Information for Farmers and Land Renters

63% of farmland rentals in Ontario are based on nothing more than a handshake. Some might say that creating a written lease will take time and money, or give the impression of mutual distrust. But in reality, the opposite is true.

They say that good fences make good neighbours and having a written lease can actually strengthen the relationship between you and your landlord. The discussion that goes into writing the lease helps you both come to a mutual understanding, instead of basing the agreement on assumptions. If an issue ever did arise, a written agreement can protect both parties and will make it easier and more cost-effective to settle any dispute or misunderstanding.

As a farmer, you want long term security in order that you can build up soil health and yield and in the same way, your landlord probably doesn’t want the hassle of finding a new renter every few years. Having a written lease that creates long-term security is a win-win, and not only for you and your landlord, but for the environment as well.

One farmer tells a story of land he had been renting from a widowed lady for years. He brought her over extra hay bales for her sheep and stayed for a nice chat every so often. He agreed to undertake massive improvements on the land in return for three years of free rent and both parties signed a handwritten agreement.  The farmer went to work, cleaning out old fence rows and amending the soil; he put over $60,000 worth into her property. But when the woman was struck by a car on her evening walk the next spring, the agreement fell to pieces. Her children argued that the farmer had forged the document and his own lawyer admitted that it would be very costly to defend the handwritten agreement. In the end, he walked away from the ordeal and the woman’s children now rent out that land to the highest bidder.

Maybe your landowner is an absentee investor with little knowledge of farming practices, or maybe your landowner is a retired farmer that knows the ropes far better than you. Every landowner is different from the next, but here are a few tips to working with any landlord.

Communication: Communicate clearly and avoid industry jargon, especially if speaking with a landlord that is relatively unfamiliar with it. In general, different generations prefer different styles of communication – many younger people prefer texting but other people prefer the telephone or in-person visits. Regardless of your personal preference, find out when and how your landlord wants to communicate and do your best to stick to that.

Going the extra mile: A personal touch can also go a long way in building trust, so try dropping off a small Christmas gift or staying for a coffee when you drop off the rent cheque. Agreements to plow snow out of laneways, to clean up around buildings or to bring over hay can also make a difference to a landowner, so why not ask? One landowner remarked that she liked how her renter called her before he come onto the property with machinery so that she could put her dogs inside.

Demonstrating soil health: Show your landlord the practices you use to conserve and build soil on your home farm. If you’re looking for a property, try attaching a cover letter to your rental bid that outlines how much you value soil. Discuss what you would grow and how you would grow it. If you’ve done the math, you might want to show how much investment you make into cover crops and equipment that improve the soil. Seeing is believing; and your enthusiasm just might be contagious. If you’re a great farmer and you know how to build soil, don’t be modest. Post photos and experiences from your operation on social media or make a website so that your landlords can learn more.

Click here to download a discussion check-list you can use at your next meeting. 

Only 37% of Ontario farmland leases are written and many of these might be just a scribbled note on a paper that would be hard to hold up in court.  It is strongly recommended to consult a lawyer but here are the necessary details to make the document legal:

The parties Include all legal names and home addresses of tenant(s) and landlord(s).

The property Include a legal description of the property in question (lot, concession, roll number) and specify any buildings or areas included or excluded.  It may be helpful here to include total acreage as determined by GPS to clear up any disagreements over size.

The term Include the length of the lease and when/how it will be renewed. The more secure and long-term these agreements are for farmers, the more they can and will invest in conserving and improving soil.

The consideration: Include the rental rate and when/how it will be paid.  For agriculture to be sustainable and for farmers to invest in long-term best management, rental rates must also be economically sustainable for farmers. Here are a few options: 

• Cash rent A fixed rate built into lease,
• Share-cropping Sharing in both risks and rewards with your farmer, splitting the profit, and requires more involvement in the day-to-day management
• Flexible rental rate A cash rate that is based on a formula and fluctuates depending on yields and crop prices. (See here for examples)

The signatures No document is complete without all parties agreeing to the terms with their signatures and the date. You might even want to add a witness for good measure.

Written leases can be this simple, but while you are at it, there are a few more details that may be useful to include:

Compensation clause If a tenant is investing in land improvements, like tile drainage or an erosion control structure, or even by adding manure, fertilizer or cover crops, it may be beneficial to include a compensation clause for the renter in the case of early termination or unforeseen circumstances. It may also be prudent to include a clause requiring written permission from the landlord before the renter makes alterations to the property (eg. tree cutting or drainage alterations). A compensation clause can also be included for the landowner’s peace of mind, in the case that the renter causes unreasonable damage to the property.

A farmer started renting a 60 acre field on a deal that he would tile the farm and clean it up.  The renter paid for the tile and signed an agreement that if the land were sold, he would be compensated a portion of the tile cost at a rate that decreased year by year. Having the written agreement has allowed him to put manure on the land when it becomes available and the soil is improving year after year.

Similarly, another farmer that rents a significant amount of acres near London makes sure that he gets a termination clause included in a written lease on all his rentals. It allows for the landlord to terminate a lease at the end of a calendar year provided that written notice is given before the beginning of September. If notice is given after that date, the clause states that the renter will be compensated for the expenses incurred in preparing the field for the next crop.

Termination clause This would specify the agreed upon circumstances under which a lease could be terminated early. This could include the sale of property (unless the lease was a provision of the sale) in which the renter may ask for the right of first refusal. A rental agreement would also be terminated if the renter fails to pay by the agreed upon date or if he or she disregards any terms of the lease (within 15 days of a written notice, for example).

Buildings on the property  If there are buildings on the rental property determine who will use them and maintain them, who will pay insurance and utilities and if the buildings will be able to be sublet to another party.

Environmental stipulations This could include the stipulation of specific stewardship practices on the property based on an annual discussion (eg. the application of manure every three years or the maintenance of a windbreak) or could be as simple as having the tenant agree to adhere to ‘accepted farm practices and Ontario’s environmental regulations.’

Environmental stipulations may be helpful to environmental protection but are nonetheless secondary to the importance of creating long-term stability for investment in soil health. As you know, the longer you expect to rent land and the more stable your financial resources, the more you will invest in the soil.

In Ontario, it is still uncommon for leases to include stipulations of any kind, (83% of both oral and written agreements have no stipulations) but if both parties are comfortable with their inclusion in a legal written lease, it can create a shared responsibility for the health of the land and also for the environment. Start with a conversation and then bring the results of your discussion to a lawyer for further input and potential incorporation into the lease. It is important to stipulate the practice and not the result, because you know that often times the results are dependent on weather and other factors.

Environmental stipulations could include:

• no spreading manure or fertilizer on frozen ground
• no growing of the same crops for two years in succession
• the incorporation of cover crops and/or wheat into a crop rotation
• leaving a 10 metre buffer strip alongside municipal drains or watercourses
• the planting and maintenance of a tree windbreak