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Put It in Writing

When Leasing Pasture, a Handshake Isn't Enough

Landscapes Summer 2014

Many farmers and ranchers think they can do business on a handshake, just like granddad and great-grandfather did — and some producers still operate that way with no problem. But a deal that’s sealed with a handshake alone doesn’t always work out.

When you’re negotiating a pasture lease, it’s fine to shake on the deal in the field, but make sure you actually put the details on paper and have both parties — the lessor and lessee — sign the document, advises Tiffany Dowell, an agricultural law specialist.

“When a problem arises, the lack of written lease agreement can cause major problems for both parties involved,” says Dowell, assistant professor and Extension specialist in agricultural law with the Texas A&M AgriLife Extension Service.

“My advice to all producers is to take the time and invest the money to ensure that all leases are in writing and are reviewed by an attorney. Obtaining a written lease incurs legal fees, but the cost spent to have an attorney review a lease will likely be much less than the costs spent to resolve a dispute down the road,” she says.

Kaye Edwards, a West Texas ranch owner, agrees. During the four years since her rancher-husband passed away, Edwards has leased pastureland in Concho County to two different cattlemen she describes as wonderful tenants.

“In my case, I probably could have done the leases without a written agreement,” she admits. But as an attorney who has practiced real estate law, she didn’t take a chance.

What she developed was a simple threepage document that is not onerous, yet clearly defines the rights and obligations of both the lessor and the lessee.

“It’s simple because I want my lessees to be able to understand it, and to know that I’m not misleading them,” says Edwards, who operates a private law practice in San Angelo and is a customer of Central Texas Farm Credit.

A host of legal considerations may be included in a written lease, including dispute resolution clauses, attorney fee provisions and confidentiality clauses. Following are some of the key terms and resources that Dowell and Edwards recommend you consider when drafting a grazing or bull lease.

Term of the lease

The lease should specify the beginning and termination dates and under what conditions, if any, the lease may be extended after a certain period.

Edwards’ lease can be terminated after one year by either party with 90 days’ written notice. Her lessee has the option to renew the lease for one year under renegotiated terms. Also, the lease can be terminated by either party if water is not available.

Payment of rent

A lease should detail how the rent will be calculated. Rent for most grazing leases is calculated on a per-acre, per-head or peranimal- unit basis. Most bull leases specify that rent is paid monthly. A lease should also specify payment details, including due date, form of payment and penalties for late payments.

Description of lease subject

A lease should describe the subject of the lease and include any limitations that exist. For example, if a party leases 100 acres of land but does not intend to use a particular 10-acre field on the property, this limitation should be spelled out in the lease.

The lease might also spell out limitations on activities that the lessee may engage in, such as hunting or fishing, and by which roads or methods the property may be accessed. If limitations are not listed in a written lease, they do not exist. Edwards, for example, specified that her lessee cannot remove mesquite wood and other items of value from the property.

Stocking rates and disaster contingencies

A grazing lease should specify the allowed stocking rates and include contingencies in case a drought or fire occurs during the lease. It should determine who will make the decision to reduce the stocking rate and spell out the period of notice required before the lessee has to remove livestock if this situation arises.

Similarly, it is important to determine the species and breed of animal that will be allowed to run on leased grazing land.

“A herd of 1,500-pound Charolais cows may require more grass than a herd of 1,000-pound Angus cows, and this issue should be addressed up front to avoid any later disputes,” Dowell says.

Edwards’ lease permits cattle, sheep or goats to be pastured on her land. Because she was concerned about overgrazing, she stipulated that overgrazing would be determined by the standard recommendations of the local USDA office.

Liability and indemnifcation

It is important for both parties to consider terms addressing their liability and indemnification obligations to each other in the event that a problem arises.

If a leased bull injures someone, is the bull owner or the lessee liable? If the lessee digs a posthole and someone steps in it, is the landowner or the lessee liable? These situations must be considered and addressed in a lease agreement.

Maintenance of fixed assets

Usually, says Edwards, “somebody already in agriculture has the mind-set to take care of the land, more so than a hunter would.” Still, it is important that a lease determine which party is responsible for maintaining fixed assets, such as houses, barns, fences and wells.

"Obtaining a written lease incurs legal fees, but the cost spent to have an attorney review a lease will likely be much less than the costs spent to resolve a dispute down the road."

– Tiffany Dowell

Another important consideration is that in many states, permanent structures remain with the property even after a lease terminates. In light of this, a lessee may want to ask the landowner to pay for materials if he intends to build a barn, and the landowner may want to have input on how the barn is designed since it will remain on his land even after the lease ends.

Transferability

It is extremely important for a lease to address issues related to transferability. Is subleasing permitted? Is consent from the landowner required before a sublease may be entered? What are the lessee’s rights if the property is sold during the lease term?

Care of livestock

If part of a lease requires one of the parties to care for another’s livestock, it is critical that the expectations be laid out in detail in a written lease.

One producer’s idea of feeding sufficient hay may be very different from another’s, and unfortunately, these issues often arise when cattle are not adequately cared for, according to Dowell. She notes that some leases offer an incentive to a caregiver for providing a high standard of care. For example, if the breeding rate on heifers is over a certain percentage or if calves gain over a certain amount per day, the caregiver will receive an additional amount in rent payment.

Resources

For more information,

Tiffany Dowell contributed to this article. You can read her Texas Agriculture Law Blog at http://agrilife.org/texasaglaw/about.


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