide
Renting Out Farmland
Inheritance is a primary way absentee landowners acquire farmland. Some absentee landowners are retired farmers, looking to keep the land in production. In other instances, the farm is passed from an active farmer to family members who have left the farm. There are those non-farming landowners who inherit the land from non-farming sources, while others simply purchase farmland as an investment.
No matter how the land is acquired, most absentee owners have one thing in common: They want to generate revenue and preserve the farmland’s legacy. Farmland can have many uses, including grazing or raising animals, growing crops, hosting produce markets or recreational activities like hunting. Absentee owners need to understand that farmland is a unique asset. Its value is measured by the number of bushels it can produce, how many animals can graze on the land, or how much hunters are willing to pay to access it. That means to remain productive and generate the highest lease values, it must be properly managed.
Absentee landowners can keep the land productive by ensuring tenants take the utmost care in maintaining the land. It can be a daunting task, especially for someone not familiar with agricultural production.
Managing Farmland From a Distance
How can absentee farmland owners manage and protect the land when they aren’t there every day? Even if the landowner lives thousands of miles away, there are ways to protect that investment. Here are a few steps landowners can take to better manage their farmland from a distance.
- Identify what’s important to the landowner. That allows them to find renters who share similar values or desires. For instance, both may want to farm in a manner that improves soil structure and the land’s productivity for the long haul.
- Have the absentee landowner schedule an annual visit to the farm. Activities can quickly change on the farm. Natural disasters or new practices can change how the lease should be written. An annual visit is the best way to confirm the lease is being followed, but also to ensure other issues haven’t emerged that require adjustments to the lease or policy coverage.
- Manage risk with a written lease. A lease is the most important tool in a landowner’s toolbox. It outlines the uses of the land, the terms of the payments, and identifies responsibilities for things like maintenance and upkeep. For example, who is responsible for maintaining the fencerow and who should repair the barn roof? A lease also transfers liability risk to the tenant and defines any insurance coverages that the tenant must carry to protect the owner.
- Encourage open communication between landowner and tenant. The tenant is the eyes and ears on what occurs on a daily basis. The owner should maintain an open line of communication to discuss ideas and concerns. A damaged silo that needs attention or a tile line that needs repair, can be addressed before it becomes a major issue.
- Good farmland requires quality long-term management. A strong working relationship between the tenant and the absentee owner starts with a detailed lease agreement. Tenants can often invest thousands of dollars in equipment or spend years building the soil structure of the land. It’s important that the landowner and tenant develop a long-term relationship with the same management goals, whether it be cropping details, cover crop management, erosion control, or grazing management, just to name a few.
Protecting Absentee Farm Owners’ Investments
Farmland ownership can be very rewarding. For many, it’s a way to hold on to a family legacy. For others, it’s a way to feel closer to the land. But farmland ownership comes with its own set of complexities. Increasingly, landowners are pulled into lawsuits because of activities that occurred on the land they happened to own.
- Livestock in a field break down a substandard fence, wander into a roadway and cause an accident.
- Chemicals sprayed on the farm drift to a neighboring field and inadvertently damage that field.
- A pond, building, grain bin or well located on the property can attract unwanted visitors. These attractive nuisances can be a liability.
- A house or building on the land will have its own set of liability issues, including maintenance and upkeep, or possible building hazards.
- Read more about the potential risks facing absentee ownership.
It’s imperative that absentee owners understand the intricacies associated with farmland ownership, including how farmland has its own set of liability issues that may not always be apparent, especially for those only familiar with traditional homeowner liability policies.
Understanding How to Help Your Clients
Absentee farmland owners will have a lot of questions. As agents, we need to help guide them in developing a plan that protects their investment.
Some of the basics to consider:
- Ensure a signed lease is in place that transfers risk to the tenant.
- Know how the farmland is being used and how the rental agreement is structured.
- Review details of the property, including any possible liabilities.
- Discuss how liability protection may need to include a farm policy for the best protection.
- Encourage an annual meeting between the landowner and tenant.
- Share resources from the Ag Insight Center, including the Farmland Ownership Protection Guide.
- Landowners interested in protecting their farmland legacy can access Nationwide® Land As Your Legacy® tools for long-term planning.
U.S. Department of Agriculture. Economic Research Service. Farmland Ownership and Tenure. May 16, 2022. https://www.ers.usda.gov/topics/farm-economy/land-use-land-value-tenure/farmland-ownership-and-tenure. Accessed July 19, 2022.