Creating a Good Lease Agreement

March 2014

As we head into spring many rental agreements are renewed for what we hope will be a successful relationship between landlord and tenant.  However, creating a good lease is not easy and requires careful thought by both parties. In general, a good lease is one in which both parties agree it’s fair and both COMPLETELY understand each other’s expectations.  The majority of problems that arise from leases occur when one or more parties do not fully understand what the other one expected.  Whether a lease is verbal or in writing, taking the time to discuss these issues ahead of time will prevent 99% of the problems that could arise later.  That is probably the number one reason to establish a written lease.  It forces you to consider what may seem like minor details now, but can become explosive issues later.  Small things like who has the right to say who may hunt on the property can cause major disagreements if not discussed ahead of time. 

Verbal leases for more than one year are usually considered invalid and unenforceable.  Although a verbal agreement is binding upon heirs, they are difficult to enforce because the law prohibits someone from testifying to the terms of an agreement when the other party is unable to defend themselves.  This makes it very difficult to prove what was agreed upon.  If after one year the landlord and tenant agree to extend the verbal lease for a second year, then the lease becomes what is known as a year-to-year tenancy.  The lease will now automatically be extended for another year at the anniversary date of the lease, unless one of the parties provides a termination notice ahead of time. The notice must be in writing and provided 60 days prior to the anniversary date of the lease, which is when a landlord and tenant actually made the agreement, not when the tenant actually took possession. The termination notice must be in writing, even though the lease may be verbal. 

The minimum requirements of a written lease are: the names of both parties, a legal description of the property, duration of the lease, rental rate, payment arrangements and signatures of both parties.  However, there are several other items that should be considered: 

Landowner entry rights
Unless agreed upon in the lease, the landowner does not have the right to enter the property.  A common example is when renting an apartment; tenants don’t want a landlord entering the apartment any time they wish, unless it’s to make repairs. The same goes for a land lease. If a landlord wishes to have the right to enter the property or allow their grandson to hunt there, it needs to be in the lease. 

Subleasing
If the lease does not state that the tenant is not allowed to sublease the property, then the tenant can sublease it to anyone he or she chooses without the landlord’s permission as long as it is for the same original purpose, such as livestock use or crop production.

Special agreements
Such as fence repair and soil fertility. Agreeing upon who is responsible for fences and who pays for materials ahead of time helps ensure that fences are maintained and kept in working order. Soil fertility and lime is one of the most critical agreements in the lease. If fields are not maintained the productivity will decrease which hurts both the landlord and tenant. This may be a reason to establish a multi-year lease because it provides more incentive for the tenant to invest in the soil fertility. Another option is to include a special clause in the lease that specifies if the lease is not extended the fertilizer and lime expenses are to be amortized and the tenant refunded the unused portion.  Other special agreements include the use of buildings or grain bins, how often pastures should be clipped, noxious or chemical resistant weed control, or any other special restrictions either party desires. 

It is in both the landlord and tenant’s best interest to carefully consider all details of a lease ahead of time to prevent future disagreements. A written lease is a good way to force everyone to consider the details.  It also creates an incentive for both parties to structure the lease so that it’s mutually beneficial. Comprehensive fill-in-the-blank lease forms which can be used as a guide for a developing your next lease can be downloaded from the following website http://aglease101.org  or by contacting your local University of Missouri Extension office.

Source: Wesley Tucker, Ag Business Specialist