Wave goodbye to the handshake lease
September 1 marks the automatic oral lease renewal date in South Dakota and Iowa, but the experts say it’s time to turn a handshake agreement into a hand-signed agreement.
While less common today, handshake or oral lease agreements are still at play in American agriculture.
“I hear about people using them because those are the individuals who call me with problems,” says Heather Gessner, livestock business management field specialist with South Dakota State University Extension.
Risks of Handshake Leases
Beyond the cash rent value, there are many components to consider including in a lease, such as:
- who is responsible for repair and maintenance,
- hunting rights,
- how to handle carbon credits and conservation practices,
- corn stover ownership, and
- sharing of information such as crop production history.
Patrick Hatting, farm management specialist with Iowa State University Extension, says some people work together “like peas and carrots,” but it’s still a good idea to have details like this in a written lease.
“Why do you have a written lease?” he says. “It's because you value your relationship. You want to create an environment where there are no misunderstandings.”
Be Aware of Renewal Deadlines
In South Dakota, oral leases automatically renew on September 1 while written leases follow whatever termination date is written into the lease. To amend an oral lease, South Dakota State University Extension recommends putting the amendment in a certified letter.
In Iowa, however, oral and written leases automatically renew on September 1. If a landowner wants to terminate or amend a lease, written notice must be given to terminate the current lease by September 1. Then a new lease can be negotiated. Even written leases that contain a separate termination date are subject to the September 1 auto-renewal. There must be a separate written contract between the landowner and tenant outside of the lease to terminate the lease on the agreed upon date.
“If you want to change the rate, you want additional information, if you want to do anything, you have to terminate to renegotiate,” Hatting says. “That would be the first thing that [an Iowa] landowner should know that they might not know.”
When it comes to lease renewal dates, every state is different. Consult with your local extension office to learn more.
- READ MORE: Deadlines for farmland leases
Drafting a Lease
Whether you're creating a written lease for the first time or amending an existing one, your local extension office likely has resources.
Iowa State University Extension offers leasing workshops for landowners. Upcoming workshops are taking place on August 26 and August 29. Learn more on the Ag Decision Makers Website.
When Gessner works with landowners in South Dakota, she recommends AgLease101.org, which has lease templates.
Also, Hatting highly recommends working with an ag lawyer to help you draft the first lease.
Setting Cash Rent
Gessner gets a lot of calls from landowners this time of year wondering if it’s time to raise their cash rent.
When it comes to farm profits she says, “Don’t just take what you hear in the news as gospel. There's a lot more to it.”
She says it's important to consider the many ways a tenant may be improving the land at their own expense, such as through conservation practices, and adjust rent accordingly.
Hatting says there may also be obstacles on the land like terraces that may impact cash rent value. He encourages landowners to call the local extension office and enlist the help of a farm management specialist.
“What we’re ultimately trying to do is help people determine a fair cash lease,” he says.