by: Chris Zoller, Extension Educator, ANR & David Marrison, Extension Educator, ANR
How much to charge or pay for farmland rent is a common question among landowners and farmers. Each party wants to receive or pay a ‘fair’ rate, but questions often arise in determining a ‘fair’ rate. There are a number of factors involved with establishing a rate with which both parties are comfortable.
What Cash Rental Rate is Fair?
Land ownership costs are summarized using the DIRTI five acronym. The ownership costs include:
Depreciation, Interest, Repairs, Taxes, and Insurance. Most landowners would like to at least recover the property tax. Your annual tax statement can help determine the amount of rent needed to cover the property taxes. For instance, assume your property tax for 20 acres is $800 annually. This translates into $40 per acre for the landowner to recover just the property tax.
In addition to the DIRTI five, the landowner should consider the value of the extra things the tenant might do for the landowner. It is often difficult to assign a value, but consider the value of things a tenant does such as weed control, snow removal, and other tasks. If you are happy with your present tenant, be cautious if approached by someone offering more money. Will they do these ‘extra’ things for you?
From the perspective of the tenant, the costs of production, productivity, marketing, transportation, capital investment, and a return to labor and management must be covered.
What Factors Determine Land Rent Value?
All land is not of equal value and there are a number of factors to consider when negotiating a rental rate. These include: productivity, site characteristics, previous crop, and supply and demand.
Land Productivity – Topography, soil type, pH, and fertility all influence productivity. Your local Soil and Water Conservation District (SWCD) or Natural Resources Conservation Service (NRCS) can review with you the soil survey of your county. “Don’t Guess – Soil Test” is an important slogan to remember. A soil test will provide a baseline number for soil pH and nutrients.
Site Characteristics – Proximity to land already rented or owned is desirable, as are large tracts of land. A field surrounded by houses or other development may diminish the rental value.
Previous Cropping History – Land that has been fallow for years is of less value. High yielding land will bring a greater rental rate.
Supply & Demand – The greater the interest, the greater the value.
Sources of Land Rental Values
The Ohio Agricultural Statistics Service (OASS) maintains a database of county-level land rental information. Most Ohio counties have cropland rental values recorded, with some counties having rental estimates for pasture land as well.
The OASS divides the state into nine districts and reports values for most counties, along with an average by district. The district averages for cropland rental range from $62.00 per acre to $190.00 per acre. The district averages for pasture land rental range from $16.50 per acre to $50.00 per acre.
OSU Extension completes a survey of Ohio land rents and publishes a report each year. The latest report can be accessed at:
https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents
More specific questions about local and rental prices can be directed to your local OSU Extension office.
Lease Agreements
Some general legal requirements for lease enforceability that both a tenant and landlord should be aware of based on Ohio law are based on the length of the agreement. We recommend that a written lease always be used when renting farm ground.
Term & Legal Requirements
Up to 1 year – Verbal can be enforceable
1-2 years – Must be in writing and signed by both parties
2-3 years- Must be in writing, signed by both parties, notarized, and recorded in the county where the land is located
3 years or more- Must be in writing, signed by both parties before two witnesses, notarized, and recorded in the county where the land is located
Example Leases
It is recommended once the landlord and tenant agree on a rental price a written lease should be signed by both parties. The North Central Farm Management Extension Committee has developed a website “Ag Lease 101” which helps both land owners and land operators learn about alternative lease arrangements and includes sample written lease agreements for several alternatives.
Some of the example leases available: Cash Farm Lease, Crop-Share Lease, Pasture Lease, Farm Building/Livestock Facility Lease, Farm Machinery Lease for Non-Commercial Transactions and Livestock Rental Lease. Ag Lease 101 can be accessed at: https://aglease101.org/
Legal Questions & Answers
OSU Extension’s Agricultural & Resource Law Program helps to provide research and outreach on legal issues affecting agriculture. A variety of Law Bulletins are available from the Farm Leasing Law Library and include the following discussions: What’s in Your Farmland Lease?, Creating an Enforceable Farm Lease, Protecting Interests in a Verbal Farm Lease Situation, Leasing Your Land for Hunting, Crop Share Leasing in Ohio, and Legal Aspects of Ohio Farmland Leases. The Agricultural & Resource Law Program can be accessed at: https://farmoffice.osu.edu/
Resources
National Ag Statistics Service https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2017/Ohio%202017%20Cash%20Rent%20County%20Est.pdf
OSU Extension Land Rental Survey
https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents
Ag Lease 101
Ohio State University Farm Management & Agricultural Resource Law
Note
The authors are not attorneys and this publication is not intended to provide legal advice. All legal questions should be directed to an attorney familiar with lease contracts.