Purdue News
Purdue News
November 1, 1996
The new law will continue to phase out farm subsidies during the next six years. During the phase-out period, farmers will receive guaranteed, fixed payments regardless of grain inventories and grain prices. Landowners who lease their farmland to crop-producing tenants are interested in reaping a percentage of the guaranteed payments; to do so, they are rewriting leases to raise the rent or to change crop-share arrangments, Harrison said.
"Government program rules require that the entire payment go to a cash-rent tenant or be divided according to crop shares for a crop-share lease," Harrison said. "Landowners must be clear on what the new farm program payment is for their acreage.
"The new farm program provides a 1997 payment of 46 cents per bushel for 85 percent of the corn 'crop acreage base' times the 'farm program yield.' The per-bushel amount drops to 36 cents in 1998 and to 25 cents in 2002, the seventh and final year of the program. A management consultant's analysis of the pertinent income and cost information for specific farmland may be important for arriving at acceptable terms for a new lease."
Also influencing landowners' current push for more favorable lease terms are the recent higher-than-expected prices for Indiana's two main crops, corn and soybeans.
The unexpectedly high prices combined with the farm bill's fixed program payments also have contributed to an increase of more than 14 percent in Indiana farmland values from June 1995 to June 1996, according to a Purdue survey.
Harrison, a professor of agricultural economics, pointed out that landowners who want to raise rental rates based on an assumed per-acre value increase of 14 percent may encounter resistance from tenants, because of recent declines in crop prices. (Annual rental rates typically run about 6 percent to 8 percent of the per-acre value.)
"Recently, corn and soybean prices have dropped sharply from the highs of the spring and summer," he said. "Tenants may have been more willing to pay higher rents or increase landowners' expected crop shares early last summer than they are now." He added that competition for farmland rentals and for custom-farming services will be important in determining how much more landowners can expect to earn.
To renegotiate lease terms, the farm law specialist said, it may be necessary to formally terminate the existing lease by providing written notice.
Indiana law requires at least three months advance notice of a prospective lease termination unless other legal arrangements are in effect or the parties to the lease have agreed that no prior notice is necessary. "Because February is the customary end of the farmland-lease year in the Midwest, most lease holders will need to make notification of termination before the end of November," Harrison said. He advised all tenants and landlords to check their leases.
Harrison also noted that term leases, which begin and end on specific dates, need no termination notice. "There simply is no lease after the current term lease until the landowner and tenant reach a new agreement," he said. "Oral agreements also may be term leases requiring no notice to end an agreement. If there is any doubt, a written termination notice should be delivered. The critical need is to communicate if there is a desire to renegotiate the terms of a lease."
Harrison said tenant rights do not automatically end if land is sold or a landowner dies. "Even if the tenant is aware the land is for sale or that the landowner has died, he or she may still have lease rights unless given a written termination notice," he said. "Without proper termination, the lease can automatically renew if the notice date passes."
Harrison advised landowners and tenants to consult their legal counsel for help in drafting and delivering termination notices as well as in writing new lease terms.
More information on farmland lease law and the economics of leasing is available at county Extension offices. To obtain a copy of "Legal Aspects of Indiana Farmland Leases," call Harrison at (765) 494-4216 or send him e-mail at Harrison@agecon.purdue.edu
ahr/agroundup/9611f4
Source: Gerald Harrison, (765) 494-4216, e-mail: harrison@agecon.purdue.edu
Writer: Amy H. Raley, (765) 494-6682, e-mail ahr@aes.purdue.edu
