Is it legal to raise rent twice?
Last fall, I signed a cash-rent lease for this year. In February, the landowner sent a new lease at a higher rate, citing high cash-grain prices. The letter said I didn’t have to sign the lease, but if I didn’t I’d get a termination notice in August. Is that legal, let alone ethical?
Mike Evanish: For your situation, the landowner has given you the option to hold rent as the signed lease states and risk loss of the land in the future. Quite a threat!
I’m sure the landowner doesn’t see this as unethical. He or she just sees current corn and soybean prices, and believes he or she signed a bad contract. After all, without the land, could there be a crop to sell?
Is the mailed lease rewrite and threat legal? I bet it is.Beyond talking to your attorney, what should you do? Evaluate whether you need that land.
In Pennsylvania, there are areas where land is available and replacement most likely won’t be an issue. But in many other places, farmers are standing in line to take over.
Nothing was said in the question about how substantial the rental increase was that was requested. It matters!Your 2011 budget would need reworking. Never sign a lease that generates a loss, or a substantial risk of loss!
With budget numbers in hand, I suggest meeting to make the landowner aware of your costs and yield history, and asking if lowering of the new rent proposal is possible. Remember, crop prices are up because of political decisions in Washington, D.C., and not agricultural realities.
If you need the land and the landowner holds firm, perhaps he’d be willing to sign a lease based on corn price on a certain date. There’s currently far more downside price risk than upside price risk for both crops. Signing a new lease that assumes current prices into the future is extremely risky.
Dale Johnson: If it’s a standard lease, your landlord is legally bound by what you signed last fall. Some would call the threat unethical.
If I were the landlord and saw rental rates going up because of higher commodity prices, I might come to you and politely ask if we could renegotiate. You might then be willing to pass on some of the benefits.
If you aren’t willing to, then let bygones be bygones. Come fall, try to renegotiate the lease for 2012.The best solution for both would be to negotiate a reasonable long-term contract with a rental rate that fairly adjusts to both grain and input prices.
Do your enterprise budgeting. Determine how much that land is worth to you after covering variable and fixed inputs, plus your labor and management. I suspect the economics will show that you really need this land. If so, you’ll have to buckle under the strong-arm tactics.
George Mueller: If you’re going to stay in business for the long haul, you must establish a reputation for fair business dealings that are “win-win” for both parties.
I understand where the landowner is coming from. With farming more profitable, he or she would like (and deserves?) part of that increase.You don’t have to adjust the rental rate for this year. But it might be wise to do so if you want to rent that land in the future.
At Willow Bend, we’re facing the same challenge. We usually pay equal or better-than-average rent. But now we’re getting reports of competitors paying more.To make sure we keep our rented base acreage, we:
• Always invite our landowners to our winter Goals Dinner (put on by the Boy Scouts) each year, along with our suppliers, veterinarians, bankers, equipment dealers, consultants and other members of our agribusiness support team. We stress how important each and every one is to our farm’s success.
• Because of higher grain prices and increased land competition, we paid a year-end land rent bonus averaging about 30%. We did this before they had to ask for it, and received many thanks of sincere appreciation.
• It looks like high grain prices are here to stay in 2011. I suspect we’ll raise the base rent we pay without landowners having to ask for it.
Glenn Rogers: Once a rental rate is set, it can’t be changed unless both parties agree. But you may want to renegotiate terms now, before planting season starts.
Obviously, your landlord anticipates the corn/bean commodity market to continue to be very high for the ensuing year. There may be many factors involved. The “devil is in the details.” While we all make decisions based on the long term, we can’t forget the potholes existing in the short term.
Try to look at both sides of the coin. Generally, people will try to settle on a common ground in the middle. Talk with others. Get that contrarian look before signing or agreeing to terms of a contract.
This article published in the May, 2011 edition of AMERICAN AGRICULTURIST.
All rights reserved. Copyright Farm Progress Cos. 2011.