Agricultural Leasing in Maryland

Report
AGRICULTURAL
LEASING IN MARYLAND
Paul Goeringer, Extension Lawyer and Economist,
Center for Agricultural & Natural Resource Policy
Governor’s Intergovernmental Committee on
Agriculture
June 4, Annapolis MD
Disclaimer
This presentation is intended to provide general information
about leasing laws and should not be construed as
providing legal advice. It should not be cited or relied upon
as legal authority. State laws vary and no attempt is made
to discuss laws of states other than Maryland. For advice
about how these issues might apply to your individual
situation, consult an attorney.
Special Thanks to:
ACReS Farm, Agricultural &
Rural Mediation Services
Why Care About Leasing Laws?
Selected Maryland Counties Cash Rental Rates 2002 - 2012, Source USDA-NASS
County
Carroll
Cecil
Kent
Queen's Anne
Talbot
Washington
2002
$ 57.68
$ 68.28
$ 82.16
$ 73.39
$ 69.77
$ 55.57
2003
$ 63.04
$ 61.74
$ 85.33
$ 83.40
$ 78.40
$ 54.77
2004
$ 62.52
$ 68.39
$ 75.96
$ 86.15
$ 74.86
$ 59.58
$
$
$
$
$
$
2005
63.57
72.31
83.08
90.47
76.71
59.96
2006
$ 62.53
$ 75.04
$ 83.79
$ 92.55
$ 83.79
$ 62.53
2007
$ 59.84
$ 72.19
$ 89.13
$ 92.18
$ 83.02
$ 61.75
2008
$ 54.00
$ 71.00
$ 86.00
$ 86.00
$ 71.00
$ 55.00
2009
$ 68.50
$ 79.00
$ 90.00
$ 79.50
$ 78.00
$ 57.00
2010
$ 56.00
$ 68.00
$ 75.50
$ 75.00
$ 75.50
$ 53.50
2011
$ 58.00
$ 71.00
$ 80.00
$ 81.00
$ 77.50
$ 56.50
2012
$ 79.50
$ 85.50
$ 122.00
$ 113.00
$ 105.00
$ 74.50
Why Care About Leasing Laws
Why Care About Leasing Laws?
Why Care About Leasing Laws?
• Leasing of farmland is very important to agriculture
• According to National Ag Statistic Service (NASS), 32% of all ag
land is rented in Maryland
• Charts show us rent prices and crop prices going up.
• Higher crop prices leading to issue of some producers wanting
more land for their operations – bidding up rent prices
• Some landlords may want what they view to be their fair share of
higher crop prices
• Both of these working to cause landlord/tenant disputes in ag
• Understanding land leasing laws can help to limit disputes
that can arise over the life of the lease.
Overview
• To be valid a lease needs:
1. Valid contract
2.
Extent of the property to be leased
3.
Definite lease term/how long will the lease be for?
4.
Definite rental rate
• Note none of this 4 requirements states the lease should
be written, an oral lease could be valid if it meets the 4
requirements
Overview
• Three types of leases
1. Crop-share lease
2. Fixed cash lease
3. Flex-cash lease
• One other type of relationship exists, custom farming
contract, but this is not a leasing arrangement because
landowner makes all the decisions and hires third parties
to perform preparation
Oral Lease
• Oral leases
• Pros:
• Simple, usually just have a rent and lease term clauses, and generally
no other clauses
• Shows trust in other party
• Parties like to think the other one will always be reputable and honest with
them.
• Cons:
• May not always meet legal requirements
• No written record
• No reminder of what was agreed upon
• Any legal dispute will rest on which party is more believable.
Written Leases
• Written leases
• Pros:
• Have a written record of terms
• Allows the parties to negotiate the lease and develop a lease that works
for them
• Clearly define who is responsible for what during the life of the lease
• Good business practice
• Provides proof to lenders you actually have the acreage claimed under
lease
• Cons:
• Looks like the parties do not trust each other
• May prefer there be no record of what was agreed to
So When Does a Lease Have to Be
Written?
• No requirement that a lease be in writing, unless the lease is
for a period longer than 1 year.
• Example 1, lease that runs from January 1, 2013 to December 31,
2013
• Not required to be in writing and can be oral
• Example 2, lease that runs from January 1, 2013 to December 31,
2013 and can continue after Dec. 31, 2013 until terminated by one of
the parties
• Not required to be in writing
• Example 3, lease that runs from January 1, 2013 to December 31,
2015 is for a period longer than 1 year
• Needs to be in writing.
• But having a written lease is a good business practices
Amending the Lease
• Lease can be amended at any time as long as the parties
agree to amendments
• Amending the lease allows for the document to more
meet the needs of the parties as they change
• But if you do amend the lease, good practice to get
amendments in writing!
Lease Renewal
• Lease renewal is always the responsibility of the tenant
• Landlord can never force a tenant to renew
• Landlord can only accept offer to renew or find a new tenant
• Lease can also extend automatically until notice of
termination is given. Very common in agricultural leases.
Lease Termination
• Lease may terminate on certain date, may or may not
require notice to be given
• Either party will need to follow proper termination process
• If lease specifies process, then follow that process exactly
• If lease doesn’t then must follow Maryland law and that
requires 6 months notice to terminate a farm lease (MD.
Code Real Property Section 8-402)
• Allows for oral notice of termination, but again better practice to use
written notice.
• Written provides a record.
Lease Termination
• What if you have crops growing when the lease
terminates?
• Common law view was if the lease had a definite termination date
then not entitled to harvest growing crops
• Are exceptions to this rule
• What is the practice in the area? Did landlord make some assurances?
• Big deal to consider if participating in Cover Crop
Program and required to destroy the crop by March 1.
Right of Reentry
• Landlord has no right to reenter the leased property,
unless that right is retained in lease
• This means unless specified by the landlord when the
lease is made has no right to reenter for any reason or
allow new tenants to enter before the lease expires.
• What if land has recreational use value?
Sublease and Assignments
• Assignment is when tenant signs lease rights over to a
third party and third party takes over lease
• Sublease is when tenant only signs over lease rights for a
portion of the duration of the lease
• Traditionally, tenant has the right to do either of these
without the consent of the landlord, but this right can be
modified in the lease
Death of Either Party
• Death of either party does not terminate the lease
• If landlord dies, then tenant continues to make rental
payments to landlord’s estate
• If tenant dies, then tenant’s estate continues to make
rental payments to landlord
• Parties can decide to follow proper termination process to
end the lease.
• One important reason to consider a written lease is your
own death, will you heirs know what you agreed to?
Bankruptcy or Financial Stress of Either
Party
• Bankruptcy or financial stress of either party does not
terminate the lease, regardless of the language used in
the lease
• If this happens, immediately contact a bankruptcy
attorney to preserve any rights you may have
Failure to Pay Rent
• Cash rent and flex cash rent leases have no automatic
statutory liens in growing crops for unpaid rent
• Landlord can include language in lease to create security
interest in crops for unpaid rent, but requires certain steps
to be done to be valid.
• With crop-share leases, a statutory lien is created in
growing crops for rent.
Good Husbandry Practices
• Good husbandry practices is broad but means those
agricultural practices that conserve fertility, usefulness,
and value of the soil.
• Idea is to prevent tenant from using property in way to
reap quick profit but use land in way that sustains it.
• Considered by many to be an implied duty in the lease
• Implied means does not have to be explicitly included in the lease
• We just assume it exists in the lease
• But no MD court has said this duty exists.
Lease Recordation
• No requirement to record the lease
• Other groups may require copy of lease to be on file with
them:
• USDA’s Farm Service Agency or Natural Resource Conservation
Service may require copy of lease to demonstrate you have control
over acreage you claim to have control over
• Banker may also require copy of lease again to demonstrate you
have control over leased property
Insurance
• General liability insurance
• Tenant will want to insure any of their equipment on the property,
such as grain augers and tools
• Landlord will want to insure any buildings or permanent structures
on the property
• Crop Insurance
• Tenant will carry burden with cash rent and flex cash lease.
Landlord may want to require certain coverage level on crops
grown on leased property to insure payment of rent
• Tenant and landlord can split crop insurance costs based on the
crop share
Removal of Fixtures
• Unless agreement states otherwise, Maryland tenant has
right to remove fixtures they erected on the leased
property when the lease terminates
• But before erecting any fixtures or improvements on the
property would want to discuss with landlord about the
fixtures to be added.
• Get in writing!
Recreational Use of the Property
• Remember a previous slide, unless the
landlord retains the right to reenter, then
has no right to reenter the property
• If property has high value for recreational
uses, such as hunting, fishing, hiking, etc.
Then landlord would want to retain those
rights to allow others to use the property
• Landlord and tenant would want to work out
how recreational uses by third parties
would work if the landlord retains those
rights
Repairs
• Traditionally,
• Landlord has no duty to make repairs
• Tenant only has to make ordinary repairs, including keeping roads
cleared on the property, mowing, lane scrapings, and etc.
• Can be modified by agreement:
• Lease can specify who makes what repairs or pays for what repairs
• For example, lease property is used for grazing of livestock,
• Lease could specify condition fence should be in and when tenant will
pay for repairs to the fence and when landlord will pay for repairs.
Noxious Weeds
• Noxious weeds in Maryland include : 1) Musk, Canada,
nodding, plumeless, and bull thistles; 2) Johnson grass;
and 3) shatter and wild canes (§ 9-401)
• Duty to control them falls on both landlord and tenant,
creates odd situation if landlord does not reserve right to
reentry
• Can spell out in lease who is responsible for what when
noxious weeds become an issue:
• For example, lease could state that landlord shall provide herbicide
and tenant will perform the spraying
Conclusions
• Leasing land is not just a simple handshake deal. Need
to consider your goals and what you want out of the
leasing relationship.
• In developing your leases, think in terms of worst case
scenario.
• Probably won’t happen but still good to plan for
• Have process in place to deal with the problems that will arise
under the leasing arrangement
• Always get in writing
Agricultural Law Education Project
Upcoming Projects
• Survey of Farmers to determine legal needs – Late Fall/Winter
2012-13
• Factsheets:
• Overview of Maryland’s state and counties’ Right-to-Farm laws
• Estate Planning for Farm Families (update of previous factsheet)
• Agricultural Liability Series
•
•
•
•
Fencing Law
Liability for Visitors on the Farm
Liability for Livestock (aka What if my horse bites someone?)
Preparing for a Nuisance Suit or Environmental Claim
• Future workshops
• Land leasing workshops – Cecil, Kent, Queen Anne’s, and Talbot
counties
• Workshops over the Right-to-Farm law – Cecil, Kent, Queen Anne’s
and Talbot counties
• What are your rights in a lawsuit? – Maryland Farm Bureau State
Meeting this winter.
THANKS
ANY QUESTIONS?
Contact info:
Website: canrp.umd.edu
Phone: 301-405-3541
Email: [email protected]

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