Written July, 2003
download in pdf format
File C2-03





William Edwards

Do I Need a Written Lease

William Edwards, extension economist, 515-294-6161, wedwards@iastate.edu



 

This is a common question asked by both tenants and landlords. Obviously, many farm lease agreements have existed for years without being written down. A recent ISU survey shows that only about 60 percent of Iowa farm leases are on paper.

Where both parties know and trust each other, an oral lease may work perfectly well. However, there are several reasons why a written lease can be beneficial, even in the most amicable of situations.

Even when key points have been discussed, a written lease provides a clear record of what was agreed to.

The type of lease agreement you use can affect tax liabilities, including income and self-employment taxes. It can affect whether a farm qualifies for special use valuation for estate taxation. A written lease provides useful documentation for making these determinations, or in case of an audit.

A preprinted lease form may contain provisions that tenants and owners have not thought of discussing.

Oral leases are valid for only one year in Iowa. If a longer contract is desired, it must be in writing. However, twenty years is the maximum length for a lease contract in Iowa.

New lease form

ISU Extension has recently developed a new lease form. The new Iowa Farm Lease form includes many provisions that you may want to consider. If you don’t want to include a provision, simply draw a line through it. The Iowa Farm Lease can be used for either cash or crop-share lease agreements. Look for publication FM 1538 at: www.extension.iastate.edu/Publications/FM1538.pdf. In version FM1538e you can fill in the blanks electronically.

Other lease forms can be downloaded free of charge from the Midwest Plan Service web site at: http://www.mwps.org/index.cfm?fuseaction=c_content.view&pageid=257&pageparentid=-1

Specifying payment
The lease form contains several key features. A table is provided for specifying the amount, date, and method for making cash rent payments. You simply fill in the blanks. It also has a section for describing flexible or variable rent provisions.

Crop-share division
For a crop-share lease, there is a table for recording how various costs are to be divided between the tenant and owner, and how the crop and other payments should be split.

Investments by tenants
Sometimes tenants want to invest in long-term improvements such as buildings, grain bins, conservation structures, and even lime. However, they are concerned about losing their investment should the lease be terminated. The Iowa Farm Lease contains a section where these expenditures can be recorded, along with a schedule for reimbursing the tenant for the remaining value of the asset should the lease be terminated before the useful life of the investment is over.

Environmental considerations
The Iowa Farm Lease also contains language and blanks to fill in for many different situations including environmental considerations such as handling pesticides, following an approved conservation plan, and cleaning up disposal sites for hazardous wastes and containers.