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A primer on flexible rents

Farmers and landlords should consider flexible rent when they negotiate farmland rental agreements this fall and winter, area extension officials say.

Farmers and landlords should consider flexible rent when they negotiate farmland rental agreements this fall and winter, area extension officials say.

A little background:

Most farmland in the region is rented for a fixed amount of money per acre. A landlord receives that price, what's known as cash rent, regardless of crop prices and yields.

Crop shares are an alternative. As the name implies, the landlord receives a share of the crop, often one bushel in five. With crop shares, the landlord makes more money in good years and less money in poor years. For the farmer, crop shares reduce both risk and potential return. Once common, crop shares aren't used much today.

Flexible rent contains elements of both fixed rent and crop shares. In many cases, flexible rent includes a base rent or payment to the landlord, with the base payment supplemented by additional payments based on crop prices or yields or both.

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Flexible rent allows farmers and landlords to share in the financial success when times are good, while also reducing farmers' expenses and landlords' return in bad times.

There are many types and variations of flexible rents. Minnesota extension offers these definitions of several common types of flexible rent agreements:

•Flexible rents based on gross revenue: A rental agreement where rental payments are based on gross revenue of the farmland. It can include a base payment in the crop year and a final payment after the actual yield and price are determined.

•Base rents plus a bonus: A rental agreement where a base rent is paid and then a bonus may or may not be paid based on whether yields exceed a base goal. These additional bushels would be shared between landlord and tenant. The bonus also could be determined by yield and price together or price alone.

•Flexible rent based on price only: A rental agreement where the rental payment is based just on crop prices, often the average price of the previous 12 months.

•Profit sharing flexible rent: A rental agreement where the landlord and the tenant share the profit from the farmland and where some expenses are paid by both parties.

Related Topics: CROPSLIVESTOCK
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