Alabama A&M University
S M A L L FA R M S R E S E A R C H C E N T E R
FA C T S H E E T
COLLEGE OF
AGRICULTURAL, LIFE
AND NATURAL SCIENCES
United States Department of Agriculture
Office of Advocacy and Outreach (OAO)
LAND LEASES CAN AID LAND OWNERS IN MANAGING
RISK
There are several reasons why some people consider leasing their land to bring in additional
income. Some may become ill, retired, absent, no longer farming, can’t afford to use the
total amount of land, or non-farmers who brought or inherited the land. If this is your case,
you may want to think about how leasing such land can help meet your financial goals.
If you own land, whether it’s for farming or
recreational, or you’re not capable of managing the land yourself, you have at least three
options to explore. However, keep in mind that
these options have unique implications when it
comes to tax, income and estate consequences.
You have the option of custom farming, transferring land ownership to another owner, leasing the land to another operator or leasing it to
someone who wishes to do recreational activities.
A lease is a legal document describing an agreement between an owner and a tenant granting occupation, or use of property during a certain period of time in exchange for rent. Two
most common forms of a lease is a cash lease, or share lease. For example, a cash lease
would require the tenant to pay a certain amount of money every month, six months, or once
a year. On the contrary, a share lease may require the tenant to give the owner a certain
amount of total production, or of the commodity raised, or hunted on the property. If you
enter into a livestock or crop share arrangement, you may want to address marketing and
storage questions in the lease, as well. This is why it is a good idea to negotiate how the
property will be managed, how expenses will be shared, and how rent will be paid at the
beginning of entering into a lease agreement. This is for your safety in the case that the lease
is breached. You will have documentation written in black and white which will help you in
court to handle this legal issue.
According to Alan Schroeder, choosing between a cash or share lease depends on the party’s goals and preferences toward risk. Fixed cash leases normally involves less (price and
yield) risk and management and marketing responsibilities for landlords, but do not permit
them to take advantage of any price or yield increases that occur.
Small Farms Research
Center
Alabama A&M University
4900 Meridian Street
James I. Dawson Building
RM #219
P.O. Box 700
Normal, AL 35762
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
On the other hand, share arrangements permit or require greater landlord involvement in
management and marketing. This may be a plus or minus, depending upon the party’s goals
and ability to work together. Share arrangements also permit landlords to plan crop and livestock sales to lower their income tax liability. Payments received under share arrangements
are typically subject to self-employment taxes.
If you are going to lease your land for livestock use, cropping use, or non-agricultural use
such as recreation and wind energy development it needs to be made clear in the lease
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agreement. The key is to be specific and try to avoid verbal leases because over time memories fade. Verbal leases
will not help much in the case of a legal issue arising from a breach lease contract because the court will not enforce a lease if it is for a year or more and not in writing.
When entering into a lease agreement or writing a lease, make sure you include a legal description of the property
to avoid the tenant having a misunderstanding the where of the lease. In the event of writing an agricultural lease,
make sure it involves all the property agreed upon. For instance, it should specify the land, buildings, equipments,
water rights, grazing permits, and includes any type of government programs the property is under that you don’t
want violated.
Author: Duncan M. Chembezi, Ph.D. Professor and Director, Small Farms Research Center , Alabama A&M University
Small Farms Research Center, Alabama A&M University
4900 Meridian Street
James I. Dawson Building, Room 219
Normal, AL
35762
Small Farms Research Center Background. The Small Farms Research
Center was developed to assist small farmers with limited resources in Alabama’s underserved communities. The center was first developed in 2000 to
assist minorities, especially women, African Americans and underserved individuals improve their farm management practices, given ones condition and
resources. The mission of the Center and the Small Farmers Outreach program
is to assist all small and limited resources farms effectively deal with risk management and food safety issues and provide them with informational sessions.
The Center has also expanded its outreach efforts to meet the needs of entrepreneurs and businessman. The center is located at Alabama A&M University
in the Dawson Building. The center specializes in following areas
Marketing and Business Plans
-Record keeping and Loan Application
-Identify alternative enterprises
-Personal Management
-Legal Issues
-Finances
-International Business and Procurement
-Accounting Issues
-Taxes
-Business Development
-Conducting seminars on Government programs and other issues
For more information about us give us a call at (256) 372-4970 and 1-866858-4970.
Website: www.aamu.edu/smallfarmers
Cooperating Units: USDA Office of Advocacy and Outreach (OAO), USDA/NIFA/ Beginning Farmers and Ranchers
Development Program (BFRDP), USDA/OAO/Outreach Assistance for Socially Disadvantaged Farmers and
Ranchers (OASDFR) Program, Alabama Cooperative Extension Systems, and Alabama A&M University.
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