Structuring a lease
Only 37% of Ontario farmland leases are written and many of these might be just a scribbled note on a paper that would be hard to hold up in court. It is strongly recommended to consult a lawyer but here are the necessary details to make the document legal:
The parties Include all legal names and home addresses of tenant(s) and landlord(s).
The property Include a legal description of the property in question (lot, concession, roll number) and specify any buildings or areas included or excluded. It may be helpful here to include total acreage as determined by GPS to clear up any disagreements over size.
The term Include the length of the lease and when/how it will be renewed. The more secure and long-term these agreements are for farmers, the more they can and will invest in conserving and improving soil.
The consideration: Include the rental rate and when/how it will be paid. For agriculture to be sustainable and for farmers to invest in long-term best management, rental rates must also be economically sustainable for farmers. Here are a few options:
- Cash rent A fixed rate built into lease,
- Share-cropping Sharing in both risks and rewards with your farmer, splitting the profit, and requires more involvement in the day-to-day management
- Flexible rental rate A cash rate that is based on a formula and fluctuates depending on yields and crop prices. (See here for examples)
The signatures No document is complete without all parties agreeing to the terms with their signatures and the date. You might even want to add a witness for good measure.
Written leases can be this simple, but while you are at it, there are a few more details that may be useful to include:
Compensation clause If a tenant is investing in land improvements, like tile drainage or an erosion control structure, or even by adding manure, fertilizer or cover crops, it may be beneficial to include a compensation clause for the renter in the case of early termination or unforeseen circumstances. It may also be prudent to include a clause requiring written permission from the landlord before the renter makes alterations to the property (eg. tree cutting or drainage alterations). A compensation clause can also be included for the landowner’s peace of mind, in the case that the renter causes unreasonable damage to the property.
A farmer started renting a 60 acre field on a deal that he would tile the farm and clean it up. The renter paid for the tile and signed an agreement that if the land were sold, he would be compensated a portion of the tile cost at a rate that decreased year by year. Having the written agreement has allowed him to put manure on the land when it becomes available and the soil is improving year after year.
Similarly, another farmer that rents a significant amount of acres near London makes sure that he gets a termination clause included in a written lease on all his rentals. It allows for the landlord to terminate a lease at the end of a calendar year provided that written notice is given before the beginning of September. If notice is given after that date, the clause states that the renter will be compensated for the expenses incurred in preparing the field for the next crop.
Termination clause This would specify the agreed upon circumstances under which a lease could be terminated early. This could include the sale of property (unless the lease was a provision of the sale) in which the renter may ask for the right of first refusal. A rental agreement would also be terminated if the renter fails to pay by the agreed upon date or if he or she disregards any terms of the lease (within 15 days of a written notice, for example).
Buildings on the property If there are buildings on the rental property determine who will use them and maintain them, who will pay insurance and utilities and if the buildings will be able to be sublet to another party.
Environmental stipulations This could include the stipulation of specific stewardship practices on the property based on an annual discussion (eg. the application of manure every three years or the maintenance of a windbreak) or could be as simple as having the tenant agree to adhere to ‘accepted farm practices and Ontario’s environmental regulations.’