Flooded Farmland: Should You Adjust the Lease?04/03/2019
As waters recede from the thousands of acres that were flooded this spring, attention turns to spring planting. If those acres are rented, who will pay for the cleanup? Who should document the process? Should the rental rate be adjusted?
For many, 2019 may be the year that both the landlord and tenant need to share the pain of the March flooding, explain University of Nebraska educators and law specialists Allan Vyhnalek, Glennis McClure, Jim Jansen, Jessica Groskopf, Robert Tigner, Cory Walters, and Dave Aiken.
Here are questions to consider, from the University of Nebraska team.
How bad is the damage, and who is going to fix it?
Flood damage can be categorized into two types. The “hard” work includes hand labor and light equipment work to remove branches, corn stalks, trash debris and other obstacles in the field.
Whereas, the “heavy” work includes heavy equipment like bulldozers, scrapers or graders to take care of major problems. This could include moving topsoil, removing sandbars and fixing holes, gullies, and ruts.
In both cases, the party primarily responsible for completing this work is the landlord, as the landlord bears the responsibility for providing the tenant with the land ready to farm. Desiring a positive long-term landlord/tenant relationship and knowing the work needs to be done in a timely fashion, most tenants are probably going to provide most, if not all, of the “hard” work described above.
Should rental rates be adjusted?
Crop Share: If the land lease arrangement is a conventional crop share, the rental rate may not need to be adjusted. Since these arrangements share production risk between the landlord and tenant, the amount received from a share varies based on production. Crop insurance policies contain preventative plant provisions, which could lead to an insurance payment, even though nothing was planted. This will only apply to those with an insurance policy. Payment size, if any, will depend on the rules contained in the preventative plant provisions.
Cash Rent: For cash rents, full payment will likely be expected. However, is that equitable to both parties? Good landlord-tenant communications will be key to deciding equitable payment for 2019. Begin that conversation now instead of waiting until the end of the production year. Waiting will likely result in a hardship with at least one of the parties.
Examine the language in the lease. If the lease does not specifically address weather-related events prior to planting, the amount paid might vary. Under contractual law, if an event renders the property unusable for the entire growing season, the tenant may have a case for vacating the premise and not making any lease payments for 2019. Seeking release from a property under these terms may have a devastating effect on the relationship between the tenant and the landlord (even the neighborhood) in the future.
You could adjust a cash rent lease based on actual productivity or some measure of total revenue on a per-acre basis. This could be a flexible cash rent that takes into account the date of planting, damage to topsoil, sand deposits and other aspects that might affect yields.
How will crop insurance be affected?
With a cash rental agreement, the tenant holds the crop insurance policy. The tenant may consider assisting the landlord in the “hard” and/or “heavy” work by contributing preventative planting payments to cleaning up flood-damaged farmland.
For crop share rents, both the landlord and tenant could have crop insurance, which would likely include a prevented planting coverage. For either type of rent, discuss your plans with your insurance agent.
Don’t Forget to Document
To receive some of the assistance payments, you’ll need do document and submit the work completed to the Farm Service Agency. Include in the documentation pictures (before and after), tracking equipment used, supplies and labor.
Also, if you are modifying your rental agreement for 2019, put it in writing. Learn more from the University of Nebraska experts: Should Leases be Adjusted for Flood-Damaged Farm Ground?
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Also, if you are nervous about negotiating changes in your rental agreement, here are several time-tested strategies.
For more guidance on farm leases and to download sample leases, visit aglease101.org.
Source: Sara Schafer, AgWeb.com