Like a bale without twine, unwritten agreements can quickly fall apart.
Here are some of the myths about unwritten agreements, which show the benefits of formalizing agriculture leases:
MYTH: When the parties involved in the lease agreement are trustworthy, no written lease agreement is necessary.
REALITY: It is advisable to formally document your leases even though there is generally no strict legal requirement for a lease to be in writing.
The trustworthiness of the parties involved in the lease agreement can be irrelevant if one party, for example, suddenly falls ill or passes away. It is prudent to document your agreements now in preparation for the future.
MYTH: There's the land and the rent, we don't need any more details in writing.
REALITY: A well written lease agreement gives the parties certainty over their rights and the freedom to operate as they intended.
Agreeing up front on issues such as access, permitted use, duration of the lease, rental rates, use and storage of hazardous materials, insurance and maintenance of improvements such as fences will give both parties certainty over what they are getting into.
A written lease can also be a safeguard against situations that would otherwise be out of your control.
For example, if the landowner passes away and their estate decides to sell the farmland, having a written lease can give the tenant an added level of protection and peace of mind.
Without turning your mind to these things and agreeing at the outset, both parties risk disputes arising later.
It is easier when parties agree up front, rather than issues having to be resolved by a court, tribunal or arbitrator.
Decision making power is in the hands of the parties involved in the lease when they can come to an agreement about the scope of their lease up front. Negotiating an agreement before there is a disagreement can help alleviate stress and headaches down the road and save time and money rather than trying to resolve a dispute after the fact.
MYTH: Lease agreements are only beneficial when there is a dispute.
REALITY: Written lease agreements can help you when you are looking to access government programs such as crop insurance or when you are looking to finance your operation.
For agricultural landlords seeking financing, lenders may want to see formalized and documented cash flows from leased land.
For tenants, lenders may want assurance that the operation has access to the land it needs to support the farm operation, or a crop insurer may want to know you have legal rights to use the land.
Clarity on terms will help both landlords and tenants not only have assurance for themselves, but provide supporting documents to the lenders they work with or programs for which they are applying.
Written agreements can also support estate and transition planning by providing certainty to the parties involved in the transition plan.
MYTH: Once you sign an agreement, there is no "going back" or changing it.
REALITY: Contracts can change and evolve over time. When the parties follow the proper channels, written lease agreements can be amended.
It is always advisable to get independent legal advice. The lease modification process starts with negotiation. Changes to leases must be documented and must meet other legal criteria to be valid changes.
In most jurisdictions, you can register your lease interest on title to the land. This provides an additional layer of security by notifying third parties of the lease.
There are pros and cons of registering a lease, which you should discuss with your team of advisers.
Clarity for your business is important, and clarity and certainty is one benefit of having a thoughtful and documented lease.
This article was prepared with the assistance of summer student Sarah Hoag.
Originally published by Western Producer
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
