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Verbal vs. written land lease deals

Jeff Caldwell 03/22/2013 @ 12:05pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

A hearty handshake has long been thought a binding agreement when it comes to some business deals on the farm. And, for generations, that's included farmland rental agreements.

Now, partly because land values have exploded, the move toward contractual leases signed by all involved parties has gained momentum. However, there remain a lot of farmers and landowners who prefer -- and some insist on -- handshake deals.

"I rented one farm for 32 years and the owner, an older gentleman, insisted on no written lease," says Agriculture.com Farm Business Talk veteran contributor gurly3801539. "He said if a man's word was not worth anything, then his signature was worth less than nothing. After he passed, his children sold me the farm. I think there are still a few handshake leases out around here, but they're definitely not the norm."

Though factors like comfort level, confidentiality of lease terms, and ease of striking a deal are all seen as benefits of a verbal lease, these all have equal detractors that lead experts to encourage farmers to consider written agreements, even if it's not a comprehensive rental contract at the start.

"It is true that farmland leases can be lengthy and detailed, although attorneys usually have sound reasons for drafting detailed leases. Note that the parties can make a gradual transition," says a recent report in the Ohio Agricultural Law Blog. "Even a simple lease or a checklist can bring certainty to the relationship by outlining key obligations or providing resolutions if problems arise in the future."

Another reason many farmers and landowners rely on verbal deals is they're not comfortable with lease terms being in a format where others could find out. In other words, they want their lease terms kept secret. In Ohio, at least, there is a way around this.

"Landowners and tenants often express concern that a written farm lease must be recorded in the county recorder’s office, thus revealing private terms such as the price paid for the lease. In this case, the parties may utilize a provision under Ohio law referred to as the 'memorandum of lease' [that] allows the parties to record a shortened form of the farmland lease," according to the Ohio Agricultural Law Blog. "The only provisions the parties must include in a recorded memorandum of lease are the names and addresses of the landowner and tenant, the date of executing the agreement, a description of the leased property, the starting date and duration of the lease, and any rights of renewal or extension. With the recorded memorandum of lease, there is public notice that the lease exists, but key terms remain confidential between the landowner and tenant. The parties can include a term in the written lease verifying their agreement to execute and record a memorandum of lease rather than recording the entire lease."

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