Indiana Cash Farm Lease

EC-257-W

Purdue University Cooperative Extension Service • West Lafayette, Indiana

Farm Management

ECONOMICS

Agricultural

Introduction

A written cash farm lease agreement serves two functions. First, it provides a record of the specific agree-

ment. While an oral lease is valid and widely used, disagreements can arise because of forgetfulness, a

misunderstanding of exactly what was agreed upon, or the death of one of the parties to the lease. The process

of writing an agreement tends to prevent oversights and misunderstandings, improve communication between

the parties, and provide specifics regarding the parties’ intentions and a written record for heirs.

The second function of a written lease is to provide legal proof of the agreement. This publication includes

a blank cash lease form designed to help landlords and tenants put their agreement in writing. The included

form is not intended to substitute for the advice of an attorney regarding the legal aspects of a lease, but rather

to raise issues that need to be considered in the development of a lease agreement.

The publication first presents some explanations and suggestions for appropriate use of the cash lease form.

Where applicable, these are keyed to specific sections of the form. For additional information on the legal

aspects of a farmland lease, see Legal Aspects of Indiana Farmland Leases and Federal Tax Considerations,

EC-713, available on the Web at <http://www.agcom.purdue.edu/AgCom/Pubs/EC/EC-713.pdf>.

Indiana Cash Farm Lease

Craig L. Dobbins and J. H. Atkinson, Extension Economists

Department of Agricultural Economics

Purdue University

Suggestions for Use

Will a Cash Lease Meet Your Needs?

A cash farm lease fits a tenant who has financial

resources to pay for all production inputs, including

rent; who can make all management decisions; and

who can withstand the fluctuations in revenue

resulting from price and yield variations. The cash

tenant pays the landlord a fixed amount, usually part

in advance, for the use of farm real estate and

receives all of the resulting production. The tenant

pays all costs of production and thus assumes all

production risks (drought, insect, hail, etc.) and all

price risks.

On the other hand, the cash tenant receives all of

the rewards from favorable weather and prices, and

from superior management and marketing skills. The

cash tenant needs sufficient financial reserves to pay

the rent and production costs and to bear the risk

involved. The tenant also enjoys the convenience of

not needing to separate out the landlord’s share of

the crops or having to be sure that input costs are

properly divided. The tenant also gains some flex-

ibility regarding planting dates.

A cash farm lease fits a landlord who may be

unable or unwilling to pay part of production costs

and bear the risks of a crop-share arrangement.

Many landlords need a secure return from their land

in order to meet living expenses. Others prefer not to

be bothered with the division of production required

with share leases; paying bills for production ex-

penses; making decisions about pricing, storage, and

LDPs; and trying to understand modern production

methods.

Change the Lease to Meet the

Individual Farm Situation

The form included with this publication is in-

tended to serve as a guide to aid landlords and

tenants in preparing cash leases. Changes should be

made in the form when necessary to meet the needs

of a specific situation. Provisions that are not desired

Indiana Cash Farm Lease • EC-257-W2

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should be deleted. Provisions can be added. These

changes may necessitate retyping the form.

The form included serves only as a guide to

illustrate important considerations in the construc-

tion of a written cash lease. This form cannot

substitute for the advice of an attorney regarding the

legal aspects of a lease.

Length of Term of the Lease

(Section I, Item 3)

Some cash leases have a clause providing for

continuation of the agreement from year to year

unless written notice of termination is given by

either party to the other on or before a specified date,

but Item 3 of this lease form provides for a specific

termination date. Termination often is after one year,

but may be longer. The specific termination date

forces re-negotiation of the amount of cash rent and

prevents the possibility that, due to negligence in

giving a termination notice, one party may become

obligated for an undesirable agreement.

Land Use and Cropping Program

(Section II)

The interest of the landlord in maintaining the

long-term productivity of land may require restric-

tions on land use. Item 1 indicates acreages of major

land use categories: cultivated land, permanent

pasture, and woods. Some farms also have Conser-

vation Reserve Program (CRP) acreage. This land

would normally not be included as tillable land.

Item 2 (maximum acreage of corn and beans)

might apply on a rolling farm that should not be

row-cropped every year.

Amount of Rent (Section III, Item 1)

Productivity of the soil, often measured in typical

or average corn yields, is important in determining

the amount of rent. Other factors to consider include

fertility levels (best measured by soil tests), weed

problems, field size, drainage, and location. Space is

provided in Item 1 to record the rent separately for

tillable and non-tillable bare land and for buildings.

Obtaining information about cash rental rates on a

local basis is often difficult. Some lenders and local

Extension Educators have a good “feel” for the land

rental market. The USDA collects cash rent informa-

tion as of January 1 of each year and publishes a

statewide estimate of rent per acre. This information

usually is available in the spring and can be obtained

from the Indiana Agricultural Statistics Service,

Purdue University, West Lafayette, Indiana, 47907

<http://www.nass.usda.gov/in/prices.html>. Purdue’s

Department of Agricultural Economics also collects

cash rent information for three land classes and six

sub-areas of the state. The information is published

in the August or September issue of Purdue Agricul-

tural Economics Report, located on the Web at

<http://www.agecon.purdue.edu/ext/paer/>.

Tenants could do a cost/return analysis before

agreeing on a cash rent figure. Cash rents may be at

a level where it is difficult for some tenants to cover

all of their per acre costs, including family labor.

Rents may be bid up by tenants with superior

management ability and/or those who have excess

machinery and labor capacity, the cost of which will

go on whether or not they farm extra acreage. Cash

rents can also be bid up by individuals willing to

charge only a small amount for their labor or ma-

chinery investment. For the business to be sustain-

able, the return must be large enough to cover

expected depreciation, interest, etc.

Landlords may also be interested in a cost/return

analysis as a guide in establishing rental rates. They

should remember that a satisfactory tenant/landlord

relationship is one in which the tenant has a reason-

able opportunity to pay all cash costs of production

and earn a satisfactory return for unpaid labor and

machinery use. ID-166, 2002 Purdue Crop Guide,

contains production cost estimates for crop enter-

prises and is available on the Web at

<http://www.agecon.purdue.edu/ext/pubs/

crop_guide_02.pdf>.

Time of Payment (Section III, Item 2)

Time of rent payments (Item 2) varies widely. In a

few cases, a single payment is made, either in

advance or after harvest. In some agreements, rent is

paid monthly as a convenience to landlords who rely

heavily on rent to defray living costs. As compared

to the fairly common two rental payments (often in

March and December), rent paid fully in advance

would logically be less, and rent would be more if

paid in full after harvest.

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Indiana Cash Farm Lease • EC-257-W

Landlord and Tenant Agreements of

Responsibility (Sections IV and V)

Landlords and tenants need to discuss what they

expect of each other. Possibilities and options are

presented in Sections IV and V. The landlord paying

for lime is by no means universal. Item 4 of Section

IV allows this to be a shared cost. If the tenant pays

for all or part of the lime, it would be logical to

have a provision in the lease for the landlord to pay

the tenant for the residual lime when the lease is

terminated.

Item 6 of Section V is not found in some leases,

but it is important in keeping the farm eligible to

participate in federal farm programs. Major require-

ments relate to wetlands, land clearing and drainage,

and compliance with soil conservation requirements.

Details can be obtained from your county FSA office

<http://www.fsa.usda.gov/IN/>.

Item 7 of Section V (storage and use of pesticides)

has become more important in recent years. Expen-

sive clean-up procedures can result from chemical

spills (including tractor and motor vehicle fuels and

oils), improper disposal of containers, rinsing of

sprayer equipment near water supplies, etc. It is in

the interest of both tenant and landlord to avoid

these expenses because either or both parties may be

held liable. Chemical application records (material

used, rates, dates, location, etc.) are required to be

kept.

Specification of minimum and maximum rates of

fertilizer, Item 9, Section V, is included because of

the interest of the landlord in maintaining soil

fertility and in preventing excess nitrogen from

leaching into ground water.

Rights and Enforcement

(Sections VI and VII)

Sections VI and VII pertain, respectively, to the

rights and privileges agreed to by the landlord and

tenant, and to the means of enforcing those agree-

ments. The provisions presented in the sections

provide example considerations that can be modified

to fit the specific situation.

Renewal (Section XR 1-4)

The lease form does not contain provisions for

automatic renewal, but Section XR can be used to

renew the lease for another year and to specify the

amount of rent. If other changes are needed to the

contract, it is possible to make these changes in

writing and have them dated and initialed by the

parties of the contract. However, this can lead to

confusion about the intent of the parties. Given the

ease with which word processors can be used to

make changes, it may be a better business practice

to make the necessary modifications to the original

agreement with the parties signing the new

agreement.

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EXAMPLE

Indiana Cash Farm Lease Form

This Cash Farm Lease form can provide the landlord and tenant with a guide for developing an agreement

to fit their individual situation. This form is not intended to take the place of legal advice pertaining to con-

tractual relationships between the two parties. Because of the possibility that a farm operating agreement may

be legally considered a partnership under certain conditions, seeking proper legal advice is recommended

when developing such an agreement.

Section I. Date, Contracting Parties, Description of Property, and Terms of the Lease

1. This lease is made this _________ day of _____________ 20____, by and between

___________________________________________ hereinafter called the Landlord(s), and

_________________________________________ hereinafter called the Tenant(s).

2. The Landlord, hereby leases to the Tenant, to use for agricultural purposes as described in Section II,

Item 1 (below), the acreage __________________________________ (name of farm) farm,

containing ________ acres, located in __________________ Township, _________________

County, State of _________________, described as follows:

________________________________________________________________, with all

improvements thereon except __________________________________.

3. This lease agreement shall become effective on the _________ day of ________________, 20______

and shall terminate on the _____________ day of ________________, 20___________. The Tenant

agrees to contact the Landlord _________ days prior to the termination date to consider re-

negotiating for the following year the amount of rent and other terms and conditions of this lease.

4. Amendments and alterations to this lease shall be in writing and shall be signed by both the Landlord

and the Tenant.

5. This lease shall not be deemed to be, nor is it intended to give rise to, a partnership relation.

6. The provisions of this lease shall be binding upon the heirs, executors, administrators, and successors

of both Landlord and Tenant in like manner as upon the original parties, except as provided by mutual

written agreement.

Section II. Land Use and Cropping Program

1. Approximately _______ acres of the farm are to be cultivated, ______________ acres are to remain

in permanent pasture, ____________ acres in woods not to be grazed. The tracts that are to be

included in respective classes shall be designated by the Landlord at the beginning of this lease.

2. The combined annual acreage of corn and soybeans shall not exceed _______ acres.

3. The extent of participation in government programs will be discussed and decided upon on an annual

basis. The course of action agreed upon shall be placed in writing and signed by both parties. A copy

of the course of action so agreed upon shall be made available to each party.

4. No permanent pasture shall be plowed without the written consent of the Landlord.

5. Land previously placed in a government program, such as the Conservation Reserve Program, shall

not be included in the lease, and any payments related thereto shall accrue to the landlord.

6. Hunting rights will/will not be retained by the landlord.

Prepared by Agricultural Economists Craig L. Dobbins and J.H. Atkinson

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EXAMPLE

Section III. Amount of Rent and Time of Payment

1. The Tenant shall pay to the Landlord the sum of $_____________ annual rent for the entire acreage

referred to in Section I, calculated as follows:

_____ acres of tillable land @ $______ per acre $________

_____ acres of non-tillable land @ $_____ per acre $________

Building rent for: dwelling $________

grain bins $________

other ________________ $________

Total annual cash rent $________

2. The annual cash rent shall be paid as follows:

$______________ on or before __________________, 20_______

If rent is not paid when due, the Tenant agrees to pay interest on the amount of unpaid rent at the rate

of _____ percent per annum from the due date until paid.

Section IV. The Landlord Agrees to:

1. Furnish the land and the fixed improvements referred to in Section I.

2. Pay all taxes and the assessments against the real estate and all taxes on the Landlord’s personal

property on the farm.

3. Furnish materials and labor for mutually agreed upon repairs, improvements, and construction of

buildings, drains, and fences on the farm. To pay for materials purchased by the Tenant for purposes

of repair and maintenance in an amount not to exceed $_________ in any one year, except as

otherwise agreed upon. Reimbursement shall be made within ________ days after the Tenant submits

the bill.

4. Furnish _______ % of the limestone used on the farm, together with ______ % of hauling and

spreading costs. If the Tenant hauls and/or spreads the limestone furnished by the Landlord, the

Landlord shall pay the Tenant the customary rate per ton for such work as agreed upon in writing

before the work is done.

5. Replace or repair as promptly as possible the dwelling or any other building or equipment regularly

used by the Tenant that may be destroyed or damaged by fire, flood, or other cause beyond the

control of the Tenant and, until such replacement or repair is made, to compensate the tenant as

follows:

__________________________________________________________________________________

6. Other responsibilities of the Landlord:

Let the Tenant make minor improvements of a temporary or removable nature, which do not mar the

condition or appearance of the farm, at the Tenant’s expense. The Landlord further agrees to let the

Tenant remove such improvements at any time this lease is in effect or within ________ days

thereafter, provided the Tenant leaves in good condition that part of the farm from which such

improvements are removed. The Tenant shall have no right to compensation for improvements that

are not removed except as mutually agreed.

7. Reimburse the Tenant at the termination of this lease for field work done and for other crop costs

incurred for crops to be harvested during the following year. Unless otherwise agreed, current custom

rates for the operations involved will be used as a basis of settlement.

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EXAMPLE

Section V. The Tenant Agrees to:

1. Follow the farming practices that are generally recommended for and that are best adapted to this type

of farm and for this locality unless other practices are agreed upon.

2. Furnish all labor, power, machinery, and movable equipment and all related operation and

maintenance expenses to operate the farm except as follows:

__________________________________________________________

3. Furnish all labor for minor repair and the minor improvement of buildings, fences, and drains with the

material to be furnished by the Landlord. The buildings, fences, and other improvements on the farm

are to be kept in as good condition as they are at the beginning of the lease, or in as good condition as

they may be put in by the Landlord during the term of the lease; ordinary wear, depreciation, or

unavoidable destruction excepted.

4. Cut the weeds in lots, fence rows, and along roads to prevent reseeding. Mow permanent pastures at

least once each year when it is most effective to destroy weeds and other undesirable plants.

5. Keep livestock out of the fields when the soil is soft, and protect sod crops, especially new seedings,

from too close grazing that might impair the following year’s crop.

6. Follow NRCS and/or FSA recommendations and fulfill all other requirements necessary to maintain

the rights of current and future tenants of this farm to participate in federal farm programs. Planted

acreages and yields of crops shall be reported as required by FSA.

7. Store and use pesticides, fertilizers, and other chemicals, and dispose of containers in accordance with

state and federal regulations and recommendations. Furnish the Landlord a written field-by-field

record of the amount, kinds, and dates of applications of pesticides and fertilizers.

8. Store no motor vehicles, tractors, fuel, and chemicals on the farm in violation of restrictions in the

Landlord’s insurance policies.

9. Apply fertilizer as follows:

Corn Soybeans ___________

Potash (K2O) no less than _______lb/a ________lb/a _________lb/a

Phosphate (P2O5) no less than _______lb/a ________lb/a _________lb/a

Nitrogen (N) no more than _______lb/a ________lb/a _________lb/a

10. Neither assign this lease to any person or persons nor sublet any part of the real estate for any purpose

without the written consent of the Landlord except in case of death or disability of the tenant.

11. Not to: a) erect or permit to be erected on the farm any permanent structure, b) incur any expense to

the Landlord for such purposes, or c) add electrical wiring, plumbing, or heating to any building

without written consent of the Landlord.

12. Control soil erosion according to a conservation plan approved by NRCS; keep in good repair all

terraces, open ditches, inlets and outlets of tile drains; preserve all established watercourses or ditches

including grassed waterways; and refrain from any operation or practice that will injure such

structures.

13. Plant no fall seeded crops without written consent of the landlord.

14. When leaving the farm, to pay the Landlord reasonable compensation for any damages to the farm for

which the Tenant is responsible. Any decrease in value due to ordinary wear and depreciation or

damage outside the control of the Tenant is exempted.

15. Yield peaceable possession of the farm at the termination of this lease.

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Indiana Cash Farm Lease • EC-257-W

EXAMPLE

Section VI. Rights and Privileges

1. The Landlord or anyone designated by him shall have the right of entry at any mutually convenient

time to inspect the property and/or the farming methods being used.

2. The Tenant shall have the right of entry for _______ days after the termination of the lease for the

purpose of harvesting spring seeded crops. The Landlord or his designated agent shall have the right

of entry to plant fall crops following harvest of the current year’s crops.

3. If this lease is terminated before the Tenant shall have obtained the benefits from any other labor or

expense he may have made in operating the farm, according to contract or agreement with the

Landlord during the current lease year, the Landlord shall reimburse the Tenant for such labor and

expense. The Tenant shall present, in writing to the Landlord, his claim for such reimbursement at

least _______ days before the termination of this lease.

4. Transfer of ownership of this farm shall be subject to the provisions of this lease.

Section VII. Enforcement of Agreements and Arbitration

1. Failure of either the Landlord or the Tenant to comply with the agreement set forth in this lease shall

make that person liable for damages to the other party. Any claim by either party for such damages

shall be presented, in writing to the other party, at least _______ days before the termination of this

lease.

2. The provisions of this lease shall be binding on the heirs, executors, administrators, and assigns of the

party or parties involved.

3. Any disagreements between the Landlord and the Tenant shall be referred to a board of three disinter-

ested persons, one of whom shall be appointed by the Landlord, one by the Tenant, and the third by

the two thus appointed. The decision of these three shall be considered binding by the parties to this

lease unless a sum exceeding $________ is involved. Any cost for such arbitration shall be shared

equally between the two parties of this lease.

Section VIII. Other Agreements and Provisions

___________________________________________________________________________________

Section IX. Signatures

_____________________________________ _______________________________________

(Tenant) (Date) (Landlord) (Date)

____________________________________________

(Witness or Notary Public) (Date)

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EXAMPLE

Section XR1. Annual Renewal for Crop Year 20_____

1. Annual rent for crop year 20_____ shall be $____________payable on the same dates and in the

same proportion as specified in Section II.

2. All other agreements in this lease are hereby renewed for crop year 20_____.

_____________________________ ________________________________

(Tenant) (Date) (Landlord) (Date)

Section XR2. Annual Renewal for Crop Year 20_____

1. Annual rent for crop year 20_____ shall be $____________payable on the same dates and in the

same proportion as specified in Section II.

2. All other agreements in this lease are hereby renewed for crop year 20_____.

_____________________________ ________________________________

(Tenant) (Date) (Landlord) (Date)

Section XR3. Annual Renewal for Crop Year 20_____

1. Annual rent for crop year 20_____ shall be $____________payable on the same dates and in the

same proportion as specified in Section II.

2. All other agreements in this lease are hereby renewed for crop year 20_____.

_____________________________ ________________________________

(Tenant) (Date) (Landlord)

Section XR4. Annual Renewal for Crop Year 20_____

1. Annual rent for crop year 20_____ shall be $____________payable on the same dates and in the

same proportion as specified in Section II.

2. All other agreements in this lease are hereby renewed for crop year 20_____.

_____________________________ ________________________________

(Tenant) (Date) (Landlord) (Date)

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