Considerations When Leasing Farmland in Nebraska

Leasing farmland is a significant decision involving careful planning and understanding various factors. Whether you're a landowner looking to lease out your property or a farmer seeking to expand operations, knowing the key considerations can lead to a successful and mutually beneficial arrangement. These considerations become even more crucial in Nebraska, where agriculture is a cornerstone of the economy. Below are some major factors you should consider when leasing farmland in the Cornhusker State.

1. Understanding Different Types of Farmland Leases

Before entering into a lease agreement, it's essential to understand the various types of leases available. The type of lease will influence how income is shared, who bears the financial risks, and how the lease is structured. These are the most common types of leases seen on agricultural land:

Cash Rent Lease

• Definition: The tenant pays a fixed cash amount per acre or for the entire farm, typically annually or semi-annually.

• Summary: This is the most common lease agreement type and continues gaining traction.

• Pros: Predictable income for the landowner; simple agreement.

• Cons: Tenant bears all the production and price risks.

Crop Share Lease

• Definition: The landowner and tenant share the input costs and the crop revenue.

• Summary: This is becoming consistently less common and is generally seen when the landowner previously farmed. It requires good communication about who will make decisions on each topic.  

• Pros: Shared risks and rewards; aligns interests of both parties.

• Cons: More complex accounting; income for the landowner can vary.

Flexible Cash Lease

• Definition: A base cash rent is established with potential adjustments based on yields, prices, or revenue.

• Summary: This new and emerging hybrid places a small amount of the risk and benefit on the landowner.

• Pros: Balances risk between landowner and tenant; adjusts for market conditions.

• Cons: Requires clear terms and understanding; potential for disputes if not well-defined.

Tip: Choose a lease type that aligns with your financial goals, risk tolerance, and desired level of involvement in the farming operation.

2. Knowing the Local Market and Rental Rates

Understanding the local farmland rental market is crucial for setting a fair lease rate.

• Factors Influencing Rental Rates:

  • Soil Quality: Fertility and productivity can significantly affect rental value.

  • Location: Proximity to markets, grain elevators, and input suppliers.

  • Market Conditions: Commodity prices and input costs.

  • Land Improvements: Irrigation systems, drainage, fencing.

• Resources for Determining Rental Rates:

  • University of Nebraska-Lincoln Extension: Publishes annual surveys on farmland values and rental rates at https://agecon.unl.edu/realestate.

  • Nebraska Farm Real Estate Report: Provides regional data on rental rates at https://cap.unl.edu/realestate.

  • USDA National Agricultural Statistics Service (NASS): Data about cash rent prices gathered from surveys is available in its database at https://quickstats.nass.usda.gov/.

  • Local Ag Lenders and Realtors: Can offer insights into current market conditions.

It is essential to ensure that the rent stays competitive with local rates. Including provisions for periodic rent reviews in the lease can help adapt to changing market conditions.

Tip: Conduct thorough research and consider consulting a professional appraiser or extension agent to ensure the lease rate is competitive and fair.

3. Legal and Contractual Details

A well-drafted lease agreement is the foundation of a successful leasing relationship.

• Importance of a Written Agreement: Verbal agreements can lead to misunderstandings. A written contract protects both parties. This is important even if both parties seem to be in complete agreement because when it is placed on paper, it forces them to think about the situation holistically.

• Key Elements to Include:

  • Names of Parties: Full legal names of landowner and tenant.

  • Property Description: Legal description of the leased land.

  • Lease Term: Start and end dates, renewal options.

  • Rental Rate and Payment Terms: Amount, due dates, payment method.

  • Responsibilities: Maintenance, repairs, inputs, and conservation practices.

  • Termination Clause: Conditions under which the lease can be ended.

• Nebraska-Specific Legal Considerations:

  • Landlord's Lien: Nebraska law grants a landlord’s lien on crops grown on the leased property to secure unpaid rent. This means the landowner has a legal claim over the tenant’s crop yield if rent goes unpaid, adding an extra layer of security for the landowner. However, this also means tenants should be aware of this lien and communicate openly if financial difficulties arise.

  • Termination Notice: For year-to-year leases, Nebraska requires written notice six months before the end of the lease year. Terminating farmland leases, particularly verbal or "handshake" agreements, is governed by legal precedents rather than specific statutes. The Nebraska Supreme Court has established that for year-to-year verbal leases, the lease year begins on March 1, and a six-month advance notice is required to terminate the lease, making September 1 the critical deadline for providing such notice.

  • Fence Law Terms: Nebraska's Fence Law impacts farm leases, especially for leases involving livestock. This law outlines who is responsible for maintaining partition fences between properties, which can affect the obligations of both landlords and tenants. Lease agreements should clarify who is responsible for maintaining fences and ensuring livestock containment.

Tip: Consider having an attorney review the lease agreement to ensure compliance with Nebraska laws and that all necessary provisions are included.

4. Water Rights and Irrigation Responsibilities

Access to water is a critical issue in Nebraska, particularly when the land requires irrigation. Lease agreements should clearly outline who is responsible for maintaining and operating irrigation systems and paying for water usage. In Nebraska, many farms rely heavily on irrigation from local water sources regulated by Nebraska Natural Resources Districts (NRDs). Tenants and landowners should carefully define in the lease who holds the water rights, who will manage the irrigation systems, and how water use will be monitored. Given Nebraska's strict water regulations, any violation of water rights could result in legal penalties, so it’s crucial that both parties understand their responsibilities regarding water use.

Tip: Clearly outline water rights and irrigation responsibilities in the lease agreement and consult with an expert for guidance on water regulations compliance. This can help prevent misunderstandings and avoid costly penalties.

5. Soil Health, Conservation, and Land Use Practices

Maintaining the farmland's productivity is in the landowner's and tenant's best interest. Nebraska farmland varies greatly, from the sandy soils of the Sandhills to the rich loess of eastern Nebraska. This means that soil conservation and erosion control are important considerations. In areas where it is needed, lease agreements should include provisions requiring sustainable farming practices, such as crop rotation or no-till farming, to maintain soil health and productivity. This is particularly important when leasing land enrolled in the Conservation Reserve Program (CRP), as CRP contracts impose specific land-use restrictions that must be followed. Some practices to consider including are:

• Assessing Soil Quality: Soil tests can provide nutrient level and pH information.

• Conservation Programs: Know any existing Conservation Reserve Program (CRP) contracts or conservation easements.

• Sustainable Practices: Implementing crop rotations, cover crops, and no-till farming can improve soil health.

• Responsibilities:

  • Landowner: May be responsible for long-term improvements like terraces or drainage.

  • Tenant: Typically handles day-to-day farming practices and minor repairs.

Tip: Include specific conservation and land use practices in the lease agreement to ensure mutual understanding and commitment to long-term soil health.

6. Risk Management and Insurance

Farming involves inherent risks, and addressing how these will be managed is important.

• Crop Insurance:

  • Tenant's Responsibility: Typically, the tenant purchases crop insurance to protect against yield losses.

  • Landowner's Interest: In crop share leases, the landowner may share crop insurance's cost and benefits.

• Liability Insurance:

  • Coverage: Protects against accidents or injuries that occur on the property.

  • Who Should Carry It: Both parties should have appropriate liability insurance.

• Sharing of Risks:

  • Flexible Lease Agreements: Can help balance market risks between the landowner and tenant.

  • Disaster Clauses: Consider including provisions for natural disasters or significant crop failures.

Tip: Discuss risk management strategies openly and include insurance requirements and responsibilities in the lease agreement.

Conclusion

Leasing farmland in Nebraska involves more than just agreeing on a rental rate. By understanding the different types of leases, knowing the local market, paying attention to legal details, focusing on soil health, and addressing risk management, both landowners and tenants can create a successful partnership. Open communication and a well-drafted lease agreement are key components that contribute to the long-term success of the farming operation.

If you're navigating a farmland lease in Nebraska, Midwest Ag Law would love to be your trusted partner. With our deep-rooted experience in both agriculture and law, we understand the unique challenges and opportunities that Nebraska land leases present. Midwest Ag Law focuses on creating clear, fair, and legally sound lease agreements tailored to protect your interests and foster strong tenant-landowner relationships. Whether you're a landowner seeking peace of mind or a tenant looking for a fair agreement, we can guide you every step of the way. Contact Midwest Ag Law today to ensure your leasing arrangement is set up for long-term success.

Disclaimer: The information provided in this blog is for general informational purposes only and is not intended to be legal advice. Reading this blog does not establish an attorney-client relationship between you and Midwest Ag Law. You should not act upon any information in this blog without seeking professional legal counsel. Laws may change, and each situation is unique; therefore, consult an attorney for advice regarding your specific circumstances. Midwest Ag Law expressly disclaims any liability concerning actions taken or not taken based on the content of this blog.