FOR RETIRING FARMERS AND THEIR FAMILIES
What kills a flexible farm lease?
By Sam Marwood
These are the things that end a flexible farm lease, or leave it running while the farm slowly runs down.
A lease too short to matter
This is the most common failure, and it's quiet. A one to three year lease with annual renewal gives a tenant no reason to put money in and no security to build on.
It can run for a decade renewing yearly while the farm slowly runs down and the tenant accumulates nothing. A tenant needs a term long enough to recover what they put in, or a written agreement that pays them for improvements when they leave.
Rent that detaches from returns
Where the review is tied to land value on a long lease and values run ahead of agricultural income, the rent becomes unpayable through nobody's fault. The arrangement fails on arithmetic.
A profit share nobody can agree on
Loose definition, thin records, one party doing the sums. This is the specific failure of the flexible structure, and it's entirely preventable at the drafting stage.
Nothing in writing
Without a written lease, the terms are hard to prove, and it's definitely a problem when the improvements question comes up. Whether a spoken lease would hold for this term in this state is a question for a solicitor.
A term that ends
A flexible lease manages a farm for a term. When the term ends, the next tenant or the next buyer decides what the place becomes. It solves cash flow and it doesn't settle the future.
What to do about each
If the term is one to three years, it needs to be long enough for the tenant to recover what they spend, or the lease needs to say what they're paid for improvements when they leave.
Fixed rent is usually a percentage of land value, and it's paid out of farm profit. Those two numbers don't move together, so a review tied to land value rather than farm returns brings the problem back.
Write the profit share as a base, a share, a share of what, who does the sums, from which records, who checks them, and when it's paid. No clause settles what the farm becomes after the term.
What has to be written down is here: What has to be in a flexible farm lease?.
Read more: When does a flexible farm lease work, and when doesn't it?.
This is general information, not legal or tax advice.
The full guide, Ageing on Farm, is free at cultivatefarms.com/resources.
You can build your own plan at cultivatefarms.com/plan.