Most read articles
|Beyond a handshake: The importance of written leases|
|Written by Tiffany Dowell|
|Friday, 18 October 2013 10:36|
Many producers are accustomed to negotiating leases in pasture and never putting anything in writing. Often these arrangements work fine, and no written documentation is ever needed.
But when a problem arises – and there are litany of situations under which problems can arise – the lack of written lease agreement for either grazing land or a bull can cause major problems for both parties involved.
The best practice for all producers is to take the time and invest the money to ensure that all leases are in writing and are reviewed by an attorney.
Here are a few key terms that should be considered when drafting written grazing or bull leases:
• Term of the lease – The lease should specify when it will terminate and under what conditions, if any, the lease may be extended after a certain period.
• Payment of rent – A lease should set forth in detail how rent should be calculated. Rent for most grazing leases is calculated on a per-head, per-animal-unit or per-acre basis.
Most bull leases are written so that rent is paid on a monthly basis. A lease should also specify various payment details including when rent will be due, how it shall be paid and specific penalties for late payments.
• Description of lease subject – A lease should specifically describe the subject of the lease and must include any limitations that exist. For example, if a party leases 10 acres of land but does not intend to lease the apple orchard on the northwest acre, this limitation should be spelled out in the lease.
If limitations are not listed in a written lease, they do not exist. Other important limitations to consider include limitations on activities that the lessee may engage in, such as hunting or fishing, and by which roads or methods the property may be accessed.
• Stocking rates and disaster contingencies – Grazing leases should specify the allowed stocking rates and should include contingencies in case a drought or fire occurs during the lease.
It should be determined who will make the decision to reduce the stocking rate and a set period of notice to be required before the lessee has to remove cattle if this situation arises.
Similarly, it is important to determine the species and breed of animal that will be allowed to run on leased grazing land.
A herd of 1,500-pound Charolais cows may require more grass than a herd of 1,000-pound Angus cows, and this issue should be addressed up front to avoid any later disputes.
• Transferability – It is extremely important for a lease to address issues related to transferability. Is subleasing permitted? Is consent from the landowner required before a sublease may be entered? What are the lessee’s rights if the property is sold during the lease term?
• Liability and indemnification – It is important for parties to a lease to consider terms addressing their liability and indemnification obligations to each other in the event that a problem arises.
If the leased bull injures someone, is the bull owner or the lessee liable? If the lessee plows the ground in preparation for planting corn and someone trips and falls, is the landowner or the lessee liable? These situations must be considered and addressed in a lease agreement.
• Maintenance of fixed assets – It is important for a lease to determine which party is responsible for maintaining fixed assets like houses, barns, fences and wells.
Another important consideration is that in many states, permanent structures remain with the property even after a lease terminates.
In light of this, a lessee may want to ask the landowner to pay for materials if he intends to build a barn, and the landowner may want to have input on how the barn is designed since it will remain on his land even after the lease ends.
• Care of livestock – If part of a lease requires one of the parties to care for another’s livestock, it is critical that the expectations be laid out in detail in a written lease.
One producer’s idea of feeding sufficient hay may be very different than another’s, and unfortunately, these issues often arise when cattle are not adequately cared for.
An interesting term that has appeared in some leases involves offering an incentive for a caregiver for providing a high standard of care.
For example, if the breeding rate on heifers is over a certain percent or if calves gain over a certain amount per day, the caregiver will receive an additional amount in rent payment.
This type of incentive may be useful to ensure quality care for livestock under the control of another. Finally, for parties entering into a bull lease, it is important to determine who will be liable for death or injury to the bull as well as death or injury caused to a person by the bull.
• Legal considerations – A host of legal considerations may also be included in a written lease, including choice of law provisions, forum clauses, dispute resolution clauses, attorney fee provisions and confidentiality clauses.
Obtaining a written lease does add the cost of legal fees, but the cost spent to have an attorney review a lease will likely be much less than the costs spent to cure a dispute down the road. Additionally, there are things a producer can do prior to taking the lease to an attorney that will save money.
Because most attorneys charge by the hour, any work the producer can do before going to the attorney’s office will save money once he or she arrives. For example, a producer should gather up all documents and legal descriptions an attorney may need to see in reviewing a lease.
Further, a producer could make an attempt at drafting as much of the written lease as possible before taking it to the attorney, thereby allowing the attorney to review and edit rather than begin from scratch.