Communication Necessary During Lease Negotiations

Communication Necessary During Lease Negotiations

Farm tenants need to develop and cultivate trust with their landlords.

Tenants and landlords need to communicate, according to Allan Vyhnalek, University of Nebraska Extension educator. Although this year will probably be an exception, net farm income over the previous five years has risen rapidly. Therefore, land prices and cash rental rates have gone up measurably, Vyhnalek told a group of farmers attending soybean management field days near Platte Center recently. In fact, cash rent has doubled over the past six years.

Allan Vyhnalek talks about lease negotiations during a field day near Platte Center

“When things are this crazy, you need to communicate with your landlord,” he said. Communicating about successes, yield and cropping challenges to landlords helps develop an understanding. He said that tenants should share information with their landlords about their farming practices, non-farmland maintenance and management, precipitation on the farm, typical expenses and an expected price per bushel for the harvested grain.

“Most landlords truly want to be loyal to their tenants,” Vyhnalek said. So tenants should do all they can to develop and cultivate trust with their landlords.

When it comes to negotiating cash lease agreements, Vyhnalek suggested connecting rental rates to productivity of the land. There are numerous ways to establish cash rent, and even flexible cash rent leases that may establish a ceiling to protect the tenant, and a floor, to protect the landlord.

For decisions as important as cash rental rates, Vyhnalek warned landowners to avoid “coffee shop numbers,” because these might not represent the productivity of their own land or provide a good template for their own situation.

It’s better to use average yields over the past five years to establish productivity. Then base the cash rental rates on this average yield times an expected fall market price for the crop at the local elevator. This helps tenants and landowners find an expected gross income per acre. Rental rates can be negotiated from an agreed percentage of this gross income per acre, Vyhnalek said.

If you’d like more information about managing cash leases on crop ground, contact Vyhnalek at 402-563-4901 or email [email protected].

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