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3 tips for renting land from family
You can pick your friends, but not your family. But, when it comes to getting hold of farmland, sometimes the only reasonable choice for a tenant or landowner is a family member, stirring both family and business relationships into the same big mixing bowl, the output of which sometimes isn't the tastiest dish.
So be fair, keep things in writing, and know how certain costs might be different when both parties are related, advises one specialist. Sounds simple, right?
"Clearly, dealing with relatives can be one of the hardest issues to address as it relates to farm leases," says University of Nebraska Extension specialist Allan Vyhnalek. "The most compelling reason to have a lower rent for relatives is that they are relatives. Especially if we have younger folks coming to replace our older generation, this provides an opportunity to help that generation establish themselves."
Start with dotting the i's and crossing the t's: Get everything down in writing. In a lot of family situations, instinct may tell you a handshake deal will suffice, especially if that's how it's been done in your family in past generations. But even if you have no real reasons to worry about a deal going awry, it's important to have a document to reference.
"This cannot be stressed enough. I know of situations where the handshake lease was made by grandparents and great-uncles and aunts. When that generation passes on, no one knows exactly what the agreement was, and suspicion arises needlessly," Vyhnalek says. "Utilizing the land resource properly is a business, and the lease should be fair to both parties. With clear communication and having the lease in writing, most problems with lease terms can be minimized."
Sometimes, the little things that go into taking good care of farmland are often assumed when the landowner and farmer are related. In other words, you may not get paid for doing things like mowing ditches when you're renting from someone across the table at family dinners.
"Understand that there are ownership costs for that land that the tenant is probably just providing without compensation. Items like mowing road ditches, spraying weeds, controlling volunteer trees, maintaining terraces, maintaining buildings, grading and rocking driveways, and keeping fences up are just a few of the landowner costs that in many cases are just taken care of by the tenant," Vyhnalek says. "In some cases, I have landlords thinking that they don’t receive enough cash rent from a relative. When we discuss the land ownership costs and how they are taken care of, the landlord quickly realizes that the tenant is providing the labor and cash investment in those items.
"If the rent isn’t the going 'coffee shop' rate, the landowner is simply recognizing that the tenant is receiving a discounted rent as compensation for their efforts to keep the land and property in good order," he adds.
Above all, fairness and communication are critical to making a family farmland leasing arrangement work without ruffling either party's feathers. Sit down, find out what kind of information you need -- whether you're the landowner or renter -- to ensure the arrangement accounts for any potential concern down the road and maintains trust for all involved parties.
"While the rent to a relative doesn’t have to be at the 'top' of the range, it needs to be fair. I’m not qualified to know your exact circumstance to know what 'fair' is – that is a family discussion. What one family does will be very different from another family," Vyhnalek says. "Tenants need to communicate clearly by sharing information about the farm. Information like actual yields and prices received will go a long way to building good trust for the family to continue the leasing arrangement for another generation."