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Verbal vs. written land lease deals

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 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."

Finally, there's the impulse to keep lease structures the same way they've been all along. Going from a verbal to signed lease can sometimes be awkward for both parties. But if that's the only thing standing between you and a signed paper lease, try bringing in someone else.

"To address an awkward transition, consider using a third party to intervene and facilitate the process of converting to a written agreement. Have a farm manager, attorney, or accountant explain the reasons for moving to a written agreement and begin the process of discussing lease terms," according to the Ohio Agricultural Law Blog. "Provide the other party with ample time to respond and to consider its own concerns and suggested lease terms."

In general, the trend is moving toward signed paper lease agreements, though it's happening at different rates in different parts of the country. And, though it's not the easiest transition in the world, a lot of farmers say it's ultimately worth it.

"No one likes change, be it good or bad. Unfortunately, what we relied on yesterday might not be so reliable today. I didn't have an attorney present at any of my lease signings, but we both signed a copy for our records," adds Farm Business Talk senior contributor Shaggy98. "With today's sue-happy society, future problems might not be an issue with the two parties involved. If there is a death on either side of the agreement, the other party will find themselves dealing with someone who has no recollection of the original lease agreement. Having everything documented offers both sides protection should litigation arise."

If you're looking to transition from a verbal to written farm lease, click here for tips and information.

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