Air January 15 - 19, 2007
Ag Lease Issues
This is Ag Outlook 2007 on 1420 KJCK, I'm Chuck Otte, Geary County, K-State Research and Extension Ag & Natural Resources Agent. With agricultural leases there are always issues that seem to come up over and over and over again. Let's focus on pasture leases and pasture lease issues in this segment. I am almost adamant that pasture leases have to be in writing. One of the key reasons for this is that with the change in the ag lease law several years ago, pasture leases are just like crop land leases and if the lease is an oral lease, the lease runs from March 1 to March 1. You may specify that cattle go in no sooner than May 1st and come out by October 31st, but the tenant still controls the land the other 6 months UNLESS you have a written lease. And there may even be some question as to whether you can specify an in and out date with an oral lease because the lease extends total control to the tenant. Get it in writing and be specific. Water can be an issue in Flint Hills pastures. The law is silent about the responsibility of a landlord to ensure that water is available. Unless it is written up in a contract otherwise, the pasture is leased as is. If the pond or the spring or the creek goes dry, that is too bad - the landlord has no responsibility to do anything about it. Fences, unless specified otherwise are the responsibility of the landlord. Ultimately, control of noxious weeds, according to the law, are the responsibility of the landlord. If you are the property owner and want the fences and noxious weeds to be the responsibility of the tenant, then write it into the lease, but you had better be willing to make some adjustments in the lease rate for these added responsibilities! This has been Ag Outlook 2007 on the Talk of JC, 1420 KJCK, I'm Chuck Otte.
Who Pays For What?
This is Ag Outlook 2007 on 1420 KJCK, I'm Chuck Otte, Geary County, K-State Research and Extension Ag & Natural Resources Agent. When I first started as a county agent, now 25 years ago, crop share rent agreements were pretty simple. The landlord got 2/5ths of the crop and paid for 2/5ths of the fertilizer, any chemicals needed and sometimes 2/5ths of the seed. The tenant paid for everything else. Well, times have changed. We are replacing pre-plant and post harvest tillage with herbicides. We have technology fees to pay on the seed we plant. The value of the land has jumped, a lot, as has the cost of energy. So who does pay for what? Contrary to long held notions, the law is very quiet about who is responsible for what. There are a lot of traditions and traditions can become a form of local law, but they seldom carry much weight in a court of law if a lease becomes a contested issue. The rule of thumb has always been that anything that is a yield increasing input should be a shared expense. So, fertilizer should be shared as should insecticide, fungicides, lime, herbicides used to control weeds in the growing crop and probably need to include seed in that also. What many producers are doing with the preplant burndown herbicide, which accomplishes what we used to do with tillage is to pay for all of that themselves. I would challenge, though, is that no till farming often increases yields in extremely dry years and therefore needs to be a shared expense. But better yet, don't lock yourselves into who pays for what. Simply take the time to determine the total contributions made by each party and then split the crop by the same shares of what each party puts into the growing crop. It's a simple concept that is known as equitable participation. This has been Ag Outlook 2007 on the Talk of JC, 1420 KJCK, I'm Chuck Otte.
Equitable vs Fair
This is Ag Outlook 2007 on 1420 KJCK, I'm Chuck Otte, Geary County, K-State Research and Extension Ag & Natural Resources Agent. The concept that I like to call equitable participation in a lease simply means that each party gets out of the crop what they put into the crop. You look at land value, labor value equipment and energy costs, etc. etc. and if you provide 2/3 of the costs of producing the total crop, you get 2/3 OF that crop. When landlords or tenants come and talk to me about crop share leases, they always want to do what is fair. The problem is that FAIR is a judgement call. What's fair to me isn't necessarily fair to you. What we need to consider is what is equitable. Equitable is a mathematical calculation that is just like what I described. What portion of the crop you get is determined by what portion of the input costs you contribute. The method is simple, you figure out ALL the costs, and I do have worksheets and spreadsheets to help you determine this, and which expenses are going to be shared expenses. You don't calculate 1/3 - 2/3 of 2/5th - 3/5ths, we just want to know which expenses are share. You then put together the entire production cost, look at the unshared costs and what % of the total contributions each party is making and then share the shared costs and the crop by those percentages. When we do this, we find that many 60/40 crop shares are often 2/3 - 1/3. The tenant is getting 60% of the crop, but in reality is providing 67% of the production costs. What these calculations can do is to provide a starting point to determine and negotiate what kind of crop share you will have. If each party is stuck on what share and what costs each will pay, and they don't match up, you've got a problem that won't be solvable. This has been Ag Outlook 2007 on the Talk of JC, 1420 KJCK, I'm Chuck Otte.
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