Pasture rental and lease agreements
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Pasture rental and lease arrangements offer livestock producers the opportunity to affordably start or expand their operations and limit financial risk. With the high price of grains and the growing interest in grass–fed beef and dairy; managed productive pastures offer an alternate and affordable way to feed cattle. Sheep and goats have traditionally been fed a mostly forage diet but managing their pasture will lead to greater profitability. On the other hand, renting out pastures may allow a landowner to gain income while helping a beginning farmer the chance to get established.
Comparing rental agreements and leases
What is the difference between a rental agreement and a lease for pasture rental? Although lease and rental agreement are often used interchangeably, they are not the same. Let's explore the differences.
Rental agreements are month to month, with no set period of residence. At the end of each 30–day period, both the landowner and the tenant are free to change the rental agreement (subject to rent control laws). These changes may include increased rent for the pasture, changing the terms of the initial agreement, or asking the tenant to vacate the property. However, in most states, both landlord and tenant are required to give 30 days notice before any changes can be made. If your state doesn't require notice, changes to the rental agreement can be made at the landlord's discretion. A rental agreement typically renews automatically after each 30–day period has elapsed. There is no need to give notice about this automatic renewal, as long as both parties are in agreement.
A lease has a set term, such as six months or a year, during which the tenant agrees to rent the property. During that time (also known as the duration of the lease), the tenant and the landlord must adhere to the agreement. For example, tenants agree to make monthly rent payments and follow any code of conduct or other stipulations in the lease.
Neither party can change any terms of the agreement until the lease expires, unless both parties agree to the change. A tenant cannot vacate the property without breaking their lease, in which case they can be held liable for the rest of the rent due under the lease, or can be required to find someone else to take over the lease.
Determining fair rental rates
Deciding the appropriate monthly rental rate to charge or pay depends on several factors. The renter must determine expected gains or profits from the utilization of the land. Typically the carrying capacity of the rented parcel (i.e. animal units per acre) will aid in determining the fair rental rate for both parties involved. Management of the pastures can greatly influence stocking rates. For example, pasture managed as a continuously grazed system will have different stocking rates when compared to a rotational grazing system comprised of smaller paddocks where a mob grazing system can support high–densities. Land with the promise of greater gains (i.e. milk, fiber, or muscle) will greatly influence rental rates.
Typically, most pastures are rented by the month on a per acre or per head basis. An alternative is to consider an amount of gain in a season. Two very important items that must be agreed upon are the maximum number of animals allowed on a unit of land and the weight of the animals. Stocking rates and the weight of the animals will greatly impact the stand life of the pasture and soil that supports the pasture (i.e. soil health). If you rent on an acre basis, you may overstock to reduce cost per head. If you rent on a per head basis, you may want to lower your stocking rate to improve rate of gain. These decisions might be in conflict with the landowner's expectations. The devil is in the details and all of the details must be discussed and agreed upon by both parties before entering the lease or rental agreement.
Scenario 1: You have a 75 cow beef herd and expect you will have 75 cow/calf pairs to put on pasture May 1. You hear of a pasture available to lease for the year for $15,000 for 100 acres. Is this a fair price? In the past you have paid $1/cow/calf unit per day for pasture rental. If we can expect 180 days of pasture growth adequate to support the 75 cow/calf units; our math would tell us that would equal $75/day in pasture costs for 180 days which would equal $13,500. If you pay the $15,000; the cost comes out to $83.33/day or $1.11per cow/calf unit per day.
Scenario 2: In the second case, you have 75 bred Holstein heifers that you want to gain at least 1.75 lbs/head/day by calving time in the fall. In order to achieve this rate of gain, it will be necessary to divide the pasture into 30 paddocks with movable electric fencing which you will have to provide. It will also require you to move fences and animals daily. The alternative is that the landowner offers to custom raise the heifers for $2.50/head/day. However, there is no guarantee of rate of gain. The above scenarios serve to illustrate issues that need to be considered in negotiating a pasture lease.
Important questions to ask
What is the forage production potential of the pasture? Is it composed of diverse and productive grasses and forbs or weedy Kentucky bluegrass? What is the fertility status of the ground and who will be responsible for the additional fertilizer needed? What is the soil type? Is it sandy or rocky with little water holding capacity? What is the water supply and quality in the pasture and the location of the water source? Will different fencing plans work with the water available? What happens if the water supply dries up in late summer? Who is responsible to provide water?
Whether it is a rental agreement or a true lease, it should be put in writing with the guidance of legal counsel. It should include names of the people involved, legal description of the land involved, length of the agreement, pay provisions and all of the other items that have been agreed upon. It should then be signed and dated.
There are additional fact sheets in this series that address other issues in pasture use: