Agricultural economics

Good pasture lease agreement

My mother can no longer take care of the family farm. However, she has an opportunity to rent out the pasture to another farmer. Do you have any recommendations about creating a good pasture lease agreement?

Creating a good lease is not easy and requires some careful thought by both parties. In general, a good lease is one in which both parties agree it is fair and both completely understand each other’s expectations.

The majority of problems with a pasture lease 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 percent of the problems that will arise later.

That is probably the number one reason to establish a written lease. Writing out a lease forces you to consider what may seem like minor details now, but can become explosive issues later. Things such as who is responsible for fence repair, will the pastures be mowed, who has the right to enter the property, or can the tenant sublease the property.

Verbal leases
Verbal leases for more than one year are usually considered invalid and unenforceable. And, although verbal leases are binding on heirs, enforcing them can create many other problems. Again, having the lease written out is probably the best thing to do in most all cases.

If after one year the landlord and tenant agree to extend a 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, no matter when the tenant actually took possession. The termination notice must be in writing, even though the lease may be verbal.

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

The first is 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; the landlord does not have the right to enter the apartment any time they wish. The same goes for a pasture lease. If a landlord wants to have the right to enter the property, it needs to be in the lease.

Another item that should be addressed in the lease is 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, like livestock use.

Other special agreements include fence repair and soil fertility. Agreeing on who is responsible for fences and who pays for materials ahead of time will 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 pastures 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 for the unused portion.

Other special agreements include the use of buildings, how often pastures should be clipped, noxious weed control, and any 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. Plus it creates an incentive for both parties to structure the lease so it is beneficial to both.

A comprehensive fill-in-the-blank pasture lease that can be a guide for a developing a lease can be obtained from the nearest MU Extension center.

Wesley Tucker
Agriculture Business Specialist

Purchasing conservation program land

I'm interested in purchasing land eligible for or already enrolled in the Conservation Reserve Program, the Wetland Reserve Program or the Grassland Reserve Program. Is there a resource or person that could assist me with that process?

State and local Farm Service Agency offices can provide information on the USDA's various conservation programs. They are responsible for administering all USDA farmer programs in their area, enrolling land, farmer payments, etc. I'd suggest contacting them first regarding identifying land already enrolled and finding out what's involved in enrolling land.

To locate land available to purchase, local real estate sales people or brokers and local advertisements would be your best source. If a piece of property offered for sale is enrolled in a conservation program, the seller would likely provide this information as a positive feature of the land. I know of no comprehensive lists of property available for sale except those maintained by private real estate firms.

MU extension staff may be able to help with information on local conditions.

Joyce A White
Programs/Projects Coordinator
Agricultural Economics Extension

Farm start-up grant

I am trying to start growing produce and raising honey bees for farmers' markets. How can I get a small, alternative farming grant?

First, let me say that grants are not free money. They are generally used for new or existing enterprises where the grantee desires to look at the enterprise and seek some way of making changes through research on the farm enabling the farming enterprise to become more successful. I am not aware of any grants that offer money just for farming start-up.

There are beginning farmer loans and financing available from several sources that you may want to check into:

The following programs are primarily for new agricultural operations. New operators should also reference the Existing Farming/Ranching Assistance section since many of the existing producer programs also apply to new operations.

Beginning Farmer Loan Program, Missouri Department of Agriculture
The Agricultural and Small Business Development Authority administers a program that enables lenders to receive federally tax-exempt interest on loans made to beginning farmers. The tax savings are passed on to beginning farmers in the form of lower interest rates. A qualified borrower can borrow up to $250,000 to buy:

Agricultural land
Farm buildings
Farm equipment
Breeding livestock

The entire $250,000 may be used for new equipment or breeding stock, and up to $62,500 can fund used equipment or breeding stock.

Agricultural and Small Business Development Authority
PO Box 630
Jefferson City , MO 65102-0630
573-751-2129
Fax: 573-522-2416
masbda@mda.mo.gov

Borrowers qualifying for the Beginning Farmer Loan Program may also qualify for the BIG MISSOURI Linked Deposit Program administered by the state treasurer's office. The BIG MISSOURI Linked Deposit Program makes funds available at reduced interest rates to lenders who in turn pass the savings along to agricultural borrowers. To find out more about the BIG MISSOURI Linked Deposit Program, call the state treasurer's office at 573-751-2372.

Borrowers may also qualify for the United States Department of Agriculture's (USDA) Down Payment Loan Program and Joint Financing

Beginning Farmers and Rancher Loans, USDA Farm Service Agency
Loans targeted to beginning farmers and ranchers who are unable to obtain financing from commercial credit sources.

Down Payment Farm Ownership Loan Program, USDA Farm Service Agency
Special FSA program for beginning farmers and ranchers to purchase land. The program also provides a way for retiring farmers to transfer their land to a future generation.

Loans to Socially Disadvantaged Farmers/Ranchers, USDA Farm Service Agency
Program targets socially disadvantaged individuals and provides loans to purchase and operate family-sized farms and ranches.

Debi Kelly
Missouri Alternatives Center

Farm classification

How many acres are required to be classified as a farm in the state of Missouri?

Neither the Census Bureau nor the IRS considers the number of acres in their definition of a farm.

Since 1850, when minimum criteria defining a farm for census purposes were first established, the farm definition has changed nine times as the nation has grown. A farm is currently defined, for statistical purposes, as any place from which $1,000 or more of agricultural products (crops and livestock) were sold or normally would have been sold during the year under consideration. This definition has been in place since August 1975 by joint agreement among USDA, the Office of Management and Budget, and the Bureau of the Census.

The IRS definition of "the business of farming" (Treas. Reg. 1.175-3) states a taxpayer is engaged in the business of farming if he cultivates, operates, or manages a farm for gain or profit, either as owner or tenant. A taxpayer engaged in forestry or the growing of timber is not thereby engaged in the business of farming. A person cultivating or operating a farm for recreation or pleasure rather than a profit is not engaged in the business of farming. For the purpose of this section, the term 'farm' is used in its ordinary, accepted sense and includes stock, dairy, poultry, fish, fruit, and truck farms, and also plantations, ranches, ranges, and orchards. A fish farm is an area where fish are grown or raised, as opposed to merely caught or harvested; that is, an area where they are artificially fed, protected, cared for, etc.

Parman R. Green
Agriculture Business Management. Specialist

More recent agricultural economics questions and answers

Updated 1/11/08