Farmland Lease

[kco]

Whatever you plan to do, make sure you know all the rules that surround a agricultural tax exemption. Here in Ohio you have to have at least ten acres in crops before you can apply for the "current agricultural use value" (or cauv) exemption. If you decide to change your mind five years down the road, you have to pay back the money you saved on your taxes for the last three years.

As far as the lease goes, I asked the same question a while back. I lease out six acres to a neighbor (farmer), because it is only six acres I get no tax exemption, but it is six acres I don't have to take care of myself, and he pays me $300 a year. Not a lot, but he's a good neighbor and takes good care of the land.

Mark

Good advice. The same is true for Canada where you can get into a lot of trouble taking tax exemptions and pay a penalty if you decide you don't want to be classed as a farm any longer.

I've had two experiences with 1/4 sections of farmland in Alberta and Manitoba. Both were handshake deals where I paid the taxes, paid 1/3 fertilizer expenses, the farmer paid all other expenses, and I got 1/3 the crop.

The farm in Alberta ran for 25 years. The farmer suggested a written lease a couple of times but we never got around to it. When I sold the 1/4 I got a fair evaluation from a trusted realty expert with the understanding the farmer would get first refusal on any sale the realtor might initiate. I approached the farmer and he bought the 1/4 for the suggested amount less what would have been the realty commission. As a courtesy I also paid the realtor a few thousand dollars for his work (he had a buyer lined up and that helped sell the property) even though there was no obligation to do so.

The farm in Manitoba switched from the 1/3 share-crop, handshake deal when the long-time farmer (same family since 1940's) died. The new farmer is incorporated as a company and wanted a cash rent with fixed term. I pay the taxes, he pays all expenses and does all the work. Although it has changed there is still a "hand-shake" mentality with good farmers. A couple of years ago when grain prices started to rise he suggested we raise the amount of cash payment per acre.

Some terms of the agreement:
The renter gets any government subsidies (except related to property taxes)
The renter won't change water courses or sloughs without owner's agreement
renter won't make changes or improvements other than repairs without owner's agreement
If the owner receive a bona-fide offer to buy the land, the renter has 14 days to purchase the land under the same terms.
At the end of the lease period, the current renter has the right to rerent at a mutually agreeable price or to match other bona fide offers to rent.
The renter has the right to sublet the land. If he rents for a higher amount he will pay 1/2 the difference to the owner.

I come from a time when handshake deals were common and still try to operate that way. But I understand farmers need agreements to do their long-term planning. One suggestion is to look at the potential renter's farm and other lands he farms, and determine if he respects the property under his care.

 

[Patriotic Stabilist]

I cash rent mine for $120 an acre. The farmer bears all the expense. But I have a good guy. We have a small creek running through it, he cleared it and cleaned it up, keeps it maintained also. He also cleared several acres of an old right of way I have and made it farmable.

But ours is in writing, he says either corn or beans and the amount per acre. But he has paid me $10 an acre more the last couple of years and wouldn't be surprised if he doesn't this year if prices are way up. A good old boy for sure.

 

[riptides]

I'll send you the one I use.

But an equine friend tells me he's worried about getting hungry next winter. With the way corn prices are going, lots of hay fields are being plowed for corn. A few acres of hay could make you some very sincere friends.

With three acres? Those friends will not be long lasting.

But a good point, if you can predict what others are doing, and see if something else will put you apart. You may be better off for it.

 

[Larry Caldwell]

Even for 3 acres, get it in writing and nail down all the corners. What do you do if he decides to just use the 3 acres for equipment storage? How do you terminate the lease? What are his responsibilities? What are your responsibilities? What happens if one of you drops dead tomorrow? What is the term of the lease? How is it renewed? What chemicals can he use, and when? What about liability insurance? Who maintains the access? Fences?

For small parcels like that, you can get yourself right into a lawsuit if he raises a hay crop and manages to set the field on fire. You have some writing to do. The problem with verbal contracts is that they are sloppy and memory fades.

 

[polo1665]

I purposely avoided giving advice (for or against) a written lease. A while back I posted the same question and ShenandoahJoe was kind enough to send me a copy of the lease he uses. I decided against it, like I said the guy is a good neighbor and has given me no reason to believe lhe is not trustworthy. He is as much at risk without anything in writing as I am, as far as I see it. If he is willing to trust me, then I will trust him.

Only you know the character and reputation of the farmer you are dealing with. You need to make that decision yourself. Try not to be paranoid about it, just make a good informed decision and stick to your guns.

 

[bdeboer]

Whatever you plan to do, make sure you know all the rules that surround a agricultural tax exemption. Here in Ohio you have to have at least ten acres in crops before you can apply for the "current agricultural use value" (or cauv) exemption. If you decide to change your mind five years down the road, you have to pay back the money you saved on your taxes for the last three years.
Mark

Here in Union county ohio, if it less than 10 acres "owned" you need to state income. You can still declare it as CAUV. If you own more than 10 acres and farm 3 acres you do not have to state income but must still fill out a paper every year. At least this how I qualified on two different parcels. This is from the CAUV application:

"WHAT CONSTITUTES A FARM FOR APPLICATION PURPOSES?
An application must be filed separately for each farm. For this purpose a farm includes all portions of land which are worked as a single unit
within the same county. Although the tracts, lots, or parcels that make up a farm do not need to be adjacent, they must have the same
owner(s).
WHAT DOES "LAND DEVOTED EXCLUSIVELY TO AGRICULTURAL USE" MEAN?
Ohio Revised Code section 5713.30 (A) contains the statutory definition of land devoted exclusively to agricultural use. More information
about qualifying for the program may be obtained from your county auditor or from the actual text in the Ohio Revised Code. The following
is a brief description of the program requirements.
Qualified land is subject to a three year waiting period immediately prior to enrollment. During this time the land must meet the statutory
definition of "land devoted exclusively to agricultural use."
Qualified land includes land used for commercial agricultural activity which is limited to the following activities: commercial animal or poultry
husbandry, aquaculture, apiculture, the production for a commercial purpose of timber, field crops, tobacco, fruits, vegetables, nursery stock,
ornamental trees, sod, or flowers. Land may also qualify if it generates payments or other compensation under a land retirement or
conservation program with an agency of the federal government.
Farms of less than ten acres must produce an average yearly gross income of at least twenty-five hundred dollars from the sale of agricultural
products in order to qualify for the program. If actual income figures are unavailable for the three year waiting period, evidence of anticipated
qualifying income may be submitted Farms totaling more than ten acres do not need to show proof of income to quality.
Woodland acreage on which no commercial timber is being grown man qualify for the program under certain circumstances If the farm listed
on the application has ten acres or more of qualified land and the wooded land is part of or adjacent to that tract, the wooded property may
also qualify for the program. Wooded acreage that is not in commercial production and is part of a farm with fewer than ten acres of
qualified land does not qualify for this program
Some applicants may own mixed-use parcels where only a portion of the land is qualified for the program. These parcels relay be enrolled in
the program as long as the areas are independently qualified under the above guidelines and arc appropriately identified to the auditor."

 

[polo1665]

Here in Union county ohio, if it less than 10 acres "owned" you need to state income. You can still declare it as CAUV. If you own more than 10 acres and farm 3 acres you do not have to state income but must still fill out a paper every year. At least this how I qualified on two different parcels. This is from the CAUV application:

You included quite a bit of info, so I will pare it down a bit. This way you can understand how it applies to me, in Carroll County, Ohio.

Farms of less than ten acres must produce an average yearly gross income of at least twenty-five hundred dollars from the sale of agricultural products in order to qualify for the program.

The section above does not apply to me. My land is not considered a farm, a small portion of it is leased to a farmer for crops. This nets me $300 per year. I'm sure that the crops harvested on the land don't even garner the required $2,500, because the farmer often uses these crops for food or bedding for his cattle.

If the farm listed on the application has ten acres or more of qualified land and the wooded land is part of or adjacent to that tract, the wooded property may also qualify for the program. Wooded acreage that is not in commercial production and is part of a farm with fewer than ten acres of qualified land does not qualify for this program.

This section would tell me that even if I were able to qualify less than ten acres of farm land (which I can't), the rest of my property (approx. 70 acres of woods) would not qualify for the tax break. Hardly worth it IMO, the savings would be peanuts in relation to the total tax bill.

Some applicants may own mixed-use parcels where only a portion of the land is qualified for the program. These parcels relay be enrolled in the program as long as the areas are independently qualified under the above guidelines and arc appropriately identified to the auditor."

This statement pretty much sums up the two above it. "Some applicants" means just that "Some". Unless my local property taxes were absolutely outrageous (which they are not), I do not think I could justify the hassle of qualifying the six acres for CAUV to save me about $50 or less per year.

I think the whole point was to make sure that the OP checks out the laws that apply to him in his state. My example was just that, an example, of my situation in Carroll county, Ohio.

 

[JohnBoyMD]

Oddly enough, I live in Carroll County too. Only in Maryland.

I'm still researching the requirements. I looked at them previously, and felt pretty sure that I qualified. Looked at them again today, and it still seems like I'll qualify since there was no acreage requirement listed on the form. I'm going to call the tax office tomorrow and see what they say. If nothing else, I'm going to be $300 richer from the land than I was last year. :thumbsup:

 

[polo1665]

Oddly enough, I live in Carroll County too. Only in Maryland.

I'm still researching the requirements. I looked at them previously, and felt pretty sure that I qualified. Looked at them again today, and it still seems like I'll qualify since there was no acreage requirement listed on the form. I'm going to call the tax office tomorrow and see what they say. If nothing else, I'm going to be $300 richer from the land than I was last year. :thumbsup:

Checking things out at your local tax office is probably the best way to go. Straight from the horses mouth, so to speak.
Judging from bdeboer's post it would seem that different counties interpret the law in their own way. No surprise I guess. These laws seem overly complicated to me.

 

[bdeboer]

The section above does not apply to me. My land is not considered a farm, a small portion of it is leased to a farmer for crops. This nets me $300 per year. I'm sure that the crops harvested on the land don't even garner the required $2,500, because the farmer often uses these crops for food or bedding for his cattle.

This section would tell me that even if I were able to qualify less than ten acres of farm land (which I can't), the rest of my property (approx. 70 acres of woods) would not qualify for the tax break. Hardly worth it IMO, the savings would be peanuts in relation to the total tax bill.

This statement pretty much sums up the two above it. "Some applicants" means just that "Some". Unless my local property taxes were absolutely outrageous (which they are not), I do not think I could justify the hassle of qualifying the six acres for CAUV to save me about $50 or less per year.

I think the whole point was to make sure that the OP checks out the laws that apply to him in his state. My example was just that, an example, of my situation in Carroll county, Ohio.

The way it was explained to me was the 10 acres or larger then the agricultural portion (6 acres of 11 at my house) could be CAUV without reporting income. At least that is what I have been able to do for the last 3 years on this and another parcel that is 10 acres.

My savings are substantially greater than $50. I would not bother with it for $50 either.