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FARM LEASES FOR ILLINOIS
by Franklin J. Reiss
>
>
University of Illinois at Urbana-Champaign College of Agriculture
Cooperative Extension Service Circular 1199
Contents
Introduction to Farm Leasing 1
What Is a Farm Lease? 1
Choosing a Tenant 1
Choosing a Farm and Landlord 2
Choosing a Type of Lease 4
Major Types of Farm Leases 5
The Labor-Share Lease 5
The Livestock-Share Lease 7
The Crop-Share Lease 8
The Net-Share Lease 10
The Cash Lease 12
An Equitable Rent 14
Applying Basic Principles in Share Leases 15
Determining Contributions and Equitability in a Crop-Share Lease 17
Determining Contributions and Equitability in a Livestock-Share Lease 25
Estimating Contributions in a Labor-Share Lease 30
Determining Rent in a Net-Share Lease 32
Determining Rent in a Cash Lease 33
Advantages of a Written Lease 41
Terms in a Written Lease 43
Length of Tenure 43
Tenant Duties in Operating the Farm 45
Management and Business Procedures 46
Limits to and Relinquishment of Rights of Possession 47
Special Farm Rental Situations 49
Leases on Irrigated Land 49
Division of Covernment Payments 49
Arrangements for Intensive Livestock Systems 50
Determination of a Pasture Rent 50
Leases for Estate Planning 52
Tenant Participation in Improvement Costs 53
Provisions for Winter Wheat or Growing Crops 55
Recommended Lease Forms 57
Illinois Crop-Share Lease 57
Illinois Livestock-Share Lease 64
Illinois Labor-Share Lease 72
Illinois Cash Farm Lease 76
Franklin J. Reiss is Professor Emeritus of Land Economics and Farm
Management, Department of Agricultural Economics, University of
Illinois at Urbana-Champaign.
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.n I 111
3 Introduction to ™E ,.,■**» WTHE
I
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Farm Leasing
1S32
. i i OF ILi
JANA-CHA!^
The concept of land leasing is probably as old as that of land owner-
ship; ancient Egypt and Greece both had land leasing systems. In
America, land leasing may have occurred as early as 1618 in the colony
of Virginia. Today, land leasing is a vitally important aspect of modern
American farming. For example, nearly 55 percent of Illinois farmland
was farmed under some type of leasing arrangement in 1978.
Because leasing arrangements are so central to the operation of many
Illinois farms, it is necessary that all those involved in the leasing
process — landlords, tenants, lenders, attorneys, and others — have a
thorough understanding of leases and their functions. This circular
presents the basic principles of farmland leasing and discusses in detail
the five major types of leases currently used in Illinois.
What Is a Farm Lease ?
In a farm lease a landowner gives a tenant or operator the right to
possess and use a specified tract of farm real estate for a stated period of
time (usually one year) in exchange for a rental payment. The owner
retains all of the other rights to the land, such as the right to transfer
ownership and the right to future interests in the property.
In addition to conveying rights to the tenant, a farm lease also im-
poses contractual obligations on both the landlord and the tenant.
These obligations are known as the covenants of the lease.
A lease may be a written document, or it may simply be an oral
agreement between the two parties. Sometimes landlords and tenants
say that they do not have a lease when what they mean is that they do
not have a written lease.
The success of a farm lease — that is, its ability to satisfy both parties'
needs — depends on the care with which the tenant, the farm property,
the landlord, the lease type, and the lease terms are chosen.
Choosing a Tenant
Some well-informed people consider that three-fourths of a land-
lord's problems are solved simply by renting to a suitable tenant who
"fits" the farm. Although no exact formula exists for selecting a good
2 Introduction
tenant, experience indicates that good tenants are likely to have the
following traits: (1) honesty; (2) knowledge of how to care for all
the crop and livestock enterprises to be included in the farm busi-
ness; (3) the ability and energy to do good work in proper season;
(4) sufficient equipment and financial backing to operate the farm
effectively according to the terms of the lease; (5) a favorable attitude
toward the adoption of new methods and practices as rapidly as their
merit is established; (6) interest in preventing the spread of weeds,
diseases, and insect pests; (7) pride and interest in farm and com-
munity life; (8) a willingness to make minor repairs around the farm;
(9) a willingness to enter into cooperative planning with respect for
the specific wishes of the landlord; and (10) a willingness to keep
good records and to make timely reports to the landlord. If the tenant
is married, it is essential that the spouse be interested in farm life.
Owners could avoid disappointment by inquiring about the past per-
formance of a prospective tenant with these characteristics in mind.
The owner of a desirable rental property usually will have a number
of farmers interested in renting the property. If the property is an
"add-on" unit, the choice may be effectively limited to farmers within
a six-to-eight-mile radius from the property. In this situation, many
owners, assuming that size is an indication of success, have been in-
clined to rent to the largest operator in the area. This assumption may
be correct, but the landowner also should consider whether the largest
operator faces any economic limits or whether an add-on unit would
be of marginal importance to the operator and thus receive only
marginal attention.
If the rental property is to be a base of operations for a resident
tenant, the owner would be prudent to make a careful search for the
best-qualified tenant. The owner can require written applications that
request references as well as critical information about past operations
and about available machinery and equipment. Owners who are not
prepared to make this kind of search may be well advised to seek the
aid of a professional farm manager in securing a good tenant.
Choosing a Farm and Landlord
The characteristics of the farm property and of the landlord usually
are given for any tract of land for rent. Moreover, if a farm operator
is searching for land nearby to expand an existing operation, the choice
c
Introduction 3
among properties and owners may be quite limited. Despite the fixed
nature of most rental property, there are aspects to choosing a farm
and landlord that do warrant consideration.
Some properties may present peculiar situations. A farm property
could have a large portion of untillable land that would necessitate
keeping a substantial amount of livestock, or it could have unusual soil
and topography that might cause frequent flooding in periods of heavy
rainfall. A prospective tenant thus would be prudent to make local
inquiries and to examine any farm property with an eye for special
hazards or conditions that could require unusual expenditures of labor,
money, or management effort. Because most farm properties are rented
on an "as is" basis, a farm lease should specify any contributions ex-
pected from either party in dealing with any special conditions. The
lease also should provide appropriate incentives, such as reimbursement
guarantees, for capital improvements made by the tenant. It may be
difficult, however, to get either the landlord or the tenant to agree to
the expenditure necessary to meet an unusual situation, especially when
risks are involved in obtaining good returns for the additional expen-
diture. In general, farms subject to unusual deterioration from erosion,
depletion, or neglect are better placed in the hands of an owner-
operator than in those of a tenant.
When examining a rental property, the prospective tenant will want
to consider the characteristics of the potential landlord. A good land-
lord will possess the following: (1) honesty; (2) a willingness to co-
operate with timely decisions; (3) an understanding of farm problems;
(4) sufficient capital or credit to provide the improvements that are
needed to maintain a productive system of farming; (5) good judg-
ment about the relative need for and profitableness of investments in
various farm improvements; (6) open-mindedness regarding the
acceptance of new practices; (7) pride in farming and in the farming
community; and (8) respect for the tenant's right to privacy and
freedom of action within the agreed-upon plan for operating the farm.
Absentee landlords are not too much of a problem in Illinois, but
some landlords who have inherited farm property may be ill prepared
to cope with management problems or may be uninformed about or
uninterested in the requirements of modern farming. When a landlord
is inexperienced, the type of lease and the lease provisions may help
prevent or avoid problems that could arise because of that inexperience.
Some landlords prefer to hire agents or professional farm managers to
4 Introduction
represent them. If the rental property in question is managed by an
agent or a professional manager, the tenant should make sure that the
professional representative has the same qualifications as a good landlord.
Choosing a Type of Lease
The most appropriate lease type for any particular property will be
determined by the characteristics of the property and by the experience,
knowledge, capital position, and personal motivation of each party.
When trying to determine what type of lease would best fit the property
and the parties involved, both parties need to decide the degree to
which they want to ( 1 ) share in the income from the enterprises that
make up the farm business, (2) provide improvements and non-real-
estate capital, (3) make decisions concerning the organization and
operation of the farm business, and (4) participate in the risks and un-
certainties associated with the year-to-year variations in yields and
prices. The following section describes the major lease types in Illinois
in terms of the possible decisions that each party might make on these
four points.
Major Types of
Farm Leases
Farm leases are classified primarily by the type of rental payment
involved. The rent can be a cash payment, a share of the crop, a share
of the crops and livestock, or a share of the total farm income. In Illi-
nois, five major lease types are commonly used: the labor-share, the
livestock-share, the crop-share, the net-share, and the cash farm leases.
These five leases are discussed on the following pages in the order of
decreasing landlord involvement (or increasing tenant involvement) in
the farm business. A brief description of each lease is given, and the
advantages and disadvantages of each lease to both the landlord and
the tenant are listed. How to decide the amount of the rental payment,
or its equitability, will be taken up later in the circular.
It should be noted that the extent of landlord involvement can affect
the landlord's eligibility for social security and for special tax benefits.
Landlords thus may wish to pay particular attention to a section
titled "Management and Business Procedures" (pages 46 to 47),
which discusses this eligibility problem.
The Labor-Share Lease
In the labor-share lease (sometimes called the father-son lease), the
landowner or senior operator provides a fully equipped farm to a person
who will act as the junior operator or joint operator of the farm. The
junior operator, unlike a full tenant, usually has little or no capital in-
vestment in the farm business. A labor-share lease is especially suited to
an owner or senior operator who wishes to transfer the responsibility of
the farm business to a relative or other qualified person while retaining
the option to supervise the farm closely. Likewise, a labor-share lease is
suited to someone who does not have the capital to operate a farm
efficiently as a full tenant but who wishes to gain managerial experience
in anticipation of eventual tenancy or ownership.
Under a labor-share lease, each party shares in the returns in pro-
portion to his or her contributions. The junior operator usually will
contribute only labor and management. In fact, the junior operator
generally invests little or no capital in the farm business and thus takes
a minimum risk. It may be a good practice, therefore, especially when
6 Farm Lease Types
there is no kinship, for the landowner to require the junior operator to
give some surety of compliance with the provisions of the agreement.
This surety could be a promissory note for a nominal amount, which
the landowner then holds as a bond in case the junior operator defaults
by leaving the farm before the end of the agreement.
Advantages to the Landlord
When a landowner wishes to retire from full-time farming, a labor-
share lease provides for the continued operation of the farm with the
existing equipment and livestock. The labor-share lease thus can
prevent the dispersion of well-established herds on livestock farms.
The landowner has an opportunity to continue close supervision of
the farm and to participate materially (loosely defined as a posture
of active involvement) in the farm business. If the owner does
materially participate, his or her heirs may be eligible for favorable
estate-tax valuation and payment.
The labor-share lease is a convenient means of passing on the farm
business to an heir.
•
Advantages to the Junior Operator
• A minimum amount of risk and initial capital is required.
• The junior operator has an opportunity to develop managerial ability
while under the supervision of a successful owner.
• The junior operator has an opportunity to profit from his or her
skill as a manager.
• A good agreement renegotiated annually will provide opportunities
for the junior operator to accumulate capital in the business and to
become a full tenant.
Disadvantages to the Landlord
• Most junior operators have had little management experience. The
landlord thus must assume major management responsibility until
the junior operator's ability has been proven.
• If the owner materially participates in the management and opera-
tion of the farm business, he or she may forfeit social security benefits.
Disadvantages to the Junior Operator
• Unless the junior operator is eventually given an increased share of
the income or allowed to become a full tenant, his or her improve-
ment as a manager may go unrewarded.
Farm Lease Types 7
The Livestock-Share Lease
The livestock-share lease resembles a partnership between the tenant
and landlord; both are equally involved in decisions and financial
transactions affecting the farm business. Under a typical livestock-
share lease, the landlord and the tenant each own one-half of the live-
stock, feed inventory, and special livestock equipment; each pays
one-half of all livestock expenses and feed purchases; and each shares in
the costs of seed, fertilizer, and other chemicals. Similarly, the owner
and the tenant each receive one-half of the livestock and crop income.
All things being equal, a landlord's net income is higher with a live-
stock share lease than with the other lease types, especially when the
tenant is highly skilled in livestock production. However, the net income
also tends to vary more from year to year with a livestock-share lease
than with the other lease types, primarily because more aspects of a live-
stock-share operation can vary and because livestock prices tend to be
less stable than crop prices. Therefore, the livestock-share lease is per-
haps unsuitable for landowners who do not have adequate capital, who
want a certain and stable income, who cannot adequately supervise
their property, or who have not kept up to date on farming. Probably
less than 20 percent of all farm leases in Illinois are of the livestock-
share type.
Advantages to the Landlord
• Livestock farms successfully operated over a period of years under
this lease have been more profitable to the landlord than grain farms.
• By investing in the farm business, the livestock-share landlord is able
to obtain the services of a desirable tenant who might not have the
necessary capital to operate the farm profitably alone.
• The landlord has greater investment opportunities since he or she can
provide extra buildings and fences and can share in the ownership
of livestock.
• A livestock-share lease provides the landlord with an excellent op-
portunity to maintain material participation in the farm business for
tax or other considerations.
Advantages to the Tenant
• On farms of the same size and with the same kinds and amounts of
livestock, less tenant capital is required than with the cash or crop-
share leases because the tenant does not have to finance and manage
all of the livestock. Thus, a tenant's risk is less than it is under the
other two leases.
8 Farm Lease Types
• Because the landlord shares equally in the risks, he or she is more
directly interested in all parts of the farm business and may be more
willing to make permanent improvements.
• The inexperienced tenant can gain experience in livestock farming
under the guidance of a successful owner.
Disadvantages to the Landlord and Tenant
• As costs of the farm operation fluctuate, the costs of all inputs, in-
cluding the landlord's managerial help, must be checked more
frequently than they must be with the other lease types.
• The livestock-share lease requires both parties to work together more
than they would have to under the crop-share or cash leases. Thus,
the two parties' ability to work together is of great importance to the
success of this lease and adds to the problem of selecting a suitable
tenant or landlord.
• Financial settlements are more complicated when the lease is termi-
nated because more items are owned jointly under this lease than
under the other lease types.
Disadvantages to the Landlord
• Landlords bound to a livestock-share lease may be classified as self-
employed and receiving earned income. To achieve a retired status
under social security, the landlord may have to give up most
managerial participation, but doing so could cost eligibility for favor-
able estate-tax valuation.
Disadvantages to the Tenant
• A tenant who is highly successful in livestock management is perhaps
receiving a disproportional share of the income unless the landlord
makes offsetting contributions.
• Customary sharing agreements may not be fair to the tenant if live-
stock volume is greatly expanded and the landlord does not invest
enough capital in facilities to offset the tenant's added inputs of
labor, power, and machinery.
The Crop-Share Lease
The crop-share lease is the "workhorse" among farm leases in Illinois,
accounting for about two-thirds of Illinois farm leases. It can be
adapted to small, open tracts as well as to large tracts with costly build-
Farm Lease Types 9
ings. Under this lease the tenant's labor and capital are divided between
crop enterprises in which the landlord shares and livestock enterprises in
which the landlord does not share. The landlord receives a share of the
grain produced (ranging from one-third to one-half depending upon
the inherent productivity of the soil) plus, in some cases, a supplemental
cash rent for farmstead use or for land in hay and pasture.
Tenants under crop-share leases also might pay a cash rent for build-
ings if they farm a considerable amount of additional land and the
owner provides buildings or if the owner provides an unusual invest-
ment in buildings and equipment for livestock enterprises. Some land-
lords who provide buildings for tenant operations prefer to forego a
cash rent, however, and to let the buildings offset contributions they
would otherwise be expected to make.
Although the extent of the landlord's participation in the farm busi-
ness can vary considerably under a crop-share lease, the landlord's
participation is usually limited to making decisions about the use of
land, seed, and fertilizer and to sharing in fertilizer costs, crop expenses,
and the care and maintenance of improvements.
Advantages to the Landlord
• Records from a large number of farms indicate that landlords receive
better returns and a larger share of the farm profits from property
rented for a share of the crops than from property rented for cash,
primarily because they share more in production and price risks.
• The landlord has more opportunity to supervise the operation of the
farm property — if he or she so desires — than under a cash lease.
• Conversely, a crop-share lease can require less of the landlord's
personal supervision than a livestock-share lease requires. The
former lease also involves less risk than the latter, especially if the
tenant is not experienced in livestock production.
• If certain management and financial contributions are part of the
lease, the landlord may be eligible for social security and may be
considered to be materially participating in the farm business, a
consideration that can determine the eligibility of heirs for favorable
estate-tax valuation and payment.
Advantages to the Tenant
• The tenant's risk is less than when renting for cash, especially when
low crop yields or low prices are likely to occur.
• The amount of capital and cash reserve required is less than the
amount required under a cash lease.
10 Farm Lease Types
• As long as the landlord provides necessary improvements, a crop-
share lease, unlike a livestock-share lease, permits a tenant who wants
to keep livestock to realize all of the profit from livestock operations
and to enjoy greater freedom of management.
• A crop-share lease, unlike a cash lease, generally provides for pro-
portional sharing of the costs of seed, fertilizer, and pesticides.
Disadvantages to the Landlord
• The tenant and landlord must make more joint decisions than they
would have to under a cash lease.
• Adjustments will need to be made in the lease as new agricultural
technology and practices are introduced and as prices change.
• It is difficult to develop arrangements that give the landlord an
appropriate return for investment in improvements. Customary ar-
rangements may not be reliable or satisfactory because of wide
variations from farm to farm in the quality and amount of improve-
ments and in the size of the ownership tract relative to the land base.
• The landlord assumes more risk than one on a fixed cash rent.
Disadvantages to the Tenant
• The tenant may find it difficult to get the landlord to furnish im-
provements needed for livestock production and machinery storage.
• The tenant may wish to rent additional land and expand operations,
but the landlord may prefer that the tenant farm less extensively and
try to obtain a larger income per acre.
The Net-Share Lease
The net-share lease has features of both the crop-share and the cash
lease. As with a cash lease, a cash rent is paid ; however, the amount of
rent is not fixed but is a function of the annual yields (as under a crop-
share lease). In other words, under the net-share lease the landlord re-
ceives a share of the crop as determined by the proportion his or her
annual real estate contribution is of the farm's normal crop production.
The tenant then pays the landlord the cash equivalent at current or
agreed-upon prices.
The net-share lease does not work very well for land used for hay,
pasture, or specialty crops. It also has some motivational weaknesses and
cannot be given the same general endorsement as the crop-share lease.
For example, there is less incentive for a tenant to optimize the landlord's
return since the costs of fertilizers and other chemicals are not shared.
Farm Lease Types 1 1
The net-share lease can serve a useful function in farm tenancy, how-
ever, especially when it is used between related parties. When the tenant
and landlord are related, the landlord usually can be confident that the
tenant will produce at levels optimum for both parties, and the tenant,
as a likely heir, is motivated to maintain the capital value of the
property. Net-share leases also have been used successfully between
unrelated parties on a year-to-year basis when the tenant pledges high-
level performance in return for assurance of continued tenure.
It is not known how many net-share leases exist in Illinois since the
lease has only recently been identified as a separate type of farm lease.
Advantages to the Landlord
• The landlord is freed from cost-sharing decisions and settlements.
• A net-share lease provides for simplified accounting and business
procedures.
• The landlord shares in favorable crop yields or crop prices, unlike the
arrangement in a cash lease.
Advantages to the Tenant
• The net-share lease gives the tenant more managerial freedom than
a crop-share lease.
• The net-share landlord shares in the risks and thus may be more in-
terested in the farm business and more willing to make permanent
improvements than a cash-lease landlord.
Disadvantages to the Landlord
• There is risk without commensurate managerial control.
• There may be less incentive for the tenant to optimize the landlord's
return than there is with a conventional crop-share lease.
• It is sometimes difficult to verify the yields on the farm ; such difficulty
could lead to doubt and distrust between the tenant and landlord.
Disadvantages to the Tenant
• The tenant takes a risk since a fixed net-share of production can be-
come unfavorable over time. In other words, if the tenant and land-
lord agree to a fixed net share, the tenant might find it difficult in
later years to justify making nonland inputs (such as installing irriga-
tion systems or making heavier applications of fertilizer) because
these inputs would increase the yields and total gross income while
the land inputs of the landlord would remain the same.
12 Farm Lease Types
The Cash Lease
In a cash lease the landlord consigns the management and use of the
farm and any improvements to a tenant in exchange for an agreed cash
rent. As a result, the tenant receives all of the income, pays all expenses
except taxes, insurance, and major building repairs, and gains inde-
pendence in the farm operation. The landlord, in addition to receiving
a stable income, is freed from most management responsibility.
It should be noted that there is some incentive for tenants with cash
leases to mine the soil and exploit the property if they are only assured
of a short tenancy. Landlords thus may wish to insert a reimbursement
guarantee in the lease on unused fertilizer applied in the last year. Such
a guarantee would give the tenant full motivation to maintain a high
fertility program throughout the lease term. Conversely, if a property
has been previously depleted, a new cash tenant may actually effect a
buildup of fertility, and reimbursement arrangements should be made in
the lease for such a possibility.
It also should be noted that periods of rapid inflation can cause
chronic rent-adjustment problems for parties with cash leases. Appro-
priate indexing or standing-rent arrangements can do much to mitigate
these problems.
A cash lease can be ideal for owners with limited farming experience,
for absentee landowners, and for family members who wish to lease
land to a family corporation. Currently, the greatest use of cash leases
occurs on the dairy and crop-specialty farms around Chicago, although
an increasing number of tenants with multiple owners are renting some
tracts on cash to gain a degree of managerial freedom. Overall, cash
leases comprise between 14 and 17 percent of all farm leases in Illinois.
Advantages to the Landlord
• The landlord will receive a definite, steady income.
• The landlord gains freedom from the burden of management.
• Because the lease is simple, there is less chance for controversy than
with the other four lease types.
Advantages to the Tenant
• The tenant gains more independence in the operation of the property
than with the other four lease types.
• Successful tenants under cash leases receive the full benefit of their
superior management.
• The cash lease gives the tenant a larger percentage of the profits from
the farm business than the other lease types give.
Farm Lease Types 13
Disadvantages to the Landlord
• Tenants may tend to exploit the property when they have no assur-
ance of more than a short period of occupancy.
• Although a cash lease does guarantee the landlord's income, the
landlord will receive a smaller percentage of the profits than he or
she would with the other lease types because not as much risk is
assumed as with the other lease types.
• Under continued inflation, fixed cash rents become obsolete, and
rents must be renegotiated periodically or some rent adjustment
procedure adopted.
• The landlord has no opportunity to participate materially in the
farm business.
Disadvantages to the Tenant
• It may be difficult to get the landlord to provide all of the improve-
ments needed to make the property profitable and attractive to the
farm family.
• The rent does not automatically adjust to changes in prices and pro-
duction unless some provision is made in the lease.
• A tenant with limited capital or credit bears a heavy risk in years of
poor crops or low prices because of the fixed rent. A disaster clause
in the lease can provide some relief.
An Equitable Rent
How much rent should be charged or paid is usually the most per-
plexing question in farm leasing. The answer to this question for any
particular property is based upon the idea that the rent terms should
provide for an equitable (fair) sharing or division of the inputs to and
returns from the property.
To understand the difficulty in determining rent, it is useful to think
of the exchange of rights between the landlord and tenant as taking
place within a market — a farm rental market. In comparison to estab-
lished markets such as the grain or livestock markets, the farm rental
market is not highly developed. It is not clearly defined or structured ; it
is not located in any central place; the supply of land in the market is
seldom accurately known ; and the competition for land seldom results
in a face-to-face confrontation of one bidder versus another. Partici-
pants in the market are not required to declare themselves; they need
not meet any licensing or other requirements to participate in the mar-
ket ; and the parties — that is, the landlord and tenant — seldom think
of themselves as participating in a market, perhaps because their activ-
ity is so extremely limited geographically.
Another difficulty in determining rent — in addition to the absence
of a defined market — is the determination of the appropriate differ-
entials in the rental value of one property as compared to another.
Many factors influence the determination of rent on any particular
property and the equitability of that rent. Among these factors are the
productivity of the soil, the kind and extent of improvements, the size
and shape of the fields, the topography of the land, the location, and the
form of the rental payment (i.e., a share of the goods produced, a cash
rent, or a combination of shares and cash rent). A farm with low
productivity, for example, may require more nonland inputs per unit
of production by the tenant, landlord, or both than one with a high
soil productivity, and the rent would have to be adjusted accordingly.
Similarly, if a farm is in a very desirable, highly competitive location, a
tenant may be willing to pay a rent that is slightly inequitable, especially
if he or she is expanding an existing operation. Finally, if a share lease
is used, the rent may be established by long-standing local customs.
Another factor involved in the determination of an equitable rent is
whether the tenant is renting land from more than one owner. Multiple-
owner tenants are a product of improved technology that permits (some
might argue "requires") a tenant to farm more land than is contained
14
An Equitable Rent 15
in a typical property. Owners of smaller properties must recognize that
their tenants should be permitted to farm additional land or to engage
in other income-producing activity. Nevertheless, multiple-owner ten-
ants present a major farm leasing problem: how to develop and main-
tain leasing arrangements that are fair to all owners when, for example,
one may provide a full set of buildings and another provides none at all.
In general, however, the rent paid under any lease type is largely
determined by the income that the land will produce when used for
agricultural purposes.
Many of the factors influencing the amount of the rental payment,
along with many aspects of the concept of fairness, can be treated best
on an individual basis. The following discussion thus mainly presents
methods to estimate the contributions of both parties and thereby to
arrive at a fair rent. The general principles for determining rent in share
leases are first outlined since share leases make up the vast majority of
farm leases in Illinois. Within the discussion of share leases, the crop-
share lease is first discussed (roughly sixty-six percent of Illinois farm
leases are crop-share leases), followed by a discussion of the livestock-
share lease, then the labor-share lease, and finally the net-share lease.
The cash farm lease is discussed last, and several different methods are
given to determine the amount of cash rent to charge or pay.
Applying Basic Principles in Share Leases
What are the options for determining rent in share leases? Theoreti-
cally, the gross rent share could be any percentage between zero and an
amount that would leave enough income for the tenant to remain
economically viable and willing to continue as a tenant. Practically,
however, the shares that both a tenant and landlord will find acceptable
have been established in any given Illinois community quite a number
of years ago. Prevailing or customary shares thus provide a good start-
ing point for developing a share lease. But it should be remembered that
prevailing shares represent the broad picture in a community and not
necessarily the particular situation on a given farm and that adjust-
ments will need to be made to fit the lease to the individual farm.
The various rent shares that have become established in Illinois are
the product of a basic principle in share renting: the farm returns
should be shared in the same proportion that each party contributes to
the fixed costs and associated operating expenses involved in producing
16 An Equitable Rent
these returns. In a share lease, the landowner contributes the use of
the land and any improvements (measured annually as an interest
charge on the value plus depreciation through use and obsolescence),
the property taxes, and the repair, insurance, and other associated ex-
penses. The tenant contributes the machinery and equipment (also
measured as annual interest and depreciation charges) ; the associated
repairs, fuel, and supplies; labor (including any unpaid family labor) ;
and management.
Contributions of management and risk-bearing by each party will
vary according to the type of share lease and to the personal character-
istics of the parties involved. These contributions are difficult to evalu-
ate but extremely important to the business. Superior contributions will
earn superior rewards, but remember that it is the lease that determines
the allocation of the rewards. Thus, landlords who make significant
management contributions should use share leases to get the returns
from their management.
To insure that both the expenses of and the income from an indi-
vidual farm business are shared equitably, the capital contributions of
the two parties to the farm business should be appraised, and the cash
contributions they expect to make should be estimated. In the appraisal
of capital contributions, the items contributed by each party are listed,
and a fair annual value is placed on them. Estimates of cash con-
tributions can be made from farm records. If records are not available
for a given farm, data from records of similar farms may serve as a
basis for estimating the contributions of the two parties. These appraisals
and estimations must be made with caution so that all items are valued
on a comparable basis. For example, if conservative valuations are used
for labor, equally conservative valuations should be placed on land and
other capital items.
Once the contributions have been determined, adjustments may then
be made by one of two methods. The first method fixes the share of the
income to each party on the basis of prevailing or customary shares.
The two parties then shift expenses or capital contributions from one
to the other until each party is contributing the predetermined share
of the total costs. The second method uses the proportion in which total
costs are contributed and divides the income in the same proportion.
Both methods assume that the landlord and the tenant should share the
income from the farm in the same proportion that they contribute to
the expenses of its operation.
An Equitable Rent 17
Determining Contributions and Equitability
in a Crop-Share Lease
The rent shares in crop-share leases are fairly established in Illinois.
In the better soil areas of central and northern Illinois, the prevailing
gross rent share is one-half of the crops grown. On less productive land
in southern Illinois, the prevailing rent share is one-third. In transitional
areas and in isolated areas of less productive soils in the northern portion
of the state, the prevailing rent share is two-fifths.
Why one-half, two-fifths, and one-third shares? Why not values in
between these? One immediate answer is the ease of making a physical
division of the crop in these proportions as compared to the difficulty of
divisions such as 47 and 53 or 32 and 68. Another answer is that the
trial-and-error method has worked out to these shares. To understand
better why certain shares have become traditional, let us eliminate from
consideration all other variables that affect gross rent except soil pro-
ductivity. If we then chart the relationship between the gross value of
crop production and soil productivity by using data from farm financial
records on many hundreds of farms over a 25-year period, the result is
Chart A on page 18.
As Chart A indicates, the gross value of crop production per tillable
acre (the top solid line) decreases steadily from the highest rated soil
to the lowest rated. The chart also indicates that the value of a tenant's
inputs of labor and machinery (below the dotted line) decreases only
slighdy as the soil rating decreases. Similarly, variable costs (fertilizer,
seed, and crop expenses) remain about the same (between the dotted
and broken line) regardless of soil productivity. Thus, once these non-
real-estate costs are paid and an adequate return for the tenant's labor
and management is determined, the residual is the return to farm real
estate and management (amount above broken line). As the chart
indicates, the residual roughly approximates one-half of the crop value
on the most productive soil and one-third on the least productive soil.
Chart B has the same basic information as Chart A, but three short
lines now divide the gross value of crop production into the landlord's
share (above each short line) and the tenant's share (below each short
line). Notice that the location of these lines is within the area of vari-
able costs. Thus, if the variable costs can be shared — either as the crop
is shared or in such a way that total inputs are shared as the crop is
shared — the result should be a fair rent and a fair sharing of costs.
18 An Equitable Rent
Allocation of the returns from crop production to input factors to show
(a) the relationship between the gross value of crop production and
soil productivity and (b) the traditional share rents under Illinois crop-
share leases.
a 10 h
UJ
59
<
_l
00
< 7
rr
LU c
0_ 3
UJ
34
o
co 2
Gross value of crop
- Residual to X^ production
farm real estate ^""^v^ //
and management,
or landlord's net rent
Fertilizer, seed,
and crop expenses
_ Labor, machinery, fuel, repairs,
and management
' i I I L
10
9
- 8
- 7
- 6
- 5
- 4
-3
2
100 90 80 70 60 50 40
SOIL PRODUCTIVITY RATING -BASIC MANAGEMENT LEVEL
b.
10
rr 3
o
:>
m 7
or R
lu 5
a.
3 4
_i
«3
CO
Fertilizer,
"™**— •— __ ,sged, and crop
— • - __ , gxpenses
Tenant's return to labor, capital, management,
and miscellaneous expenses
J I I I
-2
- I
100 90 80 70 60 50 40
SOIL PRODUCTIVITY RATING-BASIC MANAGEMENT LEVEL
An Equitable Rent 19
Given the relationship between shares and soil productivity, two
questions arise : How can this historical information be applied to indi-
vidual rental tracts and how can unpaid inputs be priced?
The first step in applying this historical information is to identify the
soil types and their productivity ratings on the property in question.
County soil maps are the best source for determining the soil types on
any given tract of land. County Extension or soil conservation offices
may be able to supply the soil maps or to give information if the maps
are not available. A weighted average productivity rating for any tract
can then be calculated from productivity ratings of soil types. Once an
average rating has been determined, Chart B on page 18 can be used
to determine customary shares for such a rating.
Local farm leasing customs will probably reflect the productivity of
soils in the area, and these customs tend to be a reliable base from which
to build a good farm lease. It should be noted that small areas of highly
productive soils within a large area of less productive soils will tend to
rent under the same gross rent shares as the poorer soils, and vice versa.
This practice need not mean that a lease on these tracts will be unfair
to either the landlord or the tenant. If adjustments for soil differences
are made in the sharing of the costs, all landlords within the larger area
will receive an appropriate net rent.
How to price unpaid inputs can be determined by the rental market.
Tenants can readily estimate their total cash costs from their own
records or from published farm record summaries or farm management
data. Subtracting these costs from the tenant's share of the crop (esti-
mated from expected yields and prices) leaves an estimate of the
residual income to the tenant's unpaid labor and management. If this
income is large enough to meet family goals or to be attractive in com-
parison to alternative employment, then the lease will be acceptable.
Of course, there may be other considerations involved in the accept-
ability of a lease, such as the amount of competition for the land or a
tenant's need to expand operations. In fact, pressure from landlords or
their agents and competition from other tenants have, in a few cases,
pushed some customary shares up from one-third and two-fifths to two-
fifths and one-half. The net effect of such increases has not been great
because the landlords receiving the higher rent also are contributing
more toward selected items of operating expenses.
Cost-Sharing Arrangements
The costs that are shared between crop-share tenants and landlords
in Illinois are so well established that they can be summarized fairly
20 An Equitable Rent
accurately. The only costs that are not shared under a crop-share lease
are the costs of machinery repairs, fuel, oil, and grease, which are paid
entirely by the tenant as necessary costs to crop production.
Fertilizers. Fertilizer costs are almost always shared in the same
way that the crop is shared ; that is, on a one-half share lease the land-
lord pays one-half of the fertilizer costs, while the landlord on a one-
third share lease will pay one-third, and so forth. This same division
now applies to the costs of limestone after the initial buildup (paid for
by the landlord) is completed and applications are on a maintenance
basis. The costs of applying the fertilizer and the limestone also tend
to be shared in the same proportion that the crop is shared.
Seeds. In the northern two-thirds of Illinois, where one-half shares
predominate, nearly all crop-share landlords pay for or furnish a pro-
portionate share of the crop seeds. These seeds include legume and
grass seeds, especially when the landlord shares in the hay crop or
receives a supplemental cash rent on land in hay or pasture.
In southern Illinois, hardly any of the landlords on a one-third rent
share will furnish crop seeds since their real-estate contribution and
their contribution to fertilizer costs usually equal one-third of the farm
costs. Southern Illinois landlords may furnish one-third to one-half of
the legume and grass seeds, however, if they share in the hay crops or
receive a supplemental cash rent on land in hay or pasture.
Herbicides. Most crop-share landlords share in the costs of weed-
control chemicals, although some landlords will share only the costs qf
herbicides banded over the row and not the costs of those that are
broadcast. The rationale for sharing only the costs of banded herbicides
is that weed control in the row increases yields and the landlord shares
in this increase, while broadcasting eliminates most or all cultivations,
effecting a savings in tenant labor that is not shared by the landlord.
Some have argued that the landlord should share in the costs of broad-
cast herbicides because a weed-free farm has a greater market value —
a benefit that is not shared by the tenant. As a result of these conflicting
viewpoints, the sharing of herbicide costs remains a bargaining item
between tenants and landlords.
The majority of Illinois crop-share landlords, whether they share in
the costs of banded or of all herbicides, do not share the application
costs. Their premise is that application is the tenant's responsibility since
labor and machinery costs are counted as part of the tenant's contribu-
tion to the farm business.
An Equitable Rent 21
Pesticides. The costs of chemicals used to control insects and crop
diseases are generally shared between tenant and landlord in the same
proportion that the crop is shared. Application costs may or may not be
shared but tend to be shared when the application is hired.
Grain transportation. Nearly all crop-share tenants are expected
to haul the landlord's share of the grain from field to market (or from
field to on-farm storage and then to market) at no cost to the landlord.
When the haul goes beyond the local elevator, or to a destination be-
yond eight to ten miles away, however, the landlord is expected to pay
for the extra mileage.
Crop drying and storage. Each party is expected to pay for drying
his or her share of the grain. These costs are easy to figure when the
grain is dried commercially. If the landlord furnishes a dryer on the
farm, then the tenant does the work, and the two share the direct drying
costs (largely fuel and electricity costs). If the tenant has corn from
other land to be dried in the landlord's dryer, then the tenant pays the
landlord a bushel rate to cover interest, depreciation, repairs, and in-
surance. If the landlord cannot justify owning a dryer, then the tenant
may furnish one. In this case, the landlord pays the tenant a bushel rate
not to exceed the commercial drying charge.
Each party also is expected to pay for the storage of his or her grain.
When the landlord furnishes storage on the farm, it is customary to
permit the tenant to use a proportionate amount of the storage space.
This arrangement works best when the grain stored is undivided; then
the tenant has motivation to properly dry and inspect all the grain.
When the storage capacity is less than the production from the land,
some landlords reserve the space for their own grain, an action that is
never popular with tenants.
Many landlords who own tracts of bare land would not be justified
in putting grain storage on the property. Grain from these tracts will
need to go to market at harvest time or into commercial storage if it is
available. Some tenants with enough storage capacity of their own have
stored their landlord's grain from unimproved tracts. The landlord
should expect to pay up to commercial rates for such storage.
Harvesting costs. Combining costs are clearly a bargaining item,
but a majority of crop-share landlords in the northern two-thirds of
Illinois share in these costs for soybeans and small grains. A majority
also make some contribution to corn harvesting, either by sharing in
the combining costs or by making a per-bushel payment in lieu of
22 An Equitable Rent
shelling costs for ear corn. If combining costs are shared, they are shared
in the same proportion that the crop is shared. In southern Illinois, most
landlords do not share in harvesting costs, but local variations occur,
with a majority of landlords sharing in costs in a few communities, or
where the gross rent-share is two-fifths or one-half of the crop.
A good practice in many areas is to allow superior buildings to offset
the need for the landlord to share in harvesting costs. In fact, when the
landlord furnishes a set of modern buildings on a relatively small acre-
age, there may be ample reason for the building contribution not only
to offset the tenant's payment of all harvesting costs but also to justify
a supplemental cash rent on improvements.
Soil testing. In the early days of soil testing, tenants were expected
to take soil samples and to deliver them to the testing laboratory. This
entire process has since been commercialized, and professional labo-
ratories or fertilizer merchandisers offer both sampling and testing
services for a fee. The landlord and the tenant share this cost in the
same way the crop is shared.
Equitability Test
It is more difficult to determine whether inputs and returns are being
shared equitably under a crop-share lease than it is under a livestock-
share lease, primarily because more multiple-owner operations are likely
to occur under crop-share leases. In addition, all income under a live-
stock-share lease (or all but perquisite income from minor enterprises)
is shared in the same proportion, while under a crop-share lease the
tenant's labor and capital are divided between crop enterprises in
which the landlord shares and livestock enterprises in which the land-
lord does not share.
The form on page 23 can be used to estimate the costs and returns
on a crop-share leasehold and to determine whether these costs and
returns are being equitably allocated between the tenant and landlord.
This form is especially useful for multiple-owner cases. A proportional
sharing test in these cases requires that the tenant's inputs be calculated
on a crop-acre or tillable-acre basis so that the calculations reflect only
that share of the tenant's total inputs that is used on the leasehold in
question. To determine equitability, landlords with multiple-owner
tenants also may want to compare their net earnings with the average
per-acre earnings of other landlords from similar soils. The annual
Landlord and Tenant Shares report published by the Department of
An Equitable Rent 23
Form for Estimating and Allocating Costs and Returns
Costs and Returns
Costs or
Returns per
Tillable
Acre
(1)
Amount Con-
tributed by
or Returned
to Tenant
(2)
Amount Con-
tributed by
or Returned
to Landlord
(3)
Annual Costs:
Fertilizer and lime ( 1 )
Seed and crop expenses (2)
Power and machinery
operating expenses (3)
Power and machinery
depreciation (4)
Building repairs and
insurance (5)
Building depreciation (6)
Interest at % on
Inventories ( 7 )
Machinery
and equipment (8)
Property Taxes (9)
Insurance and
Miscellaneous (10)
TOTAL COSTS
(lines 1 to 10) (11)
Estimated Returns:
Crop production (12)
Other income (13)
TOTAL RETURNS
(lines 12 and 13) (14)
Residual Returns to Pay
for Land, Labor, and
Management
(line 14 minus line 11) (15)
Operator's Labor and
Management Returns (16)
Residual to Landlord's Real
Estate and Management
(line 15 minus line 16) (17)
24 An Equitable Rent
Agricultural Economics, University of Illinois at Urbana-Champaign
(305 Mumford Hall, 1301 W. Gregory Drive, Urbana, IL 61801),
can be useful in this comparison.
The best way to use the form is to fill out column 1 as if the tenant
owned the property and expected a fair average return for all inputs on
lines 1 through 10. A good source for the data in column 1 is the annual
Landlord and Tenant Shares report. The total of these inputs is entered
on line 1 1 and should be subtracted from the total returns or income
on line 14. The remainder is entered on line 15 and is the amount avail-
able to pay for the unpaid inputs on lines 16 and 17. Line 16 is the
amount that the tenant feels the property in question should return for
personal labor and management. Presumably this amount should be the
return below which the tenant is not interested in farming the property.
Line 1 7 is thus what remains as a return to the investment in land and
improvements on it, or an estimate of the net rent.
To determine the characteristics of a crop-share lease on a property,
the tenant next should simulate the lease being tested by allocating the
amount on each line in column 1 to or between the tenant in column 2
and the landlord in column 3. For example, on a one-third share rent
in southern Illinois, the fertilizer and lime costs (line 1 ) would be allo-
cated two-thirds to the tenant and one-third to the landlord. Seed and
crop expenses (line 2) might be allocated entirely to the tenant. A
portion of the amounts on lines 3 and 4 would be allocated to the land-
lord (basically a portion equal to the contribution the landlord would
be expected to make toward combining, hauling, or both) . If no build-
ings exist on the property, lines 5 and 6 would be zero. Line 9 would
be allocated entirely to the landlord, and lines 7 and 8 might be allo-
cated entirely to the tenant.
In case of a bare-land property, the prices used in estimating the
income on line 12 should reflect the fact that no storage exists on the
property and that the crop would have to go to market at harvest.
The final test is to have the entries in column 2 (line 14 minus line
11) support the figure in column 1 on line 1 6, and the entries in column
3 (line 14 minus line 11) support the figure on line 17 in column 1. If
columns 2 and 3 do not support the predetermined values on lines 16
and 17, then changes must be made in the sharing of assumed costs
and income until the desired result is achieved.
If a tenant wants to make a strong bid for a particular leasehold that
will be added to an existing operation, he or she may be prone to omit
or greatly reduce the estimates of the input items on lines 4 through 8
An Equitable Rent 25
on the grounds that these costs have already been covered by income
from other land. These "marginal input" calculations would permit
rental bids that are quite favorable to the landlord, but calculations
such as these are unsound in that they rest upon a base that cannot be
sustained : eventually every other one of the tenant's landlords will ask
for the same rental terms.
Determining Contributions and Equitability
in a Livestock-Share Lease
In most areas of Illinois the landlord and tenant will share equally in
the expenses and income of a livestock-share farm business. The items
for which each is usually responsible, the method for determining the
value of these items, and the way to test equitability are discussed in the
following sections.
Cost-Sharing Arrangements
In livestock-share leases in Illinois, landowners and tenants usually
divide the costs of certain investments and operating expenses in very
similar ways.
The landlord usually supplies all permanent buildings and most
permanendy installed equipment. The landlord also pays the taxes and
any insurance, repair, and maintenance costs on these items. It is not
unusual, however, for the tenant to share in the costs of a highly mech-
anized livestock confinement system. If the tenant does contribute to
any fixed improvement costs, the lease should contain agreements on
how the tenant is to be reimbursed for any unexhausted portion of his
or her contribution if the lease is terminated (see pages 53 through 55
for a discussion of possible reimbursement arrangements) . The landlord
and the tenant also should agree who is to maintain and repair or to
pay taxes and insurance on any shared improvements. The lease should
specify as well whether the tenant is expected to supply labor for any
permanent structures provided by the owner.
In general, the livestock-share tenant supplies all the labor and all
the machinery and equipment needed to operate the farm properly,
although the tenant and landlord often joindy own some machinery
and equipment. Repair, insurance, and maintenance costs on tenant-
owned machinery and equipment are paid by the tenant ; these costs are
shared fifty-fifty on jointly owned equipment.
26 An Equitable Rent
The tenant and landlord contribute equally to livestock and feed
inventories and to crop costs. Any exceptions should be agreed upon,
such as the landlord's not sharing in the application costs of fertilizers
and herbicides or in the harvesting costs.
The costs of electricity, gasoline, oil, and other fuel are bargaining
items between the two parties. Sometimes, if no electricity meter sepa-
rates the farm use from the household and personal consumption, the
landlord will pay only a stated amount rather than share the costs
equally with the tenant.
A typical livestock-share landlord may pay a stated amount of the
harvesting, hauling, and processing costs, except, perhaps, for the cost
of hauling products to market. Three possibilities need to be considered,
and a choice agreed upon. One possibility is that the two parties share
these costs equally with the amount being determined by the going
custom rate. Another possibility is that the landlord pays a fixed amount
per acre or per unit of production. This method would avoid many
settlement problems, but the fixed price would need to be reviewed
periodically. Yet another possibility is that tradeoffs be considered; for
example, a landlord who shares in fuel and electricity costs may not
share fully in custom-operating costs.
Valuation of Contributions
An example is used to demonstrate how to value each party's con-
tributions so that the equitability of the contributions can be deter-
mined. Table 1 summarizes the contributions of an Illinois tenant and
landlord in 1980 to a 380-acre farm with soils rated at 75 and with 320
tillable acres. Most of the values entered in Table 1 can be derived for
a particular farm from farm records. If these records are not available,
records on comparable local farms can be used as well as publications
like the annual Landlord and Tenant Shares report (available from the
Department of Agricultural Economics, University of Illinois at
Urbana-Champaign, 305 Mumford Hall, 1301 W. Gregory Drive,
Urbana, IL 61801).
Some of the major items in the table present problems that require
special comment. For example, among the most difficult items to value
fairly are land and buildings and the rates of interest to be applied to
the value of these items. Perhaps the safest rule is to use the market
value of the farm and divide this amount between land and improve-
ments, calculating improvements on the basis of what their presence
adds to the market value of land only. In our example, the market value
of the farm ($1,040,000) is divided between the land ($950,000) and
An Equitable Rent 27
Table 1. Contributions by Livestock-Share Tenant and Landlord to a 380-Acre
Hog Farm with Soils Rated 75 (Basic Mgt. Level) and 320 Tillable Acres*
Contribution items
Amounts
needed to
operate as
planned Ratesb
Annual Values
Tenant Landlord
contri- contri-
bution bution
Total
farm
Investment items
Land (380 acres at
$2,500/acre) $950,000
Tenant residence 35,000
55,000
52,000
68,000
40,000
3,000
35,000
Farm buildings, fences, etc.
Machinery and equipment
Breeding and feeder stock . .
Feed, fuel, seeds, supplies. .
Operating cash
Depreciation charges
Tenant residence
Farm buildings 55,000
Machinery and equipment 52,000
Breeding stock 8,000
Associated operating expenses
Property taxes
Property and liability insurance
Hired labor (5 months, $l,000/month) . .
Repairs and maintenance:
Tenant residence
Farm buildings
Machinery and equipment
Fuel, oil, and grease
Unpaid labor and management (15 months,
$l,500/month)
3.0
3.5
4.0
12.0
12.0
12.0
12.0
$ 28,500
1,225
2,200
6,240
8,160
4,800
360
$ 4,865
4,080
2,600
216
2.0
4.0
25.0
20.0
700 —
2,200 —
13,000 10,140
1,600 800
5,600
2,400
5,000
600
1,200
7,360
5,400
960
5,000
300
250
6,080
5,400
SUBTOTAL
Percent contributed by each party
Variable operating expenses
Fertilizer and limestone
Machine work hired
Electricity and telephone
Seed and crop expense
Livestock expense
Purchased feed
22,500 22,500
$119,045 $63,191
100 53.1
TOTAL CONTRIBUTIONS
Percent contributed by each party
13,440
2,000
2,800
9,600
4,800
36,000
$187,685
100
6,720
1,000
1,400
4,800
2,400
18,000
$97,511
52.0
$28,500
1,225
2,200
1,375
4,080
2,200
144
700
2,200
2,860
800
5,600
1,440
300
950
1,280
$55,854
46.9
6,720
1,000
1,400
4,800
2,400
18,000
$90,174
48.0
• Values are based on averages of 1980 Illinois Farm-Business Farm-Management
Association records.
" Interest and depreciation rates on stated costs or values.
28 An Equitable Rent
the tenant residence, farm buildings, fences, and other items ($90,000) .
A rate of return to land of 3.0 percent is then applied. When choosing
interest rates, always apply rates that represent current rates of return
as opposed to first mortgage rates, which, by contrast, were 11 to 14
percent in 1980. Current rates of return can be taken from the Land-
lord and Tenant Shares publication and from farm record summaries.
The rate of return to land that we have used also addresses another
possible complication in estimating contributions — the landlord's
charge for management. If a market rate of return includes a return
to management (as the 3.0 percent rate does), then including a man-
agement charge as a landlord contribution would be double counting.
Thus, in our example, no separate charge is listed for the landlord's
management contribution.
The annual cost of the farm residence to the landlord is another con-
tribution that may warrant special consideration. In our example, the
annual costs of the farm residence are itemized for a total of $2,525, or
$210 per month ($1,225 for interest, $700 for depreciation, and $600
for insurance and repairs) . If the annual value of the farm residence is
exceptionally good relative to the size of the farm, the landlord may
want to charge the tenant a separate cash rent for the residence. In
other words, the farm residence could be viewed as a consumption item
by the tenant and as an unproductive item by the landlord. Rather than
charge a cash rent, the landlord could add the annual value of the
residence to the tenant's labor and management return to reflect a total
compensation for the tenant's personal input. (Labor and management
earnings of farm operators published in farm-record summaries are
amounts above the cost of housing. ) Traditionally, however, it has been
assumed that a superior residence will attract a superior manager as a
tenant. Moreover, a supplemental cash rent has seldom been assessed
under a livestock-share lease, although such a rent is not uncommon
under a crop-share lease. It also should be noted that many tenant resi-
dences in Illinois will not be as valuable as the one in our example and
will not give rise to the level of costs we have used.
A word of caution is in order concerning the determination of the
investment values used for farm buildings, fences, machinery, and
equipment. These values can be taken from farm-record depreciation
schedules, but care should be exercised that these values are not too low
or too high. The values may be too low if the items have been subjected
to accelerated depreciation charges in excess of the actual obsolescence.
They may be too high if the items are an excess investment with respect
to the volume of business or, as the column in Table 1 indicates, to the
An Equitable Rent 29
"amounts needed to operate as planned." If the landlord wants a "show
place," or if the tenant is knowingly overequipped, the excess invest-
ments can be left out of the calculations. The choice of interest rates to
be applied to these investment values also can be critical. In our ex-
ample we have used 1 2 percent for the contributory rate on the grounds
that this rate is more nearly the long-term rate of return on capital in
these uses than the current interest rates of 15 percent or more on pro-
duction loans.
In terms of depreciation rates, a four-year remaining life on ma-
chinery and equipment requires a depreciation rate of 25 percent. A
2 percent depreciation rate is used for the farm residence and a 4 per-
cent rate for farm buildings because the objective is to measure a re-
covery of capital, not income tax deduction. Thus these rates, which may
seem low, are appropriately lower than traditional accounting rates.
One could even contemplate no loss because of appreciation over time.
Values placed on the tenant's labor and management should be com-
parable to the values placed on the landlord's real estate : if conservative
values are used for one, they should be used for the other. One method
of valuing labor is to determine prevailing wages for supervisory service
and to add an estimate of the value of management input to that figure.
Another method is to approximate the labor and management returns
currently being earned by other tenants. The latter method may be
preferable because it reflects the market situation, which is also the
basis for determining the land values and the rates earned by the land-
lord. We have used $1,500 a month as a minimum; many tenants
would not continue to farm indefinitely below this amount.
In addition to the wages estimated for the operator and family
members, the family receives the use of the house and certain produce.
The question might be raised as to whether the value of the produce
and a house rent should be estimated and added to the farm income,
although in our example they are not. In other words, residential ser-
vices could be recognized as one of the landlord's inputs. If these ser-
vices are added to the farm income, however, the value of the family's
labor presumably would be increased by a similar amount.
A subtotal of the annual-value columns indicates that the tenant
paid 53.1 percent of the fixed costs and associated expenses and that the
landlord paid 46.9 percent. The division of the remaining variable in-
puts should be derived from the basic plan of operation mutually de-
termined by the tenant and landlord. If at all possible, these inputs
should be shared equally to insure that each party is similarly motivated
to employ them. In our example, an equal division of these variable
30 An Equitable Rent
inputs resulted in the tenant assuming 52 percent of the total costs and
the landlord assuming 48 percent.
These percentages can be brought closer to a fifty-fifty sharing by
changing the allocation of selected associated operating expenses. The
cost of fuel, oil, and grease is one of the expenses that could be reallo-
cated. The cost of repairs and maintenance on farm buildings is an-
other. For example, if the landlord paid half of the fuel, oil, and grease
costs, $2,700 would be shifted from the tenant to the landlord. This
amount is 2.3 percent of $119,045 and 1.4 percent of $187,685. This
shift would bring the total contribution ratio to 50.5 percent for the
tenant and 49.5 for the landlord. A fixed dollar contribution by the
landlord in place of one-half of the fuel, oil, and grease costs could be
used to make the overall contribution ratio exactly 51 and 49.
Equitability and Adjustments
If expected income can be estimated, then a rate-of-return test can
be applied. Let us assume that the expected income from the farm in
our example is $200,000, of which the tenant receives $100,000 (or
50 percent) and the landlord $100,000 (or 50 percent). Dividing
$100,000 by $97,511 (the annual value of the tenant's contribution)
results in a ratio of 1.026, or a return of $1,026 to the tenant for each
dollar of inputs. The landlord's rate of return is $1,109 per dollar of
inputs ($100,000 -4- $90,174). This difference is significant, and ad-
justments can be made in cost-sharing arrangements to make the two
rates equal.
Any method of adjusting contributions to achieve an acceptable
balance is no better, of course, than the judgment of the people who do
the evaluating. It is, however, an excellent means of testing a lease to
see whether the division of expenses and income between the two
parties is approximately equitable given the assumed values. In addi-
tion, evaluating the contributions gives each party a better apprecia-
tion of the contributions that the other makes to the farm business.
Estimating Contributions in a Labor-Share Lease
In a labor-share lease, most of the contributions to the farm business,
especially capital contributions, come from the landowner or senior
operator. The junior operator usually contributes only labor and man-
An Equitable Rent 31
agement. Nevertheless, both parties share in the returns in proportion
to their contributions. The proportion each contributes can be esti-
mated either on a gross or net basis.
If a gross basis is used, the owner or senior operator lists all of his or
her capital, including land, as an annual interest charge; the total of
all operating expenses, including depreciation on capital items and cash
rent on other land; the value of his or her labor and management (if
any) ; and the value of the junior operator's labor and management. All
gross income is then divided in the same ratio that each party con-
tributes to the total inputs. Inventory changes may be considered
annually or at the end of the agreement. In general, however, shares
are easier to calculate if a net basis is used rather than a gross basis.
The net basis is similar to the gross basis except that a farm record
or a farm bank account is started. All operating expenses, including
depreciation, can be paid out of this account, and only the net return
divided between the two parties. The net return would be the income
above all operating expenses (including hired labor and all rent on
lands and buildings) , or what remains as a return to labor, capital, and
management. These three items are the so-called "unpaid contribu-
tions," and they are each rewarded with a share of the net returns.
Shares are easier to determine on a net basis because one needs only an
interest charge on the total capital and an estimate of labor and man-
agement. Moreover, land rented from third parties is not included in
the net calculations because the rent for the use of that land is treated
as any other expense to the business.
The share of either gross or net returns to the junior operator will
vary greatly from farm to farm depending upon the value of the land,
the type of farm, the amount of rented land, and other related aspects.
Typical net shares to the junior operator range from 25 to 35 percent,
and typical gross shares from 12 to 20 percent depending upon how
much labor is contributed by the owner or senior operator. Regardless
of the agreed share, the junior operator still does not share in the full
range of risks involved in a farm business and thus is usually guaranteed
a certain return. Such a return should not be less than the junior
operator could receive as a good hired hand.
Good records are essential to successful labor-share leases, particularly
when the division of returns is calculated on a net basis from the farm
record. Good records also are important if the junior operator chooses
to defer a cash payment in favor of building a capital contribution in
32 An Equitable Rent
the form of a claim against the operating capital. If the junior operator
makes this choice, the division of the returns must be recalculated each
year to reflect the junior operator's increasing capital inputs. Eventually
under this arrangement, the labor-share lease will no longer be ade-
quate, and it should be dropped in favor of one of the other four leases.
Determining Rent in a Net-Share Lease
Because the net-share lease is fairly new, the rents associated with it
have not yet become established in community customs. Thus, deciding
the amount of rent is a major problem with this type of lease.
The net-share rent can best be approximated by using Chart A on
page 18. If the weighted-average soil productivity rating of the rental
property is located along the bottom scale, then the net-share, as a per-
centage of the total value of crop production, can be estimated directly.
The percentages that the landlord's net rent constitutes of the gross
value of crop production have remained rather stable over time and
are about as they are shown in the chart. These percentages range from
a low of 15 to 20 percent on the lowest rated soils to a high of 35 to 40
percent on the highest rated soils.
The landlord with a net-share lease could take his rent in actual
bushels just as crop-share landlords do. But most net-share landlords
prefer a cash payment equal to the current value of their share of the
total production. A cash payment can be easily determined by convert-
ing the net-share bushels into dollars on the basis of current prices paid
in local markets, or on the basis of averages of such prices over an
agreed-upon period of time.
Because the landlord is usually responsible for taxes and insurance,
if any, another possible way to arrive at a net-share rent is to apply a
crop-share landlord's net return rate to an estimate of the land value.
This application will derive a net rent estimate for the tract; gross rent
can then be determined by adding any taxes and insurance. The gross
rent figure is divided by an estimate of the gross value of the crops pro-
duced to obtain the rent share.
As an example, assume that a 160-acre farm with buildings valued
at $3,000 per acre would earn a net crop-share return of 2.8 percent, or
$84 per acre ($3,000 X 0.028 = $84) . If the cost of taxes, insurance,
depreciation, and repairs amounts to $ 1 8 per acre, the gross rent would
be $102 ($84 -f- $18). If the expected gross value of crop production
is $300 per acre, then the net-share rent of $102 is 34 percent ($102-7-
$300 = 0.34) of the gross value of crop production. The prices used
An Equitable Rent 33
to determine the cash value of this share of the bushels produced should
be from the same source and for the same time period as the prices used
to determine the net-share rent. That is, if the average prices that were
paid in October, November, and December at the local elevator were
used to determine the $300-per-acre gross value of crop production,
then average prices paid at the local elevator for the same months must
also be used each year to convert that year's bushels of net-share rent
into dollars.
An accounting of the net-share rent might appear as follows.
Land use
Acres
Yield
(bu/acre)
Total
produc-
tion
(bu)
34%
rent share
(bu)
Prices
Value
Corn
Soybeans
70
60
130
40
9,100
2,400
3,094
816
$ 2.60
6.90
$8,044
5,630
Wheat
10
50
500
170
3.90
663
Hay or pasture
Noncrop land
10
10
3*
30»
10.2*
50.00
510
TOTAL
160
14,847
* Measured in tons.
Earnings per acre :
92.80
Determining Rent in a Cash Lease
Deciding how much rent to charge or pay also is a problem for those
who would like to use a cash lease. In northern Illinois, where about
one-third of all rented farms are on cash leases, it is not difficult to find
out what rents are being paid locally. But few cash leases exist in the rest
of the state. Moreover, many of these are between related parties, and
some give the tenant favorable rates. For cash leases in most of the state,
therefore, other methods besides local customs are needed to determine
the rental payment.
Methods of Deriving a Cash Rent
There is no one best way to determine cash rent. All of the methods
described below will yield only approximate answers and thus can
serve only as a basis for bargaining toward a final figure. In fact, the
parties concerned do not need to adopt any particular approach to cash-
rent determination. Both are free bargaining agents, and either party,
because of highly subjective reasons, may be quite willing to accept or
34 An Equitable Rent
Table 2. Gross Cash Rents for Farmland and Associated Buildings in Eleven
Counties of East Central Illinois in 1977, by County Groupings
Counties and Number
value groups of farms
($/acre) reporting
Average size of
rented tract
Total Tillable
acres acres
Average
value of
land and
buildings
per acre
Average
gross
cash rent
per acre
Ratio of
gross
rent/$100
of value
(%)
Champaign-Piatt-Douglas
$2,500 and over. . . 41
Under $2,500 4
115
71
112
50
$3,383
1,675
$ 98.32
57.06
2.91
3.41
Livingston
$2,500 and over. . . 22
Under $2,500 5
97
147
94
129
3,430
1,560
100.05
76.55
2.92
4.33
Ford-Iroquois
$2,500 and over. . . 26
Under $2,500 43
159
149
155
141
2,842
1,871
82.93
70.93
2.92
3.79
Coles-Edgar- Vermilion
$2,500 and over... 13
Under $2,500 18
119
197
117
175
3,131
1,564
78.54
54.87
2.51
3.51
Clark-Cumberland
All were $2,500
184
154
1,600
53.68
3.36
All tracts 183
139
131
2,565
79.80
3.11
pay a rent clearly advantageous to the other party. This freedom should
be preserved, but it might be prudent to apply some of the approaches
below to determine the extent of departure from a competitive rent.
Making local inquiries. Ask tenants, landowners, farmers, real
estate brokers, lenders, appraisers, and other professionals in the local
community about the prevailing local rates. Also, check surveys by
public or private agencies since they may report the going cash rents in
the area. For example, the data in Table 2 came from a farm leasing
survey by the University of Illinois. This 1977 survey of eleven counties
in east central Illinois obtained the average gross cash rents in that area
as well as the ratio of gross cash rents to farmland values. Using such
ratios, a landlord or tenant in east central Illinois could derive a cash
rent similar to local customs.
An Equitable Rent 35
Using farm record data. Check reports based on farm financial
records (such as the records kept by farm operators enrolled in the
Illinois Farm-Business Farm-Management Association). Table 3 illus-
trates the type of information that can be derived from such records:
the state-wide average of cash rents on farms with certain soil ratings,
ownership patterns, and production emphases. However, exercise cau-
tion when using farm financial records or summaries of such records.
As noted previously, rental payments on cash leases are often between
relatives, or they can be the result of long-term contracts made years
ago without automatic rent adjustments.
Table 3. Cash Rents Received by Landlords with Cash Leases in 1979 on Farms
Enrolled in the Illinois Farm-Business Farm-Management Association
o * c c Gross Net
Category of farma ,T t . « /-. i i
No. of cash Property Other cash
Typeb Soil rating farms rent taxes costs' rent
Part-owner farms
Dairy 80-92
Dairy 65-79
Dairy Under 65d
Grain 93-100
Grain 80-92
Grain 65-79
Livestock . . . 80-92
Livestock . . . 65-79
Livestock . . . Under 65d
All-rented farms
Dairy 65-79
Livestock . . . 80-92
Livestock . . . 65-79
Livestock . . . Under 65d
' All cash-rented tracts were between 40 and 339 acres.
" For part-owner farms, the type of farm indicated includes the total operation of
which the cash-rented land is a part. For all-rented farms, averages per tillable acre
are given.
c Amount includes insurance, repairs, and depreciation on any improvements and
other capital items contributed by the landlord.
d Farms with soil ratings under 65 are in southern Illinois. All other farms are
in northern Illinois.
4
$40
$12
$24
$ 4
12
65
13
4
48
7
43
8
3
32
4
71
15
0
56
9
81
16
4
61
6
82
13
0
69
26
85
14
5
66
18
67
13
5
49
12
41
7
0
34
9
68
19
20
29
4
76
16
8
52
5
55
18
13
24
4
44
9
1
34
36 An Equitable Rent
Table 4. Gross Cash Rent per Acre and Ratios of Rent to Value in Illinois*
Farms rented for cash Cropland rented for cash
Rent Ratio of rent Rent Ratio of rent
Year ($/acre) to value (%) ($./acre) to value (%)
1981 $105.80 4.4 $113.80 4.5
1980 99.00 4.3 107.00 4.3
1979 92.00 4.3 99.00 4.3
1978 85.00 4.4 93.00 4.5
1977 81.00 4.9 89.00 5.0
1976 68.00 5.5 75.80 5.7
1975 61.00 5.6 63.00 6.1
1974 51.00 5.4 52.00 6.0
1973 40.90 5.8 41.55 6.4
* Data taken from USD A Farm Real Estate Market Developments.
Using USDA reports. Because the cash rents reported by the USDA
(such as those in Table 4) are state averages, they have little local value
except as an index of how much cash rents have changed over time.
Nevertheless, the rate of change of the reported averages can be used
on the local level for annual rent adjustments. For example, if you own
or rent farm property in Champaign County and the most recent cash
rent on the property was negotiated in 1977 at $90 per acre, you might
use the USDA information to adjust the rent to 1981 rates. Table 4
indicates a state gross cash rent average of $81 in 1977 and an average
of $105.80 in 1981. In other words, the average gross rent increased
by 30.6 percent between these years. Your 1977 rent of $90 per acre
could be expected to increase at the same rate. As a result, you could
expect to receive or pay a gross cash rent of about $118 per acre in
1981 ($90 X 1.306 = $117.54).
Using rates of return. Using this method you would build up to a
gross cash rent from a desired or acceptable net rent (that is, the net
operating return to a landlord's real-estate capital and management).
One approach is to start with an interest return on a safe investment,
such as the return on government bonds or savings accounts. If this
return is 6 percent, then a comparable net return or net cash rent on
a $2,000-per-acre farm would be $120 per acre ($2,000 X 0.06). To
calculate gross rent, add the costs per acre of taxes, insurance, deprecia-
An Equitable Rent 37
tion, and repairs paid in a typical year by the cash-rent landlord. If
these values are not available from the farm record, they can be found
in publications such as the Landlord and Tenant Shares report.
A major problem with this approach is that it ignores any expected
gain in the capital value of the farmland. If farmland is expected to
increase 8 to 10 percent annually in market value, then investors may
be willing to bid up prices of farmland to where the net rent might be
only 2 to 4 percent on the purchase price. To take into account any
expected gain in farmland value, you perhaps should start with the
current rate of return being realized on the market value of the farm.
For example, if a farm is just outside of an urban center and is priced
at $5,000 per acre, it may be earning only 1 to 1.5 percent of this value
from its use as farmland. The gross rent would again be calculated by
adding to the net rent the costs per acre of taxes, insurance, deprecia-
tion, and repairs paid in a typical year by a cash-rent landlord.
Adjusting a crop-share net rent. In this method, start with a net
rent under a crop-share lease. A good source of the net rents paid under
crop-share leases is the annual Landlord and Tenant Shares report.
Next, adjust the crop-share net rent for the difference in the landlord's
risk (a crop-share landlord shares in the risks associated with a farm
business, but a cash-rent landlord receives a fixed rent regardless of
variations in the value of the gross product). A reasonable adjustment
might be an amount 10 to 15 percent lower than the net rent received
by crop-share landlords. After adjusting for risk differences, add the
costs per acre of taxes, insurance, depreciation, and repairs paid in a
typical year by a cash-rent landlord.
If your lease provides for the cash rent to be adjusted annually for
price or yield changes, a discount of 10 to 15 percent may be too great
because the landlord would be sharing in the risks to some degree. The
amount of risk adjustment applied would then be a matter of judg-
ment, but a range of 3 to 7 percent might be in order.
Using budgeting forms. In this method the two parties estimate the
maximum the tenant can afford to pay; the estimate is made by using
budgeting forms and assuming cost-sharing arrangements appropriate
to a cash lease. The budgeting form on page 23 can be used, and the
customary cost-sharing and income-sharing arrangements can be found
in the Landlord and Tenant Shares report. In completing the budgeting
form, the cash-rent tenant claims all farm income and estimates
all farm expenses except those that the cash-rent landlord would be
expected to pay. The difference between the estimated total farm
38 An Equitable Rent
income and the estimated total costs ( including a charge for the tenant's
labor and management) is an approximation of the maximum the
tenant can afford to pay as a cash rent. The appropriateness of this
rental figure depends in a large measure upon the value placed on the
tenant's labor and management input.
Annual Cash-Rent Adjustments
If a cash lease is to remain fair to both landlord and tenant during a
period of changing costs and prices, the rent must be adjusted annually
to meet those changes. By inspecting the farm's financial records each
year, both parties will better appreciate when adjustments need to be
made. Obviously, it will not be practical or possible to make cash-rent
adjustments for all factors that affect farm incomes. When such com-
prehensive adjustments are desired, it may be best to use a share lease.
Automatic adjustments in a cash rent may be desirable if the lease
runs for a number of years, or if the tenant and landlord wish to avoid
annual bargaining about rent. Automatic adjustments also can increase
a tenant's feeling of tenure security and can make a landlord more
willing to grant longer-term leases.
Automatic rent adjustments can be made by one of three methods:
( 1 ) Changes in the cash rent in proportion to changes in specified
index numbers,
(2) Use of a standing rent (a fixed quantity of products) equal in
value to the cash rent in the base or initial year, or
(3) Use of a standing rent that is adjusted annually according to
changes in county-average yields of one or more crops.
The index numbers most frequently used in adjusting a cash rent
(method 1) include indexes of prices received by farmers, prices paid
by farmers, and farmland prices. Although indexes of farmland prices
tend to be slightly out of date, they generally maintain a fairly constant
ratio between gross cash rent and land values.
As an example of how index numbers could be used, let us assume
that a farm property has a gross cash rent of $80 per acre in 1977, the
first year of the lease. Let us also assume that the landlord and tenant
have agreed to adjust the cash rent by the same percentage (plus or
minus) that the annual USDA index of farm real-estate values in
Illinois changes. As a result of this agreement, their annual calculations
would have resulted in the adjusted cash rents on the next page.
An Equitable Rent 39
USDA index
of Illinois
Base cash
Percent change
Adjusted cash
farm real-es-
rent per
from base year
rent
(base rent
Year
tate values
acre
index value
X
percent)
1977
100
80
1978
111
80
1.11
89
1979
125
80
1.25
100
1980
135
80
1.35
108
1981
143
80
1.43
114
Note that the percentages are calculated according to the year in
which the base rent was agreed upon. Thus, the percentages will change
if a different base year occurs. For example, if a tenant and landlord
agreed to a base rent of $85 in 1978, the adjusted cash rent in 1979
would have been about $96 [(125 -=-111) X $85 = $95.72] and
about $103 in 1980 [(135 -r- 111) X $85 = $103.37].
More than one index number can be used to make rent adjustments.
For example, we can adjust cash rents for changes in product prices
and in crop yields. The formula is as follows:
Current price Current yield
Base or initial w of crop (county average) Adjusted cash
„a „„„, X -~-. ~ X T . . . . , , , — = rent for the
cash rent Price of crop Initial yield (county
. , . , < current year
in base year average in base year) '
Let us assume that a cash rent of $80 per acre was negotiated in
1977 when the October-November-December corn price was $1 .90 and
the five-year, county-average corn yield was 112 bushels per acre. If
the 1980 September-October-November corn price was $3.25 and the
1980 county-average corn yield was 90 bushels, the 1980 adjusted
cash rent would have been about $110 [$80 X ($3.25 -=- $1.90) X
(90 -f- 112) =$109.96].
Obviously, calculations of this type cannot be completed until the
data are available. Waiting for the data thus may require the parties
to settle after the end of the calendar year, but still within the farm
lease year, which usually ends March 1 .
A standing rent of a fixed quantity of goods (method 2) is converted
to a dollar equivalent by applying current prices derived from a speci-
fied source for a given time period. A landlord may choose, however,
to have the tenant deliver the actual quantities of the product (of a
specified grade) to a designated point of storage rather than receive a
40 An Equitable Rent
cash payment. As an example of a standing rent conversion, let us
assume that a landlord and tenant agreed to a standing rent of 5,000
bushels of No. 2 corn in 1977 when No. 2 corn was $1.90 per bushel.
In 1977, therefore, the tenant would have paid the landlord a dollar-
equivalent rent of $9,500. If No. 2 corn was $3.25 per bushel in 1980,
the converted standing rent would have been $ 1 6,250.
The price that will be used to convert a standing rent may be deter-
mined by whatever formula is agreeable to both the landlord and the
tenant. Examples of pricing formulas that could be used are average
cash grain prices at the local elevator for a given time period ; the blend
price for milk at the Chicago market for a given month; the average
closing price on the Chicago Board of Trade for a cash grain of the
given grade on an agreed-upon date; and the highest price paid at the
local elevator in the first two to ten months of the year. The agreed-
upon price should be easily obtainable by either party and should re-
flect the trend in the earning power of the farm because of changes
in price levels. We suggest using October, November, and December as
the averaging time period to reflect the price effect of the current year's
crop. We also suggest using the average price received by Illinois
farmers in these three months. These averages are reported each month
by the Cooperative Crop Reporting Service in Springfield, Illinois.
Your county agricultural Extension adviser receives a copy of these
reports each month.
As an example of how a standing rent can be adjusted (method 3),
let us assume that a tenant and landlord negotiate a standing rent of
5,000 bushels of No. 2 corn when No. 2 corn is $2.00 a bushel (making
the rent $10,000 in the first year) and when the county- average yield
is 85 bushels per acre. If the price of No. 2 corn increases to $2.25 per
bushel the next year and the county-average yield increases to 90
bushels per acre, the standing rent would be adjusted upward 5.88 per-
cent to 5,294 bushels (90-4-85X5,000 = 5,294.12). The actual
dollars of rent paid would be $11,910.50 (5,294 X $2.25). If in the
following year the county-average corn yield increased to 100 bushels
per acre and the price of No. 2 corn dropped to $1.85, then the rent
would be $10,882.35 [(100-4-85) X 5,000 X $1.85]. The price
used to adjust a standing rent, like the price used to convert a standing
rent, should be determined by whatever formula is agreeable to both
the landlord and the tenant. We again suggest using the average of the
prices received by Illinois farmers in October, November, and
December.
Advantages of a
Written Lease
Many farm leases are simply oral agreements, and many tenants and
landlords feel that they have sufficient security with an oral lease. But
as the foregoing discussion may have suggested, many complex issues
must be decided in any lease, and the uniqueness of each farm, tenant,
and landowner may result in some unique oral arrangements. To be
enforceable in case of litigation, anv departure from customary oral
lease arrangements has to be in writing or verifiable by a responsible
witness. If a court cannot verify any unique arrangement, it has no
recourse but to make its decision on the basis of what is customary in
the community. Tenants and landlords thus should consider a written
agreement as a sound business practice and not as an expression of
mistrust or of a lack of confidence.
For a written lease to satisfy the minimum legal requirements, only
the following are necessary: an accurate description of the property to
be leased; a definite term of tenure; a definite rental fee; the designa-
tion of the time and place at which the payment is to be made; the
names of a specific lessor (landlord) and lessee (tenant); and the
signatures of the contracting parties.
Although a document containing only these items is considered a
legal lease, it is not an adequate lease to insure good farm operation. An
adequate farm lease anticipates as many important details as possible
on which the tenant and landlord should reach agreement. An adequate
farm lease would arrange for a fair division of the income and expenses
between the tenant and landlord; it would make possible a profitable
system of farming; it would give as much assurance as possible to a
good tenant that the lease would be continued through a period of
years; and it would help preserve the value of the landlord's property.
By spelling out the more important farm practices and business pro-
cedures, an adequate written lease provides many advantages in addi-
tion to preventing a court, in case of dispute, from deciding to apply
practices or procedures unadaptable to the farm. A well-written lease
protects not only the original parties but also their heirs and assigns in
case either party should die. The written lease also can help prevent
disputes by serving as a memorandum to which both parties may refer
in case of doubt as to the terms of their agreement, and it can provide
a basis for changing minor provisions when conditions arise that make
adjustments desirable. In terms of the length of tenure, the written lease
41
42 The Written Lease
makes the term of rental definite, provides a basis for continuing the
term beyond one year, and can require a reasonable period of notice
to be given before a lease is terminated. The written lease also can be
solid evidence of the landlord's authority for participation in manage-
ment. When details of the farm operation are specified in the lease, the
document even serves as a partial history of the operation of the farm.
These are just some of the advantages of an adequate written lease;
others may arise as each party is forced to consider the many different
aspects of a lease before signing it.
Printed lease forms are available that cover the many items and
questions on which some agreement should be reached. As a result
of their thoroughness, these printed forms, such as those provided by the
University of Illinois and reproduced on pages 57 through 80, best
serve as a reminder of the many items to be considered. The University
lease forms, for example, may contain considerable material that will
not apply to a particular situation. We thus suggest that you use a
printed form as a model, crossing out any unwanted material. Then,
if the parties prefer, type a new lease from the model including only
what is desired. It may not be a good idea to use a printed lease form
that has excessive amounts of material crossed out because the intent
of the deletions could be misunderstood.
All of the lease types discussed so far are reprinted at the end of the
circular, except the net-share lease, which is so new that a separate
form has not yet been established. It is possible to adapt either the
crop-share or the cash lease form to a net-share arrangement.
Terms in a Written Lease
Four major headings incorporate most of the items that should be
considered in an adequate written lease : ( 1 ) the length of tenure, ( 2 )
tenant duties in operating the farm, (3) management and business
procedures, and (4) limits to and relinquishment of rights of possession.
The reprinted crop-share, livestock-share, and cash leases all contain
these major divisions. The labor-share lease addresses these divisions
differently, primarily in the light of the greater management and risk-
bearing responsibilities of the landowner. If a net-share lease is drawn
up, it too should consider these four divisions.
Length of Tenure
The heavy investment in farm equipment required by modern corn-
belt farming and the competition for good farms to rent make it desir-
able for tenants to protect themselves from loss of tenure. Illinois law
does provide for an automatic extension of all unwritten leases unless
notice to terminate is given at least four months before the end of the
current lease year. But there is no substitute for a written lease that
specifies the length of tenure and how far in advance a notice to termi-
nate must be given.
Thus, once a lease type is chosen, a tenure provision should be
written that will give the tenant reasonable assurance of continuation as
long as conditions are satisfactory. The tenure provision also should
provide both parties with a means of terminating the leasing relation-
ship any year it ceases to be satisfactory.
Most Illinois farmland is rented on a year-to-year basis, either under
the Illinois statute for unwritten leases or by common acceptance of
one-year terms in the written lease. Most written leases operate under
either an automatic renewal clause or an extension clause. An automatic
renewal clause, as its name suggests, automatically continues a lease for
another year or stated term unless notice to terminate is given. An ex-
tension clause, on the other hand, requires that a written notice of in-
tent to continue the lease be given near the end of the term. The labor-
share, the livestock-share, and the crop-share lease forms reprinted at
the end of this circular use the automatic renewal clause, but the cash
lease form uses the extension clause. If the parties prefer, they can use
the automatic renewal clause in the cash lease. Renewal provisions
43
44 Lease Terms
usually require that a notice to terminate be executed at least six
months prior to the end of the lease term to give the landlord time to
find a new tenant and the tenant time to find a new farm to rent.
When the investment in livestock is large, the lease may provide that
notice of termination be given a year or longer before termination is
to be effective.
Some professional farm managers do not use automatic renewal or
extension agreements and only write one-year leases. These managers
then renegotiate with a desirable tenant and sign a new lease for the
next year at least six months prior to the end of the current lease year.
One advantage of using an extension clause or of negotiating a new
lease each year is the opportunity for each party to obtain changes in
the lease and for changes mutually acceptable to become part of the
written document. When renewal is completely automatic, the parties
often tend to operate under oral agreements that may constitute a drift
away from the written lease and that may invalidate the original
written lease in case of a legal dispute. If the two parties use an auto-
matic renewal clause, it is recommended that a general overhaul of the
lease be performed at least every five years to bring the document up to
date with changes in farming practices.
Livestock-share and cash leases may be written for a term of more
than one year with advantages to both parties. Longer-term cash leases
are especially feasible under stable economic conditions if appropriate
indexing provisions or standing rents at current prices are used to
eliminate or ameliorate the risks of fixed rents over longer terms. In
general, however, tenants and landlords are reluctant to make long-
term cash rent commitments in times of decreasing net farm incomes.
A good case can be made for longer terms under livestock-share leases
since there are few points at which livestock-share leases can become
rapidly inequitable. Another argument for longer terms is that more
time is needed to build up livestock herds, to establish markets, and to
earn returns on specialized livestock equipment and improvements. In
addition, a livestock-share tenant who can show a long-term lease to a
lender may be able to obtain credit more easily because such a lease
evinces repayment ability. Thus, after a get-acquainted, probationary
period, the parties may find it desirable to shift to longer terms.
Longer-term leases can be to the landlord's benefit as well as to the
tenant's. A landlord who has a superior tenant and who knows
the value of a good tenant has one major concern — that of losing the
tenant. A longer-term lease may help keep the tenant on the farm,
although it obviously cannot guarantee the tenant's continuance. Good
Lease Terms 45
judgment should be exercised, however, since the landlord would risk
too much in binding the property to a long-term tenancy that might be
carried on by an inept or disinterested heir of the tenant.
To summarize, then, very few long-term leases are being written in
Illinois, although no statutory limit exists on the term of an Illinois
farm lease. If longer terms are written (5 to 10 years), they are most
frequendy done so under a cash or livestock-share lease.
Tenant Duties in Operating the Farm
This section is almost identical in each of the three major lease
types reprinted in this circular and contains the so-called "good hus-
bandry" clauses. These clauses are classified as activities required of
the tenant and activities restricted unless the landlord gives written or
oral consent. The tenant's violation of these requirements or restrictions
might be (but seldom is) grounds for termination. In general, these
clauses are difficult to enforce but useful to have in a lease for the pro-
tection of the landlord.
Note that an important provision is contained in clause B.l.a of this
section in all tnree lease forms — the provision against assignment or
subletting. This provision is important because tenants receiving only
the rights of possession and use are barred from subletting or transfer-
ring these rights to others, and their leasehold thus has no market value
because there is no marketable interest. A leasehold may, however,
have an investment value to a tenant if the contract rent is less than the
full economic rent.
Also note that clauses A.3, A.9, and A. 10 of the crop-share and
livestock-share leases reflect current environmental concerns and regu-
lations. Clause A. 10 in particular recognizes the hazards associated
with chemical and commercial products used in modern agriculture.
If a landlord has strong feelings about one or more of these clauses,
he or she can give them additional weight by citing them under "addi-
tional agreements" at the end of the section on tenant duties. The
landlord could use a statement such as "The tenant hereby specially
acknowledges and affirms his (her) obligation in clause (s) . . . ."
It is possible to substitute prohibitions against tenant waste for the
good husbandry clauses, and some legal opinion holds that these pro-
hibitions might be easier to document and enforce.*
* For one discussion of good husbandry clauses and prohibitions against waste, see
H. W. Hannah, "Illinois Farm Tenancy Law — Static or Evolving?" Southern
Illinois University Law Review, 1977:359-392.
46 Lease Terms
Management and Business Procedures
A section dealing with management and business procedures appears
in each of the three printed lease forms. The content of this section
varies a great deal in each lease form, however, since the section con-
cerns the degree of landlord participation, any reimbursement agree-
ments, and agreements dealing with land use and with livestock and
crop systems.
The landlord's decision about material participation in the farm
business can be critical for social security eligibility and, more recently,
for eligibility for special valuation for federal estate tax purposes.
Because decisions about material participation can be so critical, a land-
lord may wish to consult with an attorney, a tax adviser, or both,
especially if the landlord is considering a crop-share lease, under which
the landlord has more options about the degree of participation. The
landlord's decision can potentially affect the following tax matters :
• Self-employment taxes. Landlords participating in a way defined by
the tax regulations must pay self -employment taxes.
• Social security benefits. Some social security offices have denied
social security benefits to landlords under age 72 (the age may drop
to 70 in the future) if the landlord participated materially in the
farming operation. In some cases, benefits have been denied even
when participation was less than the participation that determines
the payment of self-employment taxes. Landlords should ask for
clarification of their status from their social security office.
• Special farmland valuation election for federal estate and Illinois in-
heritance tax purposes. Under some circumstances farmland may
qualify for a special valuation procedure when estate and inheritance
taxes are calculated. One requirement to qualify is that the decedent
owner or a family member materially participated, as defined by the
income tax regulations, in the family operations and, as of January
1, 1982, that the persons who inherit this farmland (or their family
members) materially participate for up to a 10-year period. To
insure that the property will qualify, the attorney or tax adviser may
want to attach a special material participation arrangement to the
lease agreement outlining the specifics of the landlord's participation.
• Election to pay estate taxes on a 1 5-year installment plan. A trade or
business that qualifies may elect this generally advantageous way of
paying federal estate taxes on the value of the farming business. For
the farm business to qualify for this special tax payment privilege,
it may be necessary for the decedent or a family member to have
been materially participating in the farm business up to or near the
time of death.
Lease Terms 47
Other clauses in a section on management and business procedures
generally concern accounting and settlement arrangements between the
tenant and landlord. These arrangements deal particularly with ques-
tions that might arise after notice of termination has been given. Pro-
viding answers to management and business questions at the beginning
of a tenancy can avoid problems at the end.
One question that can arise after notice of termination concerns
the tenant's right to sow a normal acreage of winter wheat after notice
has been given. If the tenant did not make such a seeding at the begin-
ning of tenancy, then simple justice suggests that he or she should be
allowed to make one before leaving the farm (see pages 55 to 56 for
a fuller discussion) .
An accounting item covered in the management and business pro-
cedures clauses is the extent to which the tenant must keep records and
report to the landlord. Regular reports from tenant to landlord are
recommended as a good practice for maintaining communications and
relations between the two parties.
Clauses on billing also are included in the management and business
procedures section. Separate billing by supplier firms for the landlord's
share of the feed, fertilizer, seed, and chemical purchases is highly
recommended. A separate billing not only establishes the landlord's
active interest in the farm but also avoids the implication of a partner-
ship and its associated liabilities. Avoiding such an implication may be
particularly important under a livestock-share lease. In some cases the
tenant may make major decisions for the landlord and incur expenses
in the landlord's name. Permitting the tenant to incur these expenses
may be a questionable practice if the tenant appears to be a general
agent for the landlord. The arrangement may be acceptable, however,
if the lease retains the prefatory language in clause C of the crop-share
lease or in clause F of the livestock-share lease and if "Option 2" is
then elected.
Limits to and Relinquishment of
Rights of Possession
Most of the clauses in this section appear in all three printed lease
forms. The clauses that are common to all three leases deal with default,
yielding possession, the landlord's lien, the landlord's right of entry,
mineral rights, and the extent of agreement. The crop-share lease form
and the livestock-share lease form also contain clauses that concern
matters such as the arbitration of differences, landlord liability, and the
method of settlement at the lease's end.
48 Lease Terms
Note that the clause dealing with the extent of the agreement
makes the lease effective and binding for heirs and assigns of both
parties. If this agreement is not desired, then this clause should be
eliminated or modified (as should any clause not desired) . Also, further
note that the extent of agreement clause is not in conflict with the pro- i
hibition against subletting.
If there are any special reservations about the landlord's entry rights,
they can be written into the "additional agreements" section near the
end of the lease. Such reservations might address whether the landlord
has the right to use the land for hunting or other recreational purposes.
<
Special Farm
Rental Situations
Leases on Irrigated Land
Most farmland irrigation in Illinois occurs on farms with low-
producing, sandy soils. Rent shares of one-third to two-fifths prevail
when dryland farming occurs on these farms. When irrigation occurs,
these shares usually will remain the same if the landlord furnishes the
well, the pump, and any permanent underground pipes, and the tenant
furnishes the motor, the distribution system, and the labor. All fuel,
electricity, and repair costs associated with the system would be shared
in the same way that the crop is shared.
If the costs of installing an irrigation system are divided differently,
the basic tests of a fair lease need to be applied to determine the details
of cost and capital sharing. For example, let us suppose that the land-
lord furnishes the well, the pump, the underground pipes, and the dis-
tribution system. In this case, the landlord probably would receive a
one-half gross rent share and pay one-half of the fuel and repair costs
as well as one-half of the costs of seed, fertilizer, and chemicals. The
tenant would provide the labor and either one-half or all of the motor.
Division of Government Payments
The landlord and tenant should divide government payments for the
use of particular materials or practices in the same way that they divide
the costs of using these materials or practices. When the payment is for
limestone application or other practices that may increase the farm's
value, the landlord may prefer to pay all of the expenses and receive
all of the government payments.
Government payments for taking land out of production create
unique situations, and no one answer can be given about their division.
Because short-term land retirement leaves the tenant as well as the
landlord with many fixed inputs, it is usually most equitable to divide
the payment for short-term land retirement in the same way that the
crop normally grown would have been divided. This division applies
particularly if the tenant pays all program costs, such as the costs for
legume and grass seeds, weed control, and seeding of the retired acre-
age. Under long-term land retirement programs, the payment may go
49
50 Special Situations
mostly to the landlord, particularly if the lease permits the tenant to
farm additional land. The tenant should be compensated, however,
for any costs incurred in controlling weeds on or in making seedings on
the diverted or retired acreage.
The division of government payments for no-till or minimum-tillage
practices that are intended to help control soil erosion also presents a
special problem. The tenant does provide most of the associated inputs,
but the practices also usually reduce the tenant's labor and machinery
costs. The landlord, on the other hand, may be negatively affected if
the practices cause yield reduction, but he or she also may benefit in
terms of an increased land value. Thus, the most acceptable division
may be in the same way that the crop is shared.
Regardless of the type of government program involved, the parties
should agree annually on their participation. The crop-share lease re-
printed in this circular has an example of the type of clause that might
be used to require annual agreement (Section 4, clause F) .
Arrangements for Intensive Livestock Systems
Intensive livestock enterprises are best operated on owned premises.
If this arrangement is not possible, the next best choice is to operate
under a livestock-share or a cash lease. Other lease types do not work
well for intensive livestock enterprises, although the crop-share lease
might work if the tenant engages in a significant amount of crop pro-
duction or is willing to pay a substantial supplemental cash rent.
Even the one-half gross rent share that the landlord receives under
a livestock-share lease might not be sufficient to reward the landlord for
a capital investment in automated, labor-saving confinement facilities.
If the livestock-share lease does not provide the landlord with sufficient
reward, he or she could charge a supplemental cash rent or replace the
livestock-share lease with a cash lease. The choice depends on individ-
ual preference and the characteristics of the individual farm.
Determination of a Pasture Rent
The amount of rent that the landlord should charge for land in
pasture depends upon whether the tenant is renting only pastureland
from the landlord or whether the tenant also has a share-rent agreement
with the landlord for crop production on the property in question.
Special Situations 51
If a tenant is renting only pastureland from a landlord, farm ac-
counting systems (such as the system developed by the Illinois Farm-
Business Farm-Management Association) can be used to help deter-
mine a fair rent. These systems use a feed charge for pasture at a rate
per pasture day (35 cents in 1980) on the estimated yield. A pasture
day assumes that about 24 pounds of dry weight are consumed by one
animal unit (one cow or 1,000 pounds liveweight) per day. In 1980,
pasture yields varied, on the average, from 100 pasture days per acre
per year for bluegrass to 1 75 pasture days per acre per year for alfalf a-
brome. As a result of these yields, the feed charge ranged in 1980 from
$35 per acre for bluegrass to $61 per acre for alfalfa-brome.
Whether the feed charge is synonymous with an appropriate rental
charge is an open question. If the tenant mows, makes fence repairs,
and pays other pasture costs, then the pasture rent should be the feed
charge minus these costs. In general, the use of land for pasture should
be competitive with its use for grain crop production ; if an acre of till-
able pasture could be producing a net rent of $60 (before property
taxes) in corn production, then it may well justify a $60 per acre
pasture rent, assuming that other factors are not limiting its use.
If a tenant has a share-rent agreement with a landlord for crop
production, the landlord must decide whether to charge a supplemental
cash rent on permanent or rotational pastureland on the farm property.
The decision depends upon whether the landlord intends the rent as a
return on improvements associated with the pastureland or as a supple-
ment to the rent-share of the grain crops. These varying interpretations
make it impossible to say what the market rate is on pastureland. The
most that can be said is that supplemental cash rents on pasture will
vary with the quality and quantity of the feed value of the pasture.
Per acre charges in 1980 ranged from an average low of $15 per acre
to an average high of $60, depending upon the possible returns that
could have been earned if the land had been used to grow grain crops.
Tenants in western Illinois commonly paid a supplemental cash rent of
$20 to $25 per acre in 1980 on permanent pastureland.
From time to time the pasture rents paid in Illinois are included in
surveys of farm leasing practices in selected areas. These surveys are the
best source for the going market rates in a particular area. Otherwise,
the only survey data available on an annual basis are those reported
by the USDA. Between 1973 and 1981 the USDA reported the gross
cash rents per pasture acre and the ratios of rent to land value that
are listed on the following page.
52 Special Situations
Rent per
Ratio of rent
Year
acre
to land value
1981
$35.20
3.4
1980
34.40
3.4
1979
30.20
3.2
1978
29.10
3.5
1977
27.80
4.0
1976
23.20
4.6
1975
20.00
4.2
1974
18.60
4.2
1973
16.80
4.6
These reported rents can serve as an index of changes in pasture rents,
and, if the market value of the pastureland is known, the landlord can
use the ratios to determine a pasture rent. For example, if pastureland
had a market value of $600 per acre in 1980, then the pasture rent
might have been $20.40 per acre ($600 X 0.034 = $20.40).
Leases for Estate Planning
Many farm families have potentially conflicting values and goals
about the intergeneration transfer of farm real estate. Most would like
to see the home farm and the family farm business maintained and
continued intact. But they also want to give each heir an equal share or
interest in the farm real estate — an action that could lead to an un-
timely partitioning or sale of the farm if some of the heirs are not in-
terested in farming.
A long-term lease on the farm that is made binding on heirs and
assigns could help achieve both goals because the operating heir would
be given more time to buy out the interests of the nonoperating heirs
who wish to make other uses of their inheritance. If the operating heir
has the time to buy out the interests of the other heirs, the family farm
could be preserved and each heir would be treated equally.
But long-term leases do have some problems. For one, "locked-in"
heirs could become resentful and uncooperative because they are
powerless to effect changes. Another problem could arise if an option
to buy is included in the lease and both the specified purchase price and
the annual farm rent have not been made flexible enough to reflect
any major economic changes during the term of the lease. Finally,
properties encumbered with long-term leases usually sell at a discount
Special Situations 53
when placed on the market in comparison to unencumbered properties.
In conclusion, therefore, long-term leases should be viewed as a poten-
tial tool to achieve desired goals, but, for the reasons listed above, they
should be adopted with discretion and foresight.
Tenant Participation in Improvement Costs
Farm improvements often represent major capital investments, and
sometimes a tenant may want improvements that the landlord cannot
quite afford or that promise the landlord little direct return (for ex-
ample, a completely modern kitchen or improvements for a large
poultry-raising operation ) . If the landlord cannot afford an improve-
ment or if the return is uncertain, a livestock-share landlord still might
justify the desired improvements since he or she would share in any re-
turns, or the added input could be offset by contributions made by the
tenant. Similarly, the cash-rent landlord could simply increase the cash
rent to justify the investment. Crop-share landlords, on the other hand,
would have a harder time justifying the investment since they would
have litde assurance that a succeeding tenant would desire the improve-
ments or be willing to pay a supplemental cash rent.
If the landlord feels unable to justify the expense, one solution is to
permit the tenant to make the improvement at the tenant's own ex-
pense. This solution might be acceptable if the landlord feels that the
tenant is desirable and will remain on the farm for a substantial period
of time and if the tenant can make the improvement meet adequate
standards of quality and safety. Before the tenant begins work, however,
the parties should agree upon provisions for removal of the improve-
ment when the tenant leaves or for a settlement based on the value of
the improvement at the time of the tenant's departure.
Some problems could arise with a provision for the tenant to remove
the improvement upon departure. For one, some improvements simply
are not removable; for example, one cannot remove applied fertilizer,
drainage tiling, or terracing. Second, Illinois law requires that the im-
provement be removed without injury to the landlord's property, and
it may be impractical or impossible to return the property to its former
condition after removal of improvements such as a building with
permanent foundations.
If an improvement is made with the right of removal, this right
should be affirmed in writing, and the landlord should give the tenant
a reasonable amount of time after termination of the lease to remove
54 Special Situations
the improvement. A properly written removal permit also can define
the improvement as tenant collateral and thus make the improvement
eligible for credit financing.*
Instead of requiring the tenant to remove an improvement, the land-
lord might agree to some equitable basis of reimbursement for the labor
and material that the tenant invested in the improvement. Upon com-
pletion of a reimbursement agreement, the improvement would become
the landlord's property. The landlord then would assume the respon-
sibility for taxes, insurance, and risk of loss on the improvement.
The amount of reimbursement may be calculated in one of two ways.
In the first method, the landlord agrees that the improvement is one
that a typical tenant would want to have on the farm and one that such
a tenant would be willing to pay for in the form of an increased rent to
cover the annual costs on the improvement. In this case, the owner
agrees to pay the outgoing tenant the full price of the improvement, less
a fair allowance for depreciation and any government payments the
tenant has received for the improvement. In addition, the incoming
tenant may be given the option to buy the outgoing tenant's interest in
the improvement instead of paying the higher rent.
Another method of reimbursement may be used if the landlord feels
that the improvement would not be desirable enough to attract a supe-
rior tenant or to make the average incoming tenant willing to pay for
it in increased rent. In this method, reimbursement for the improvement
is based upon an agreed-upon "use" value to the farm, minus deprecia-
tion, rather than upon the total cost of the improvement minus de-
preciation. This method is similar to a practice very common in
England where the tenant is compensated at the end of the lease for
the appraised value of any improvements made at his or her own
expense. This arrangement is usually concluded by having the incoming
tenant buy out the outgoing tenant's interest in the property.
The livestock-share, the crop-share, and the cash lease forms re-
printed in this circular all have an "amendments" section that deals
with provisions for removal or for reimbursement of improvements.
There is another way that the tenant could participate in improve-
ments without removal or reimbursement arrangements. The landlord
and tenant could agree to make offsetting contributions. For example,
the tenant may be willing, in slack labor periods, to clear land, install
* No. TA-9 in the series Economics for Agriculture contains a form suitable for this
purpose and is available from the Department of Agricultural Economics, University
of Illinois at Urbana-Champaign, 305 Mumford Hall, 1301 W. Gregory Drive,
Urbana, IL 61801.
Special Situations 55
drainage, maintain bridges, or build terraces if the landlord will pay
for an improvement that will benefit the tenant in particular (putting
up a silo, for example, or installing a water system) .
The building and maintaining of fences is a type of improvement
that merits special discussion. Because fences are capital items like other
farm improvements, they should be furnished by most owners. How-
ever, some landlords will pay the tenant for building new fence lines,
but they expect the tenant to build and maintain inside fences. Other
landlords and tenants, taking a long-range view, have agreed that the
tenant will maintain the fences and the landlord will furnish the mate-
rial and be reasonably liberal in providing adequate fencing. Tenants
contributing labor or materials for new or rebuilt fences and not other-
wise compensated should be protected by a reimbursement guarantee.
Cash or crop-share tenants raising a considerable number of live-
stock may well assume a good share of the responsibility for building
or rebuilding fences. If these tenants do not assume this responsibility,
landlords may be justified in asking for an additional cash rent to cover
some of the costs of maintaining these improvements.
Provisions for Winter Wheat or Growing Crops
Problems arise when growing crops remain on the farm at the
termination of the lease, such as when winter wheat is seeded in the
fall and the lease terminates at the end of the following February. Three
general solutions have been developed to meet this problem. In one,
the lease year begins on August 1 and terminates on the following
July 3 1 to put the wheat crop within the lease year. In another, a rule
of law known as the "rights of emblements or going- away crops" gives
the outgoing tenant a legal right to return to the property, after having
given up possession, for the purposes of harvesting the winter wheat.
In a third solution, the incoming tenant on the land buys the outgoing
tenant's interest in the crop.
None of these solutions are free of problems. The first solution, in
fact, is not a solution at all since shifting the lease year to accommodate
the wheat crop creates the same problem for corn and soybean crops.
In the third solution, it is difficult to determine the value of the crop.
Mere reimbursement of the cost of sowing the crop might not be suffi-
cient to satisfy the outgoing tenant or to provide an adequate incentive
to sow the crop with the usual care. In the second solution, the rule of
emblements applies only to grain crops. If protection is desired for hay
or pasture crops, then special agreements must be written into the lease.
56 Special Situations
Notice that clauses J and K in Section 4 of the crop-share lease
form (page 62) provide the outgoing tenant with the right to sow a
normal acreage of winter wheat after notice of termination has been
given and to remove so much hay and straw from the farm. Clause D
of Section 6 in both the livestock-share and the cash lease forms, on
the other hand, gives the incoming tenant the right of entry for the
stated purposes. Note, however, that the clause does not place any re-
strictions upon the outgoing tenant's right to sow winter wheat or to
claim any payments from government programs for that wheat. If the
landlord does wish to limit these two rights, his or her wishes should be
stated specifically in the lease and must be acceptable to both parties.
Recommended Lease Forms
The process of obtaining a good written lease can be greatly simpli-
fied by using a printed lease form. Forms for four of the major lease
types discussed in this circular have been prepared in the Department of
Agricultural Economics at the University of Illinois at Urbana-Cham-
paign. Each of these four lease forms — the labor-share, the livestock-
share, the crop-share, and the cash lease forms — are reproduced on
the following pages. The net-share lease, because it is newer and in
very limited use, has not yet been prepared. If you are interested in
using a net-share lease, you may adapt either the crop-share or the
cash lease forms. Single copies of the livestock-share, crop-share, and
cash lease forms are available without charge from the University's
Agricultural Publications Office (123 Mumford Hall, 1301 W. Gregory
Drive, Urbana, IL 61801) or from your county Extension office.
We recommend the lease forms reprinted in this circular because
they are adapted to Illinois conditions, because they contain standard-
ized provisions for the protection of both the tenant and the landlord,
and because they offer a complete coverage of the items discussed in
this circular, either as standard provisions or as blank items requiring
the consideration and decision of tenant and landlord.
We suggest that you use three forms when preparing a farm lease —
one to serve initially as a work copy and later as a reference copy, and
two (one for each party) to be prepared for signatures and filing. As
mentioned previously, it is probably a better practice to retype the
working copy, leaving in only those provisions agreed upon by both
parties, and to sign and file these retyped versions.
Illinois Crop-Share Lease
(The landlord and tenant may want to discuss lease provisions with their respective
legal counsel since a lease creates and alters legal rights.)
Date and names of parties. This lease is entered into on , 19_. ,
between _ , landlord (s),
and _ _ , tenant (s),
at (address) _ _ _
The parties to this lease agree to the following provisions.
Description of land. The landlord rents and leases to the tenant, to occupy and
to use for agricultural purposes only, the following real estate located in the County
of _ and State of ,
57
58 Crop-Share Lease
described as follows:
commonly known as the farm and consisting of approxi-
mately _ acres, together with all buildings and improvements thereon be-
longing to the landlord, except
Length of tenure. The term of this lease shall be from , 19 , to
- , 1&-.
Extension of term. This lease shall continue from year to year after the initial term
unless written notice to terminate is given by either party to the other at least
_ months before the beginning of the next lease year.
<
Section 1 . Division of Crops, Cash Rent,
and Other Rent Stipulations
A. Share rent: The tenant agrees to pay to the landlord or the landlord's agent as
rent for the above-described farm the following shares of crops grown:
Crop
Landlord's
share
of crop
Crop
Landlord's
share
of crop
Corn
Alfalfa hay
Soybeans
Straw
Oats
Clover and
grass seed
Wheat
Other
B. The tenant agrees to store, at the landlord's request, as much of the landlord's
share of the crops as possible, using not more than percent of the total
space provided by the landlord in cribs, granaries, or barns on the farm.
C. Cash rent: The tenant agrees to pay to the landlord or the landlord's agent, in
addition to the shares of crops in Clause A, cash rent for each year of this lease
in the amount determined by the following:
Cash rent
Total
xxxxxx
xxxxxx
xxxxxx
Per acre
Rotation hay and pasture
Permanent pasture
Farmstead
Buildings
Crop for silage
D. The tenant agrees to pay any cash rent in installments as follows:
on or before
( amount or share ) (date due )
on or before
(amount or share) (date due)
Section 2. Investments and Expenses
A. The landlord and tenant each agree to furnish the investment items and pay
the shares of expenses listed below, in such quantities and amounts as to permit
the most efficient and profitable uses of resources of both parties. Any exceptions
or alternatives to the stated shares for any items or categories of items are to be
specified in Clause B.
<
Crop-Share Lease 59
Investment and expense items
Amount ($) or share
(%) to be paid or
furnished by
Tenant
Landlord
Land:
acres of cropland . .
acres of other land
0%
0%
Improvements:
House, farm buildings, tile, line fences, driveways, water
supply, farm culverts, and bridges
Major repairs on improvements
Minor repairs on improvements:
Materials
Labor
0%
0%
Machinery and equipment:
Crop and field machinery
Livestock equipment
100%
100%
Crop drying equipment . . .
Grain elevators and augers
Electric motors
Labor:
Labor to operate the farm, make minor improvement
repairs, and provide general farm maintenance
Itemized operations and expenses:
Grain crop seeds
Legume and grass seeds
Herbicides (chemicals only)
Crop pesticides
Combining _
Grain drying fuel and electricity
Other electric power
Tractor fuel
Other fuel, oil, grease
Machinery repairs
Hauling landlord's grain to local elevator
Hauling landlord's grain to
100%
Fertilizers:
Limestone, including hauling and spreading
Anhydrous ammonia:
Material
Application
Bulk fertilizer:
Materials
Application
Mixed and other fertilizer
100%
100%
100%
100%
0%
0%
0%
B. Exceptions, other arrangements and explanations
60 Crop-Share Lease
Section 3. Tenant Duties in Operating Farm
The tenant further agrees to perform and carry out the stipulations below. (Strike
out any not desired.)
A. Activities required:
1. To cultivate the farm faithfully and in a timely, thorough, and businesslike man-
ner.
2. To prevent noxious weeds from going to seed on the premises and to destroy
them and to keep the weeds and grass cut on the farmstead, roadsides, and fence
rows.
3. To haul and spread all manure on appropriate fields at times and in quantities
consistent with environmental protection requirements.
4. To preserve established watercourses, tile drains, tile outlets, grass waterways,
and terraces, and to refrain from any operation that will injure them.
5. To keep the buildings, fences (including hedges), tile drains, and other im-
provements in as good repair and condition as they are when he takes possession
or in as good repair and condition as they may be put by the landlord during the
term of the lease — ordinary wear, loss by fire, or unavoidable destruction excepted.
6. To take proper care of all trees, vines, and shrubs, and to prevent injury to the
same.
7. To keep the farmstead neat and orderly.
8. To prevent all unnecessary waste or loss of or damage to the property of the
landlord.
9. To comply with pollution control and environmental protection requirements,
and to implement soil erosion control practices.
10. To use prudence and care in transporting, storing, handling, and applying all
fertilizers, pesticides, herbicides, and other chemicals and similar substances, and
to read and follow instructions on the labels for the use of such materials in order
to avoid injury or damages to persons or property or both on the leased premises
and adjoining areas.
B. Activities restricted:
1. The tenant further agrees, unless he shall first have obtained the written con-
sent of the landlord:
a. Not to assign this lease to any person or persons or sublet any part of the
premises herein leased.
b. Not to violate restrictions in the landlord's insurance contract.
c. Not to erect or permit to be erected any structure or building or to incur
any expense to the landlord for such purposes.
d. Not to add electrical wiring, plumbing, or heating to any buildings. (If con-
sent is given, such additions must meet standards and requirements of power
and insurance companies.)
2. The tenant further agrees, unless he shall first have obtained the oral consent
of the landlord:
a. Not to plow permanent pasture or meadowland.
b. Not to allow any stock on any tillable land except by annual agreement.
c. Not to burn or remove cornstalks, straw, or other crop residues grown upon
the farm.
d. Not to cut live trees for sale purposes or personal uses.
e. Not to erect or permit to be erected any commercial advertising signs on the
farm.
C. Additional agreements: _ _
Section 4. Management and Business Procedures
The landlord and tenant agree that they will observe the following provisions.
Crop-Share Lease 61
A. Except when mutually decided otherwise (for example, modifications brought
about by participation in government programs), the land use and cropping sys-
tem shall be approximately as follows:
_ acres for rotated crops
acres in permanent pasture
_ acres in nongrazed woodland
acres in building and lots
acres of tillable land seeded to legumes
— acres of tillable land to be left as stand-over legumes
B. Management participation. Within the general framework of the cost-sharing
agreed to in Section 2, and the limits on land-use in Clause A above, landlord and
tenant elect to share the general management and operating decisions as specified
in Option below. All unspecified decision-making, including the day-to-
day implementation and execution of mutually agreed-upon operating and main-
tenance plans, shall be the tenant's responsibility.
Option 1. The landlord is hereby authorized to materially participate each year
and at various times during the year in deciding what crops are to be grown, acres
in each crop, varieties and sources of seed, planting rates, crop sequences, tillage
operations and cultural practices to be employed, crop treatment and market dis-
position of the products, and other organizational and operating questions of
mutual concern. To implement this authority the landlord shall consult and counsel
with the tenant at regular and other appropriate times. Each year the landlord
shall propose a plan of operation for consideration by the tenant, and for adoption
through mutual decision-making. In selecting this option, the landlord intends to
materially participate in management for purposes of self-employment taxation.
Option 2. The landlord specifically desires not to be materially participating in
management of this property and the farm use of it. As evidence of this intent, all
substantial final management decisions shall be made by the tenant except as
specifically noted in other clauses in this lease. The tenant shall each year propose
a plan of operation for the landlord's information prior to the beginning of each
lease year, and shall submit a report to the landlord at the end of each year.
Option 3. The extent to which the landlord will participate in management deci-
sions shall be governed by provisions attached to this lease form and hereby in-
corporated as a part of this lease.
C. Business and accounting procedures. Although this agreement recognizes that
in many instances it will be expeditious and appropriate for the tenant to act as
a spokesperson for the landlord in dealing with suppliers and outside contractors,
it is not intended that the tenant is to have a general power of agency for the
landlord. The two parties agree that Option _ below, as amplified or mod-
ified, shall be the intended basis of operation between them.
Option 1. The landlord desires to remain separate and independent from the
tenant insofar as is prudent and practicable, and therefore the tenant, in dealing
with suppliers and contractors where the landlord's account is involved, shall re-
quire direct and separate billing and accounting for the landlord's share. The land-
lord shall be solely responsible for contracting and financing the landlord's own
insurance of all kinds _ _ _ _
Option 2. For the most expeditious method of handling, the landlord is willing to
have the tenant contract for the shared operating inputs, as noted in Section 2,
and to have the tenant render a summary account for reimbursement or other
settlement by the landlord at the end of each year, or on or before
The tenant is willing to provide this service on behalf of the landlord because of
the greater freedom he gets and the opportunity to obtain price concessions, quan-
tity discounts, etc _ _ - — _ _ _ _ _.
62 Crop-Share Lease
D. The tenant agrees to keep financial and production records of the farm business
and to furnish an annual report to the landlord, on such forms as he may provide,
on or before — _ The landlord agrees to cooperate
in such record-keeping by (1) providing information on his side of the farm busi-
ness, and (2) contributing „ „ (dollars or percent) to the cash costs
of the service.
E. Tenant and landlord agree to review annually the items under Section 3, Part
A, for the purpose of establishing priorities among tasks to be performed and
materials to be provided.
F. The landlord and tenant shall decide each year whether to enter into govern-
mental programs designed to aid agriculture and how payments for doing so and
the cost involved shall be shared between them.
G. The landlord agrees to reimburse the tenant at the end of this lease for the
tenant's cost of soluble phosphate (P»Os) and potash (KiO) fertilizers applied on
crops harvested for grain in the last year of this lease minus the amount of these
plant food elements, valued at the same rates, contained in the tenant's share of
these crops.
H. If the tenant shares in the cost of limestone, the landlord agrees to reimburse
the tenant for his cost (above government payments received) remaining at the
end of this lease when his net cost is depreciated at the rate of percent
annually.
I. The landlord agrees to reimburse the tenant for the tenant's cost of legume and
grass seed in seedings made in the last year of this lease above acres.
(Insert the acres in such seedings on the farm at the beginning of this lease.)
J. If, after notice to terminate this lease has been given, the parties fail to agree
on questions of land use, cropping system, fertility applications, or any deviations
from the lease provisions, then the specific agreements in this lease shall prevail
or, in the absence of agreements in the lease, the landlord shall decide and the
tenant agrees to abide by his decisions. The landlord's decisions shall not contra-
dict any provisions in this lease or violate good farming procedures.
Unless previously agreed otherwise, the tenant shall have the right to sow a normal
acreage of winter wheat in the last year of this lease, and to sell his interest in
such wheat to the landlord or to a party acceptable to the landlord at a fair price.
K. At the termination of this lease the tenant shall have the right to remove up
to (tons, bales) of hay and up to (tons, bales) of straw
grown on this farm and belonging to the tenant.
L. Soil conservation. Both landlord and tenant affirm the goals of minimizing soil
erosion losses and preserving the productivity of the land in ways that are con-
sonant with their needs and desires for acceptable current returns to their indi-
vidual inputs on the leased premises. To these ends they agree to implement as
far as possible the best management practices recommended by the Soil Conserva-
tion Service and to cooperate with that agency's soil and water conservation
programs.
M. Other agreements (grazing control, last cutting of hay, gleaning down-corn,
soil conservation practices, etc.) _ _ _ - — —
Section 5. Default, Possession, Landlord's Lien, Right of Entry,
Mineral Rights, Extent of Agreement, Liability
A. Termination upon default. If either party fails to carry out substantially the
terms of this lease in due and proper time, the lease may be terminated by the
other party by serving a written notice citing the instance (s) of default and speci-
fying a termination date of days from the date of such notice. Settlement
shall then be made in accordance with the provisions of Clause C of this section
and reimbursement agreements of Section 4 and of any amendments to this lease.
Crop-Share Lease 63
B. Yielding possession. The tenant agrees that at the expiration or termination of
this lease he will yield possession of the premises to the landlord without further
demand or notice, in as good order and condition as when they were entered upon
by the tenant, loss by fire, flood, or tornado, and ordinary wear excepted. If the
tenant fails to yield possession, he shall pay to the landlord a penalty of $ _
per day or the statutory double rent, whichever is less, for each day he remains in
possession thereafter, in addition to any damages caused by the tenant to the land-
lord's land or improvements, and said payments shall not entitle the tenant to any
interest of any kind or character in or on the premises.
C. Landlord's lien. The landlord's lien provided by law on crops grown or growing
shall be the security for the rent herein specified and for the faithful performance
of the terms of the lease. If the tenant fails to pay the rent due or fails to keep any
of the agreements of this lease, all costs and attorney fees for the landlord in en-
forcing collection or performance shall be added to and become a part of the
obligations payable by the tenant.
D. Landlord's right of entry. The landlord reserves the right personally or by his
agents, employees, or assigns to enter upon the premises at any reasonable time for
purpose of viewing them, of working or making repairs or improvements thereon,
of caring for and disposing of the landlord's share of the crops, of developing
mineral resources as provided in Clause E below, or, after notice of termination
has been given and following severance of crops, of plowing, preparing a seedbed,
making seedings, gleaning corn, applying fertilizers, and any other operation neces-
sary to good farming by the succeeding operator, these operations not to interfere
with the tenant in carrying out the regular farming operations.
E. Mineral rights. Nothing in this lease shall confer upon the tenant any right to
minerals underlying the land. Such mineral rights are hereby reserved by the
landlord together with the full right to enter upon the premises and to bore, search,
excavate, work, and remove the minerals, to deposit excavated rubbish, to pass
over the premises with vehicles, and to lay down and work any railroad track or
tracks, tanks, pipelines, power lines, and structures as may be necessary or con-
venient for the above purpose. The landlord agrees to reimburse the tenant for
any actual damage he may suffer for crops destroyed by these activities and to
release the tenant from obligation to continue farming this property when develop-
ment of mineral resources interferes materially with the tenant's opportunity to
make a satisfactory return.
F. Extent of agreement. The terms of this lease shall be binding on the heirs,
executors, administrators, and assigns of both landlord and tenant in like manner
as upon the original parties.
G. Landlord liability. The tenant takes possession of the leased premises subject
to the hazards of operating a farm, and assumes all risk of accidents to himself,
his family, employees, or agents in pursuance of his farming operations, or in
performing repairs on buildings, fences, tile, and other improvements. The land-
lord assumes no liability for failure of any water supply with regard to either quan-
tity or quality, or for damages by the elements to improvements, or for any loss
or damages incidental to repair or replacement of improvements, or for failure to
repair or replace existing improvements.
Section 6. Additional Agreements
Landlord (s) Date
Agent Date
Tenant (s) Date
64 Livestock-Share Lease
Amendments to the Lease
A. Improvements made by the tenant at his expense. When the landlord and
tenant agree that the tenant may make all or part of an improvement (such as
buildings, additions to buildings, major repairs, fences, bathrooms, water systems,
etc.) to the farm at his own expense and that the tenant is to be reimbursed for
his remaining cost at the end of the lease (less any government payment received
by the tenant for the improvement), the necessary information shall be recorded
in one of the following blanks and, after being duly signed by both parties, it shall
become a part of the lease above and obligate the landlord and his heirs and
assigns to make such reimbursement. Such improvements become the landlord's
property upon completion of the form below. The landlord thereby assumes the
responsibility for insurance coverage and risk of loss.
Annual
Date
Description and
Tenant's
rate of
depre-
location of the
cost on
depreciation
ciation
Date of
improvement
completion
(percent)
begins
signatures
Signatures
1. _ Lid.
_ _ Ten.
B. Landlord's written consent to tenant's participation in items in Section 3,
Clause B, Part 1.
1. Item:. Description and restrictions:
Date: Landlord's signature
2. Item: Description and restrictions:
Date: Landlord's signature
G. Other amendments:
1. Date: Lid.
Illinois Livestock-Share Lease
(The landlord and tenant may want to discuss lease provisions with their respective
legal counsel since a lease creates and alters legal rights.)
Date and names of parties. This lease is entered into on , 19 ,
between , landlord (s) ,
and _ - , tenant ( s ) ,
at (address) _ _
The parties to this lease agree to the following provisions.
Description of land. The landlord rents and leases to the tenant, to occupy and to
use for agricultural purposes only, the following real estate located in the County
described as follows :
commonly known as the „....„.. farm and consisting of approxi-
mately acres, together with all buildings and improvements thereon be-
longing to the landlord.
Length of tenure. The term of this lease shall be from , 19 , to
, 19-
Livestock-Share Lease 65
Extension of term. This lease shall continue from year to year after the initial term
unless written notice to terminate is given by either party to the other at least
_. months before the beginning of the next lease year.
Amendments and alterations to this lease may be made in writing in the space
provided at any time by mutual agreement. If the parties fail to agree on proposed
alterations, the existing provisions of this lease shall control operations.
Nature of the agreement. This lease shall not be construed as giving rise to a part-
nership or joint venture, and neither party shall be liable for debts or obligations
incurred by the other, without written consent except as permitted in this lease.
This agreement contemplates and provides for material participation in manage-
ment of the business by the landlord or the landlord's agent.
Section 1 . Investment Contributions
A. The landlord and tenant each agree to furnish the investment items listed
below in such quantities and amounts as to permit the most efficient and profitable
uses of resources of both parties. Any exceptions or alternatives to the stated shares
for any items or categories of items are to be specified in Clause B.
Amount ($) or share
(%) to be paid or
Investment items furnished by
Landlord Tenant
All land and fixed improvements at the beginning of this
lease 100% 0%
Except
All machinery and equipment to operate the farm prop-
erly 0% 100%
Except ....
Livestock inventory:
Dairy cattle
Beef cattle
Hogs
Except
Feed inventory:
Grain
Hay
Silage
B. Special agreements on selected items, repairs, maintenance, etc.
Section 2. Farm Operating Inputs and Expenses
A, The landlord and tenant each agree to furnish the input and expense items
listed below in such quantities and amounts as to permit the most efficient and
profitable uses of resources of both parties.
66 Livestock-Share Lease
Amount ($) or share
(%) to be paid or
Expense items furnished by
Landlord Tenant
All labor required to operate the business as planned. . . 0% 100%
Except
Taxes, insurance, and maintenance on all improvements 100% 0%
Except
Repairs, maintenance, and insurance on:
Tenant-owned machinery and equipment 0% 100%
Except _ _ _
Landlord-owned machinery and equipment
Except _
Jointly owned machinery and equipment . .
Except „ _ _
Crop costs:
All grain crop seeds
All legume and grass seeds
All limestone
All fertilizers
All pesticides
All herbicides
Electricity, gasoline, other fuel and oil :
Farm share of electricity
Gasoline, diesel fuel, etc
Crop drying fuel and power
Harvesting, hauling, and processing costs:
Combining corn
Combining soybeans
Combining „ _
Baling hay . . .
Field chopping
Silo filling . . .
Hauling crops and livestock to market
Hauling milk to market
Hauling supplies
Feed grinding, mixing
Livestock-Share Lease 67
Section 3. Returns from Farm Business as Income
to Tenant and Rent to Landlord
ndlord's
Tenant's
rent
income
share
share
(%)
(%)
All returns from the following shall be divided as
designated :
Sale of jointly owned livestock
Sale of joindy owned livestock products
Sale of crops
Except
Ownership of livestock increase
The tenant may have for family use and to furnish to the tenant's hired labor in
lieu of wages :
Not more than acres of land for garden and such fruit as farm
affords.
Not more than pounds of milk and dozen eggs from
jointly owned stock.
Pork, beef, mutton, and poultry from joindy owned stock up to the following
amounts:
Pork: pounds live weight, or animals
._ : pounds live weight, or animals
: pounds live weight, or animals
The tenant may use from undivided home-grown feed, for livestock owned solely
by himself, his family, or hired labor, not more than :
bushels of corn „... tons of hay
bushels of tons of
Section 4. Tenant Duties in Operating Farm
The tenant further agrees to perform and carry out the stipulations below. (Strike
out any not desired.)
A. Activities required:
1. To cultivate the farm faithfully and in a timely, thorough, and businesslike man-
ner.
2. To prevent noxious weeds from going to seed on the premises and to destroy
them and to keep the weeds and grass cut on the farmstead, roadsides, and fence
rows.
3. To haul and spread all manure on appropriate fields at times and in quantities
consistent with environmental protection requirements.
4. To preserve established watercourses, tile drains, tile outlets, grass waterways,
and terraces, and to refrain from any operation that will injure them.
5. To keep the buildings, fences (including hedges), tile drains, and other im-
provements in as good repair and condition as they are when he takes possession
or in as good repair and condition as they may be put by the landlord during the
term of the lease — ordinary wear, loss by fire, or unavoidable destruction excepted.
6. To take proper care of all trees, vines, and shrubs, and to prevent injury to the
same.
68 Livestock-Share Lease
7. To keep the farmstead neat and orderly.
8. To prevent all unnecessary waste or loss of or damage to the property of the
landlord.
9. To comply with pollution control and environmental protection requirements,
and to implement soil erosion control practices.
10. To use prudence and care in transporting, storing, handling, and applying all
fertilizers, pesticides, herbicides, and other chemicals and similar substances, and
to read and follow instructions on the labels for the use of such materials in order
to avoid injury or damages to persons or property or both on the leased premises
and adjoining areas.
B. Activities restricted:
1. The tenant further agrees, unless he shall first have obtained the written con-
sent of the landlord:
a. Not to assign this lease to any person or persons or sublet any part of the
premises herein leased.
b. Not to violate restrictions in the landlord's insurance contract.
c. Not to erect or permit to be erected any structure or building or to incur
any expense to the landlord for such purposes.
d. Not to add electrical wiring, plumbing, or heating to any buildings. (If con-
sent is given, such additions must meet standards and requirements of power
and insurance companies.)
2. The tenant further agrees, unless he shall first have obtained the oral consent
of the landlord:
a. Not to plow permanent pasture or meadowland.
b. Not to allow any stock on any tillable land except by annual agreement.
c. Not to burn or remove cornstalks, straw, or other crop residues grown upon
the farm.
d. Not to cut live trees for sale purposes or personal uses.
e. Not to erect or permit to be erected any commercial advertising signs on the
farm.
C. Additional agreements: _ — - _
Section 5. Management and Business Procedures
The provisions for joint decision-making in this section shall in no way be con-
strued as destroying the independent and separate business interests of the land-
lord and the tenant. The laws and rules of the landlord-tenant relationship shall
apply. The level of landlord participation contemplated in this lease agreement is
sufficient, unless performed for the landlord by an agent, to constitute material
participation for purposes of self-employment taxes under the social security pro-
gram.
The landlord and tenant agree that they will observe the following provisions.
A. Except when mutually decided otherwise, the annual land use and cropping
system shall be approximately as follows :
acres for rotated crops
_ acres in permanent pasture
acres in nongrazed woodland
._ acres in building and lots
acres of tillable land seeded to legumes
acres of tillable land to be left as stand-over legumes
B. In the first year of this lease and for each succeeding year that this lease re-
mains in effect, the two parties agree to review the cropping system, the varieties
and acreages of each crop to be planted, and the kinds and amount of fertilizer
to be applied. The landlord shall counsel with the tenant on sources of seed, plant-
ing rates, tillage practices, crop treatment, and market disposition of the crops.
c
Livestock-Share Lease 69
C. When clover or fall-seeded crops fail to live through the winter, or when sum-
mer crops fail, the tenant shall consult the landlord on crops to be substituted.
D. Except when mutually decided otherwise, the kinds and approximate numbers
of jointly owned livestock to be kept shall be as follows:
_ dairy cows sows and gilts to farrow
beef cows approximately litters
purchased feeder cattle each year
_ purchased feeder pigs
E. The landlord and tenant shall jointly decide upon these items:
1. Kind of livestock to be purchased; time of purchase.
2. Time when livestock shall be sold; sales agency to be used.
3. Kind of feed to be purchased ; time and place of purchase.
4. Composition of feeding rations, sources of feed supplements, and sources and
use of veterinary services.
5. Buying and selling of jointly owned crops, other farm produce, materials, and
supplies in amounts of more than $ ; such sales and purchases be-
low this amount shall be left with the tenant.
F. Business and accounting procedures. Although this agreement recognizes that
in many instances it will be expeditious and appropriate for the tenant to act as
a spokesperson for the landlord in dealing with suppliers and outside contractors,
it is not intended that the tenant is to have a general power of agency for the
landlord. The two parties agree that Option below, as amplified or modified,
shall be the intended basis of operation between them.
Option 1. The landlord desires to remain separate and independent from the
tenant insofar as is prudent and practicable, and therefore the tenant, in dealing
with suppliers and contractors where the landlord's account is involved, shall
require direct and separate billing and accounting for the landlord's share. The
landlord shall be solely responsible for contracting and financing the landlord's
own insurance of all kinds
Option 2. For the most expeditious method of handling, the landlord is willing to
have the tenant contract for the shared operating inputs, as noted in Section 2,
and to have the tenant render a summary account for reimbursement or other
settlement by the landlord at the end of each year, or monthly on or before the
day of the following month. The tenant is willing to provide this service
on behalf of the landlord because of the greater freedom he gets and the oppor-
tunity to obtain price concessions, quantity discounts, etc _ _ _
G. Complete financial and production records of the farm business shall be kept
by the tenant. He shall furnish to the landlord an annual report and a monthly
report on or before the day of the following month. The landlord agrees
to cooperate in such recordkeeping by providing information on his side of the
business and by contributing (dollars or percent) to meet the cash
costs of such service.
H. At the end of this lease, the landlord agrees to reimburse the tenant:
1. For the tenant's remaining cost in limestone if the tenant paid his share at the
time it was applied. The tenant's remaining cost shall be calculated by first sub-
tracting, from the tenant's original cost, government payments received by him
and then depreciating the tenant's net cost at the rate of percent
annually.
2. For the tenant's cost of legume and grass seed in seedings made on more than
acres in the last year of this lease.
I. The tenant shall be solely responsible for all employer obligations on hired labor
with respect to safety requirements and social security and workmen's compensa-
tion contributions, and the landlord shall have no responsibilities therefore.
70 Livestock-Share Lease
J. At the termination of this lease the tenant shall have the right to remove up
to (tons, bales) of hay and (tons, bales) of straw
grown on the farm and belonging to the tenant.
K. If, after notice to terminate this lease has been given, the parties to this lease
fail to agree on questions of land use, cropping system, fertilizer applications, or
any deviations from the lease provisions, then the specific agreements in this lease
shall prevail or, in the absence of agreements in this lease, the landlord shall
decide and the tenant agrees to abide by his decision. The landlord's decisions
shall not contradict any provisions in this lease or violate good fanning procedures.
L. Other management agreements:
Section 6. Arbitration, Default, Right of Possession and Entry,
Mineral Rights, Landlord's Lien, and Lease Termination
A. Arbitration of differences. If differences should arise between the parties to
this lease, they may elect to arbitrate a settlement. If they elect to arbitrate, they
agree to use the following procedure: Within ten days after electing to arbitrate,
the parties shall choose an arbitrator. If one person cannot be found who is ac-
ceptable to both parties, then each party shall choose an arbitrator and the two
so chosen shall select a third. Within a reasonable time the arbitrator(s) shall
make whatever inspection and inquiry are necessary and report findings in writing
to both parties. The arbitrator (s) shall have power to make an award or deter-
mination on any issue which arises out of this lease, and it shall be binding upon
both parties. The expenses of arbitration shall be divided equally between the
parties.
B. Termination upon default. If either party clearly fails to carry out substantially
the terms of this lease in due and proper time, the lease may be terminated by the
other party by serving a written notice citing the instance (s) of default and specify-
ing a termination date of not less than days from the date of such notice.
Settlement shall then be made in accordance with the reimbursement agreements
of Section 5, Clause H, and the provisions of Clauses G, H, and I below, and of
any amendments to this lease.
C. Landlord's right to take possession. If the tenant shall, for any cause, fail to
exercise good husbandry in carrying out the terms of this lease or fail to exercise
due and proper care in the feeding and handling of jointly owned livestock, the
landlord may, after giving three days' notice of intention to do so, take active
possession of the premises and buildings, which the tenant agrees to surrender. The
landlord may then employ other persons to tend the crops and livestock and per-
form all the agreements of the tenant as herein contained. After deducting all
monies advanced, monies or grain due for rent, and the expense of attending the
aforesaid crops and livestock, the landlord will pay the residue, if any, to the tenant.
D. Landlord's right of entry. The landlord reserves the right personally or by his
agents, employees, or assigns to enter upon the premises at any reasonable time
to view them, to work or make repairs or improvements thereon, to care for and
dispose of the landlord's share of crops, to develop mineral resources as provided
in Clause E below, and, after notice of termination has been given and following
severance of crops, to plow and prepare a seed bed, make seedings, glean corn,
apply fertilizers, and any other operation necessary to good farming by the suc-
ceeding operator, these operations not to interfere with the tenant in carrying out
the regular farming operations.
E. Mineral rights. Nothing in this lease shall confer upon the tenant any right to
minerals underlying the land. Such mineral rights are hereby reserved by the
landlord together with the full right to enter upon the premises to bore, search,
excavate, work, and remove the minerals, to deposit excavated rubbish, to pass
over the premises with vehicles, and to lay down and work any railroad track or
tracks, tanks, pipelines, power lines, and structures as may be necessary or con-
venient for the above purpose. The landlord agrees to reimburse the tenant for
any actual damage he may suffer for crops destroyed by these activities and to
Livestock-Share Lease 71
release the tenant from obligation to continue farming this property when develop-
ment of mineral resources interferes materially with the tenant's opportunity to
make a satisfactory return.
F. Landlord's lien. The landlord's lien, as provided by law, shall be the security
for the rent herein specified.
If the tenant fails to pay the rent or fails to keep any of the agreements of
this lease, all costs and attorneys' fees of the landlord in enforcing collection or
performance shall be added to and become a part of the rent payable by the tenant.
G. Yielding possession. The tenant agrees that at the end of this lease he will
yield possession of the premises to the landlord without further demand or notice,
in as good order and condition as when they were entered upon by the tenant, loss
by fire, flood, or tornado, and ordinary wear excepted. If the tenant shall not
surrender the premises on the date of termination, he shall pay to the landlord
the sum of $ for each day he remains in possession thereafter, in
addition to any damages caused by the tenant to the landlord's land or improve-
ments, and said payments shall not entitle the tenant to any interest of any kind
or character in or on the premises.
H. Method of settlement at end of lease. At the end of this lease, an accounting
shall be had between the parties, and the produce, stock, and other property be-
longing jointly to the landlord and tenant shall be divided according to their
respective interests. The tenant shall divide each kind of livestock into equal lots
as nearly as possible, and the landlord shall have choice of lots of each kind of
livestock. This division shall be final and binding upon both parties. Each shall
have the right to claim, as part of his distributive share, either the original animals
contributed to any jointly owned livestock or the progeny of such animals, if he so
desires.
I. Compensation for damage to farm. At the end of this lease, the tenant shall pay
to the landlord a reasonable compensation for any damage to the property for
which the tenant is responsible, after due allowance is made for damage resulting
from ordinary wear and depreciation or from causes beyond the tenant's control.
J. Extent of agreement. The terms of this lease shall be binding on the heirs,
executors, administrators, and assigns of both landlord and tenant in like manner
as upon the original parties.
Section 7. Additional Agreements
Landlord (s) Date
By
Agent Date
Tenant (s) Date
Amendments to the Lease
A. Improvements made by the tenant at his expense. When the landlord and
tenant agree that the tenant may make all or part of an improvement (such as
buildings, additions to buildings, major repairs, fences, bathrooms, water systems,
etc.) to the farm at his own expense and that the tenant is to be reimbursed for
his remaining cost at the end of the lease (less any government payment received
by the tenant for the improvement), the necessary information shall be recorded
in one of the following blanks and, after being duly signed by both parties, it
shall become a part of the lease above and obligate the landlord and his heirs and
assigns to make such reimbursement. Such improvements become the landlord's
property upon completion of the form below. The landlord thereby assumes the
responsibility for insurance coverage and risk of loss.
72 Labor-Share Lease
Annual
Date
Description and
Tenant's
rate of
depre-
location of the
cost on
depreciation
ciation
Date of
improvement
completion
(percent)
begins
signatures
Signatures
1 „_ Xld.
jirzzzz " " " zizz mz ~ "T.M.'
Ten.
B. Landlord's written consent to tenant's participation in items in Section 4.
1. Item: _ Description and restrictions:
Date: Landlord's signature _
2. Item: „ Description and restrictions: _ _ _ _.
Date: Landlord's signature _ _
C. Other amendments:
1 _ Date : Lid.
_.._ _ _ _ Date: Ten.
2 _ _ Date : _ _ Lid.
_ _ Date: Ten.
Illinois Labor-Share Lease
(Farm Profit-Sharing Agreement)
Dates and names of parties. This agreement is entered into on _ , 19 ,
between _ - _ „ , the owner and/or
senior operator, and _ , the junior operator.
Purpose and intent. The purposes of this agreement are (1) to provide an ap-
prenticeship opportunity for the junior operator to earn a return and to gain skill
and experience by associating his labor and management abilities, plus his capital
investments, if any, with the land, capital, and management provided by the
owner, (2) to provide labor and managerial assistance to supplement the owner's
inputs in the operation of the farm business involved, and (3) to permit continuity
of the farm business. This agreement is not intended to give rise to a partnership,
and it shall not be so construed. Neither party shall be liable for the debts of, or
the debts incurred by, the other without written consent. Contributions of real
estate and capital items by either party shall be for possession and use only.
Description of land. This agreement shall be effective for the purposes indicated
in this lease on the following described real estate: (1) _ _
_ consisting of acres,
of which are owned by the owner and by the junior operator,
and situated in the County of in the State of ;
(2) additional acres rented from other owners; and (3) any other land
that either party may add to the operating unit with the consent of the other.
Length of tenure. The term of this agreement shall be from the day of
, 19 , to the day of , 19 , and from
year to year thereafter unless written notice to terminate is given by either party to
the other at least months before the end of the current agreement year.
Extent of agreement. The terms of this agreement shall be binding upon the heirs,
executors, administrators, and assigns of both parties in like manner as upon the
original parties, except as shall be provided by mutual agreement otherwise.
Basis for compensation for each party. Each party shall be compensated for his
respective contributions to the farm business by (1) a cash rent on real estate to
be paid out of undivided gross income, (2) direct compensation out of undivided
gross income for all farm-related, non-real-estate, cash operating expenses, including
depreciation as a prepaid expense, and (3) a share of the net farm returns in the
same proportion as each contributes to the unpaid inputs above the stated rent
and cash operating expenses and depreciation.
Labor-Share Lease 73
Section 1 . Division of Income and Related Stipulations
A. Calculation of the distributive shares of net farm returns for the first year will
be recorded in the following chart.
Unpaid
Contribution
Items
Contributed by
junior operator
Contributed by owner
Amount
Rate
Annual
value
Amount
Rate
Annual
value
1. Interest on
operating
capital
2. Labor and
management
Months
%
%
Months
3. Total annual
value
4. Percent con-
tributed by
each party to
Item 3
$
, %
$ -
%
B. Division of net farm returns. The net farm returns at the end of the contract
year shall be divided on the basis of % to the owner and % to
the junior operator as calculated in Clause A. For subsequent years under this
agreement, the distributive shares shall be recalculated using the form in Clause A
on or before „ each year. These recalculations will be
entered below and will reflect changes in each party's contributions.
19_ _ % to owner, % to junior operator
19_ % to owner, % to junior operator
19 % to owner, % to junior operator
C. Calculation of net farm returns. Net farm returns shall be calculated annually
on the accrual basis as follows unless mutually agreed otherwise.
a. Gross Income
1. Income from the sale of crops, livestock, and products $
2. Other farm income (custom work, etc.)
3. End-of-year inventory of crops, livestock, etc
4. Total gross income $
b. Expenses and Deductions
5. Cash farm operating expenses* $
6. Cost of livestock purchased6
Depreciation of machinery, equipment, etc.*
Cash rent on farm real estate*1
Beginning-of-year inventory of crops, livestock, etc
Total expenses and deductions $
7.
8.
9.
10.
* Not included are interest and debt payments of any kind or any advance distributing payments
to either party. Taxes, insurance, repairs, and other costs associated with real estate are not
included because a gross cash rent is used to cover these costs.
b The cost of any breeding stock entered in capital accounts is not included.
* Depreciation on buildings, farm tile, ancl other similar improvements is not included. Such
depreciation is covered in the rent paid on real estate. Breeding livestock are included in the
inventories, and any depreciation will be reflected in the inventory change.
d The cash rent to be paid for the owner's real estate and the junior operator's, if any, is a gross
cash rent so that both can be personally responsible for all of their respective real estate costs,
such as taxes, depreciation, insurance, repairs, and replacement. Gross cash rent on other land
rented from third parties should also be included.
74 Labor-Share Lease
c. Net Farm Returns
11. Net farm returns (Item 4 minus Item 10) $
12. Junior operator's share ( % of Item 11)
13. Total of monthly and other advances to junior operator
14. Balance due to junior operator (Item 12 minus Item 13) $
D. Accounting methods and settlement procedures.
1. Settlement for each year this agreement remains in effect shall be a payment
by the owner to the junior operator for the amount shown in Item 14 of Clause C
as calculated for that year. Only a "tenant's" share of the business remains after
all farm real estate owned by either party and used in the farm business is treated
as rented. Share rents to third parties are not included in Items 1 and 3 of Clause
G above and thus need not be included in expenses. Gross cash rents for settlement
purposes shall be agreed on and entered below at the beginning of each year.
Year To the junior operator To the owner
19 „ acres $ rent acres $ rent
19.. acres $ rent acres $ rent
19 acres $.„ rent acres $ rent
19._ _ acres $ rent acres $.. rent
2. Complete inventories of feed, grain, livestock, and other products shall be made
at the beginning and end of each year and be separated according to ownership
by owner or junior operator. Appropriate values will then be placed on these items.
Inventories will be separated to reflect changes in the contributions by either party
from year to year and to provide a record of the claims each party has on the
assets at the end of the agreement. The amounts to be entered in Items 3 and 9
of Clause C are the total inventories, the sum of the owner's and the junior opera-
tor's inventories.
3. A complete account, separated between owner and junior operator according
to ownership, shall be kept of all purchases, sales, depreciation, and remaining cost
values on all non-real-estate capital assets used in the business. The entry in Item 7
in Clause C shall be the total for the parties.
4. The separated value of inventory assets and remaining undepreciated value of
non-real-estate capital assets held at the beginning of each year by each party shall
be considered in updating Item 1 of Clause A at the beginning of each year.
5. A complete record shall be kept of all cash income and cash operating expenses,
including cash rent paid but not including interest and principal payments on
indebtedness or cash salary payments to the junior operator. The required record
of the farm business shall be kept by „ with both
parties responsible for contributing needed information. Both parties shall cooper-
ate in setting up inventories and depreciation tables and in summarizing and
interpreting the records. The farm account book shall be open for inspection by
either party at any time.
6. Because the owner owns all or a major portion of the farm operating capital,
he shall either (1) be the personal custodian of all income and shall pay all ex-
penses, or (2) set up a separate bank account under his control into which all farm
income shall be deposited and from which all farm expenses and the distribution
of net farm earnings shall be paid. In either method the owner shall be responsible
for all money and the annual settlement based on the aforementioned record of
the farm business.
7. Because the owner handles all money, he shall complete each annual settlement
by presenting a check to the junior operator for the amount entered in Item 14
of Clause C. If the amount is negative, the settlement shall be made according to
Clause B of Section 2. The owner also shall write a check on or before the
day of , 19 , for the cash rent due to the junior operator for
the use of any real estate contributed by the junior operator to the farm business.
The owner shall write a third check at the end of each year to the junior operator
for any depreciation as provided in the capital accounts on any capital assets
contributed to the business by the junior operator. The owner shall write a fourth
check if the junior operator contributed inventory items and there was a decrease
in the value of these items from the beginning to the end of the year. If there was
f
Labor-Share Lease lb
an increase in the value of the junior operator's inventory, then the increase in
value shall be counted as part payment of the amount due to the junior operator
for the year. The junior operator's total compensation shall thus be the sum of a
(1) cash rent on his real estate, (2) any depreciation on his capital, (3) any
decrease in his inventory items, and (4) his share of the net farm returns.
Section 2. Management, Wage Guarantees, Living
Arrangements, and Other Considerations
A. Management. All operating plans shall be discussed and agreed upon by both
parties. To give the junior operator the greatest opportunity to learn and gain
managerial experience, the owner agrees to ( 1 ) give specific reasons for all major
management decisions that he proposes, (2) ask the junior operator for his opinions,
and (3) create opportunities, by delegating responsibility or otherwise, for the
junior operator to make decisions. Each party shall be involved in the management
of all aspects of the farm business, but leadership responsibility may be assigned
to one party or the other for selected enterprises or activities.
B. Wage guarantee. The junior operator is guaranteed by the owner a cash in-
come of $ — _ per month, the income for each month being due on or
before the _ _ day of the following month. Such compensation shall be
considered advance payment against the junior operator's share of the net farm
returns at the end of the year. If the junior operator's share of the net farm
returns, as shown in Item 14 of Section 1, Clause C, is less than the total amount
paid above, he shall nevertheless be entitled to retain the above amount and shall
not be required to make any refund. The amount advanced to the junior operator
shall not be considered a part of the cost of hired labor when determining farm
expenses. This guarantee applies to the junior operator's share of net farm returns
and is independent of his compensation for real estate, depreciation, and inven-
tory decrease, if any.
C. Perquisites. In addition to the share of net farm returns above, each party shall
be permitted meat, milk, and eggs from the farm production for household use
not to exceed the following amounts annually: — _
Each party also may use up to „ acres for garden, truck crops, or fruit
production for household use. Each party also may keep no more than the follow-
ing numbers of livestock to be fed out of farm-grown feed: _ _
D. Living arrangements. Unless otherwise agreed, each party shall provide his own
living arrangements. If living arrangements are provided for either or both parties,
these arrangements shall be as follows: _ _ _ _ _ _
_ _ _ _ If either party boards the other, the
party receiving board shall pay the party providing board $ a month
for laundry, shelter, food, and fuel.
Section 3. Arbitration and Other Agreements
A. Arbitration. If differences should arise between the parties to this agreement,
they may elect to arbitrate a settlement. If they elect to arbitrate, they agree to
use the following procedure and to abide by the resulting decision: The owner
and the junior operator shall each select one arbitrator; the two arbitrators so
selected shall jointly select a third; and the three shall determine the bases of
settlement which to them seem equitable.
B. Additional agreements _ _ „ _ _ _ _ _
Owner Date
Junior Operator Date
76 Cash Lease
Illinois Cash Farm Lease
(The landlord and tenant may want to discuss lease provisions with their respective
legal counsel since a lease creates and alters legal rights.)
Date and names of parties. This lease is entered into on _ , 19 ,
between , landlord,
and „ ~ , tenant.
Description of land. The landlord rents and leases to the tenant, to occupy and
to use for agricultural purposes, the following real estate located in the County
of _ _ and State of _ _ ,
described as follows: _ _ - _ _
commonly known as the _ farm and consisting of
approximately acres, together with buildings and improvements on
the property.
Length of tenure. The term of this lease shall be from , 19 ,
to _ , 19 , and the tenant shall surrender possession at the
end of this term or at the end of any extension thereof. Extensions must be placed
in writing on this lease, and both parties agree that failure to execute an exten-
sion at least months before the end of the current term shall be con-
structive notice of intent to allow the lease to expire.
Amendments and alterations to this lease may be made in writing in the space
provided at any time by mutual agreement. In the event of failure to agree on
proposed alterations, the existing provisions of the lease shall control operations.
Section 1. Amount of Rent
A. The tenant agrees to pay the landlord an annual cash rent for the above-
described farm in the amount determined as follows: (Complete the desired method
for determining the cash rent. Strike out the parts and other methods not desired.)
Method 1. The annual cash rent shall be the sum of $ This repre-
sents acres of cropland at $ per acre, plus acres
of at $ per acre, plus acres of
at $ per acre, plus _
Method 2. The cash rent shall be the amount stated in Method 1 above, but
adjusted annually after the first year in proportion to changes in the USDA
index of _
for the month (s) of _ „ from a base index of
for the first year of this lease.
Method 3. The cash rent shall be equal to the value of the standing amounts
of commodities indicated below, such value to be calculated each year by using
the prices for the time periods and from the sources specified. After the first
year the standing amounts shall first be adjusted up or down for the year in the
same proportion as county average yields changed that year from the indicated
base yields.
Commodity
Corn
Soybeans . .
Wheat
Milk
Hogs
Standing
amount
bu.
bu.
bu.
lb.
lb.
Time periods and sources
of the prices to be used
County
average
base yield
bu.
bu.
bu.
xxxxx
xxxxx
Cash Lease 77
Section 2. Landlord's Investment and Expenses
The landlord agrees to furnish the property and to pay the items of expense
listed below:
A. The above-described farm, including fixed improvements.
B. Materials for necessary repairs and improvements to buildings and permanent
fences except as agreed to in Section 3.D and amendments to this lease.
C. Skilled labor employed in making and repairing improvements and all labor
for painting buildings.
D. Taxes on land, improvements, and personal property owned by the landlord.
E. Fire and wind insurance, at a fair replacement value, on residence and all
buildings owned by him and used by the tenant in storing or housing grain, feed,
livestock, and equipment.
F. Ground limestone: Landlord is to furnish -... percent or share of total cost,
including hauling and spreading.
G. Seeds (state percent or share furnished by landlord): alfalfa, ; red
clover, ; sweet clover, ; grass, ;
H. A water supply adequate for household use and animal units of live-
stock.
I. Other items: _ _ _ _ _ _ —
Section 3. Tenant's Investment and Expenses
The tenant agrees to furnish the property and to pay the items of expense listed
below:
A. All the machinery, equipment, labor, fuel, and power necessary to farm the
premises properly.
B. The hauling to the farm, except when otherwise agreed, of all material which
the landlord furnishes for making repairs and minor improvements, and the per-
forming of labor, except skilled, required for such repairing and improving.
C. All seed, inoculation, disease-treatment materials, and fertilizers, except that
which the landlord agrees to furnish in Section 2 above.
D. The following described items and all other items of expense not furnished by
the landlord as provided in Section 2: _ _ _ _
Section 4. Tenant's Duties in Operating Farm
The tenant further agrees to perform and carry out the stipulations below. (Strike
out any not desired.)
A. Activities required:
1. To cultivate the farm faithfully and in a timely, thorough, and businesslike man-
ner.
2. To inoculate all alfalfa and soybean seed sown on land not known to be thor-
oughly inoculated for the crop planted.
3. To prevent tramping of fields by stock and rooting by hogs when injury will be
done.
4. To prevent noxious weeds from going to seed on said premises and to destroy
the same and keep the weeds and grass cut.
5. To haul out and spread all manure as soon as practicable on appropriate fields.
6. To keep open ditches, tile drains, tile outlets, grass waterways, and terraces in
good repair.
78 Cash Lease
7. To preserve established watercourses or ditches, and to refrain from any opera-
tion that will injure them.
8. To keep the buildings, fences (including hedges), and other improvements on
said premises in as good repair and condition as they are when he takes possession
or in as good repair and condition as they may be put by the landlord during the
term of the lease — ordinary wear, loss by fire, or unavoidable destruction excepted.
9. To take proper care of all trees, vines, and shrubs, and to prevent injury to the
same.
10. To keep the farmstead neat and orderly.
11. To prevent all unnecessary waste or loss of or damage to the property of the
landlord.
12. To comply with rules and regulations of the Illinois Pollution Control Board.
13. To practice fire prevention, follow safety rules, and abide by restrictions in the
landlord's insurance contracts.
B. Activities restricted:
1. The tenant further agrees, unless he shall first have obtained the written con-
sent of the landlord:
a. Not to assign this lease to any person or persons or sublet any part of the
premises.
b. Not to farm more than acres of additional land and not to enter
into any other business, occupation, or sideline, except _
c. Not to erect or permit to be erected any structure or building or to incur any
expense to the landlord for such purposes.
d. Not to add electrical wiring, plumbing, or heating to any buildings. (If con-
sent is given, such additions must meet standards and requirements of power
and insurance companies.)
e. Not to permit, encourage, or invite other persons to use any part or all of
this property for any purpose or activity not directly related to its use for
agricultural production, except as specifically noted here:
2. The tenant further agrees, unless he shall first have obtained the oral consent
of the landlord:
a. Not to plow permanent pasture or meadowland.
b. Not to cut live trees for sale purposes or personal uses.
c. Not to erect or permit to be erected any commercial advertising signs on the
farm.
C. Additional agreements:
Section 5. Management and Business Procedures
The landlord and tenant agree that they will observe the following provisions.
(Strike out any items not desired.) The decision-making by the landlord, implied
in Clause A below, or in any other part of this lease, does not contemplate material
participation by the landlord or his heirs.
A. Except when mutually decided otherwise, the land use and cropping system
shall be approximately as follows:
acres for rotated crops
acres in permanent pasture
— acres in nongrazed woodland
„. acres in buildings and lots
acres of tillable land planted to biennial or perennial legumes each year
acres of tillable land to be left in biennial or perennial legumes each year
B. The landlord agrees to reimburse the tenant for the tenant's cost of legume
and grass seed in seedings made in the last year of this lease above acres.
(Insert the acres in such seedings on the farm at the beginning of this lease.)
<
Cash Lease 79
C. The landlord agrees to reimburse the tenant, at the end of this lease, for the
tenant's cost of readily soluble phosphate (P»Ob) and potash (KiO) applied as
annual fertilizers on crops harvested for grain in the last year of this lease over
and above the amount of these plant-food elements contained in such crops.
D. If the tenant furnishes all or any of the cost of limestone, the landlord agrees
to reimburse the tenant at the termination of this lease for the tenant's remaining
cost. For this purpose, depreciation is to be charged at a percent annual
rate applied to the tenant's cost above government payments received by the tenant
for any limestone applied.
E. The cash rent shall be paid each year in the following installments:
Dollars or percent Date due
of rent due
Balance due
Section 6. Default, Yielding Possession, Right of Entry
A. Termination upon default. If either party fails to carry out substantially the
terms of this lease in due and proper time, the lease may be terminated by the other
party by serving a written notice citing the instance (s) of default and specifying
a termination date of days from the date of such notice. Settlement shall
then be made in accordance with the provisions of Clause C of this section, the
reimbursement agreements of Section 5, and amendments.
B. Yielding possession. The tenant agrees that at the expiration or termination of
this lease he will yield possession of the premises to the landlord without further
demand or notice. If the tenant fails to yield possession, he shall pay to the land-
lord a penalty of $ per day, or if a penalty is not specified, the statu-
tory double rent shall apply, for each day he remains in possession thereafter, in
addition to any actual damages caused by the tenant to the landlord's land or
improvements, and said payments shall not entitle said tenant to any interest of
any kind or character in or on the premises.
C. Landlord's lien for rent and performance. The landlord's lien provided by law
on crops grown or growing shall be the security for the rent herein specified and
for the faithful performance of the terms of the lease. If the tenant shall fail to
pay the rent due or shall fail to keep any of the agreements of this lease, all costs
and attorney fees of the landlord in enforcing collection or performance shall be
added to and become a part of the obligations payable by the tenant hereunder.
D. Landlord's right of entry during term of lease. The landlord reserves the right
of himself, his agents, employees, or assigns to enter upon said premises at any
reasonable time for the purpose of viewing the same, of working or making repairs
or improvements thereon, of developing mineral resources as provided in Clause E
below, or, after constructive notice has been given that the lease may not be ex-
tended, of plowing after severance of crops, of seeding, or of applying fertilizers
and doing other field work.
E. Mineral rights. Nothing in this lease shall confer upon the tenant any right
to minerals underlying said land, but the same are hereby reserved by the landlord
together with the full right to enter upon the premises and to bore, search and
excavate for same, to work and remove same, and to deposit excavated rubbish,
and with full liberty to pass over said premises with vehicles and lay down and
work any railroad track or tracks, tanks, pipelines, powerlines, and structures as may
be necessary or convenient for the above purpose. The landlord agrees to reimburse
the tenant for any actual damage he may suffer for crops destroyed by these
activities and to release the tenant from obligation to continue farming this prop-
erty when development of mineral resources interferes materially with the tenant's
farming operations.
F. Extent of agreement. The terms of this lease shall be binding on the heirs,
executors, administrators, and assigns of both landlord and tenant in like manner
as upon the original parties.
80 Cash Lease
Section 7. Additional Agreements
By.
Landlord (s) Date
Agent Date
Tenant (s) Date
Amendments to the Lease
A. Landlord's written consent to tenant's participation in items in Section 4,
Clause B, Part 1.
1. Item: _ Description and restrictions: _
Date: Landlord's signature: _
2. Item: _ Description and restrictions:
Date: Landlord's signature: _ _ _
B. Improvements made by the tenant at his expense. When the landlord and
tenant agree that the tenant may make all or part of an improvement (such as
buildings, additions to buildings, major repairs, fences, bathrooms, water systems,
etc.) to the farm at his own expense and that the tenant is to be reimbursed for
his remaining cost at the end of the lease (less any government payment received
by the tenant for the improvement), the necessary information shall be recorded
in one of the following blanks, and after being duly signed by both parties, it
shall become a part of the lease above and obligate the landlord and his heirs and
assigns to make such reimbursement. Such improvements become the landlord's
property upon completion of the form below. The landlord thereby assumes the
responsibility for property taxes, insurance coverage, and risk of loss.
Description
and location
of the
improvement payment (percent) begins signatures Signatures
1 _ Lid.
Ten.
2 _ Lid.
- Ten.
C. Other amendments:
1 _ Date : _ _ Lid.
... Date: Ten.
2 Date : Lid.
„ „ „ _ Date: - _- Ten.
Tenant's
cost on
completion
less
Annual Date
rate of depre-
government
depreciation ciation
Date of
payment
(percent) begins
signatures
Extension
This lease shall be extended from This lease shall be extended from
, 19 , , 19 ,
to _, 19._ to , 19
Signed: „ , 19 Signed: , 19
, Landlord , Landlord
Signed: , 19 Signed: _ , 19
, Tenant , Tenant
Urbana, Illinois March, 1982
Issued in furtherance of Cooperative Extension Work, Acts of May 8
and June 30, 1914, in cooperation with the U.S. Department of Agri-
culture. WILLIAM R. OSCHWALD, Director, Cooperative Exten-
sion Service, University of Illinois at Urbana-Champaign. The Illinois
Cooperative Extension Service provides equal opportunities in pro-
grams and employment. 8M— 3-82— 51903— CC
1
-
UNIVERSITY OF ILUNOIS-URBANA
3 0112 037883797
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