FOR RETIRING FARMERS AND THEIR FAMILIES
When does a flexible farm lease work, and when doesn't it?
By Sam Marwood
A flexible farm lease sets a lower base rent and adds a share of the farm's operating profit on top, so the rent moves with the season. It works on some farms and for some owners, and on others it's the wrong tool.
When it works
The country is variable. The more the seasons swing, the more a fixed rent hurts somebody. Flexible rent means neither of you is betting the whole arrangement on the weather.
You want to stay involved in how the farm goes. A fixed lease makes the owner indifferent to the season. Some owners are glad of that, and others hate it, particularly if it's the farm they built. A flexible lease keeps you connected to the outcome.
The tenant's cash flow can't survive a bad year at full rent. That isn't a weakness in the tenant, it's a fact about farming, and the structure accommodates it.
When it doesn't
The owner needs a predictable number. If the rent is servicing a debt or funding a fixed cost of living, a share of operating profit is the wrong tool. That owner needs a fixed lease and should say so.
Neither of you trusts the other's numbers. A profit share means someone has to calculate profit and the other party has to believe it. If that's going to be a problem, you've found out something useful before you signed rather than after.
Ownership is the goal. A flexible lease has no ownership path in it. The tenant is still a tenant, there's no option to buy unless one is negotiated separately, and the title stays where it was.
If ownership is the goal, negotiate an option into the lease, or accept that this is a way of farming rather than a way of buying.
The lease is a short one. A one to three year lease with yearly renewal doesn't work for much at all. Read why here: What kills a flexible farm lease?.
Before you decide
Work out whether you need a predictable number, and whether you and the tenant would trust the same profit figure.
Then run the formula across a good year, an average year and a genuinely bad one. Both of you look at all three numbers.
If you can't live with the bad year, or the tenant can't live with the good one, the formula is wrong, and it's much cheaper to find that out before you sign.
Your own solicitor and your own accountant should read the lease before you sign it. The questions for the person taking the lease are here: What to ask your solicitor and accountant before you lease a farm.
Read more: What each side gives up under a flexible farm lease.
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.