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Thread: Iowa Farm Rent

  1. #1
    Junior Member Spring2010 is on a distinguished road
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    Iowa Farm Rent

    I'm helping an elderly relative with his business affairs/finances after he suffered a serious illness. He has approx 150 acres in central Iowa he rents out. He told me the farmer sends him what he thinks is fair at the end of the year. How do you determine intelligently what ground should rent for? Where do you start? I see the surveys for average rents but how would you decide what it should be for a particular piece? Where is ground advertised at? When is ground traditionally agreed to be rented? I would have to believe that there is normally a written lease, how long are leases normally?

  2. #2
    Banned IA CORN FARMER is on a distinguished road
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    I have seen this situation before. Post what county the land is in
    and can you dig up the CSR (Corn Suitability Rating), acres tillable,
    and any yield information? I have a computer program that does a good job of basing a fair cash rent price. September 1st is generally
    the deadline for terminating the lease by Iowa law. Leases can be
    for 3 years or so, but most are written on a year to year basis. And
    yes, you better have a written lease which includes a lien on the crop and many other issues. Also what cash rent per acre did he get
    last crop year?

  3. #3
    Senior Member iadave is on a distinguished road
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    If you want to change rental terms or tenants notice must be given
    before september 1 on parcels of 40 acres or more in Iowa so you will have to deal with the current tenant at least for this year.
    Iknow alot of farms that are rented on an oral contract. My first landlord told me if I needed a written lease he would not rent to me.
    If my word wasn't good a piece of paper wouldn't make it any better.
    That was over 30 years ago and I still farm that farm. I have several
    farms I rented for a cash amount, however, I like your tenant, pay what I think is fair for the year. Sometimes it's higher than what we agreed on, sometimes not. It just depends on my margins.
    On a fair rent, I know of land that rents for 250 an acre. Some is pretty good land, some not so much. However when the lease is up
    I have never seen the same tenant rent it over.They all pay the big rent figuring on not applying potash and phosphate but mining the soil. Eventually the farm will get the reputation for being a poor farm and the landowner will have trouble renting it out.

  4. #4
    Banned Faust100F is on a distinguished road
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    The only guy I know with those kind of leases North of I-80 is ICF. But for your information, you can obtain the CSR on the farm based upon soil types. A CSR over 75 is considered Class I soil in Iowa.

    The CSR can be obtained from the Soil books maintained by the Soil Conservation Service. However, proven yields should be the yield rents are based upon, because CSR's are usually lower than actual yields.

    I had a farmer who had farmed a farm I purchased in South Dakota try to get the seller to reimburse him for the nutrients in the soil since it was his contention that he had raised the fertility on the farm for the 20 years he had rented it and should be reimbursed for the fertilizer build up.

    It was a nice calculation, because I was able to allocate part of the purchase price on the farm to fertilizer and amortize a portion of the purchase price. Of course the tenant was not reimbursed. You are responsible for liming the farm, the tenant is responsible for the fertilizers to grow the crop.

    The rule of thumb is that the landlord gets 1/3, the Tenant gets 2/3 because he provides all the inputs and assumes the risk on the crop. Soo if the ground is producing 200 bu. Corn @ $3 a bushel, then the rent should approximate $200 an acre. If the rent is not prepaid, then the landlord should be named as a loss payee on the Federal Crop Insurance in case of crop failure.

    In Iowa to perfect an interest on a crop share lease, the landlord is required to file a UCC-1. But if the rent is paid up front then no need for a UCC-1 filing to perfect a security interest. The tenant lender should always be in a second position, in Iowa the rule is first in time, is first in line as a creditor.

    The old rule of thumb still applies. 1/3 to the landlord, 1/3 to the tenant, and 1/3 for input costs; soooooooo the tenant gets 2/3. Remember the tenant also gets the direct payments.

    In the Delta, specifically Arkansas and Louisiana the Rent is usually the direct payment plus a few bucks more, because the direct payments for Cotton and Rice makes Corn and Soybean payments look lie poor relation.

    The Cash rent is usually paid up front and usually due March 1, of each year. The tenant is entitled to possession of the farm through March 1, unless the tenant agrees to a different termination date. In Iowa there is no requirement that there be a written lease for an annual rental arrangement. The oral lease continues under the same terms as the previous year if the tenant is not terminated by mailing a certified letter to his last known address on or before September 1st. Adios Amigo. John

  5. #5
    Senior Member jeff is on a distinguished road
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    Faust, most of the rent around my part of Arkansas is 70/30 for rowcrop and 75/25 for rice. I don't know about cotton. Landlord pays his part of fertilizer (either 30% or 25%) and upkeep on irrigation wells. Usually any land leveling that is done is on either a 50/50 basis or some kind of declining pay scale (farmer pays for all of land leveling. If he loses the ground after the first year, he will get 80% of money back, second year 60% etc.) Since the direct payment is frozen and rice prices have increased by 75% in the last few years, direct pay plus a few bucks per acre will not even get your foot in the door anymore, at least not around here. But there is very little, if any, cash rent here.

  6. #6
    Banned Faust100F is on a distinguished road
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    Jeff - Yeah! I am thinking about ten years back! Do you know where Miller, Little River, and Lafayette Counties are in Arkansas. There is a lot of Billy Haw, Alligator, and Perry soils in that area. I was always looking for the Caspiana what you guys call "sugar dirt". Over along the Red River east of Texarkana! That is the area i was referring to.

    I had friends down there from Ioway who knew how to farm that area, they came back to Ioway and purchased a big farm here after spending 10 years down there. A group of North of I-80 Ioway farmers picked up the land they leased, and blew out down there last year.

    Also, you might know where the Molicy plantation 10,000 acres, is located just across the Arkansas line, SW of Lake Village, old Elton purchased that place, it was a former prison farm.

    I am glad to see the guys making money down there, I have never seen such tough country to farm in, with the exception of Ioway South of I-80. When a person goes down there and sees the huge farms, they think it is the best land in the world, and few people really know what they are looking at. A person had better know what he is doing down there, or he will be going to db's greeter school.

    Adios Amigo. Thanks for bringing me up to date. I have been invited to go down to little Rock next month, and look forward to returning to my old stomping grounds. adios
    amigo. John

  7. #7
    Banned IA CORN FARMER is on a distinguished road
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    Faust100F Posted - 01/18/2010 : 7:10:37 PM
    --------------------------------------------------------------------------------
    The only guy I know with those kind of leases North of I-80 is ICF. But for your information, you can obtain the CSR on the farm based upon soil types. A CSR over 75 is considered Class I soil in Iowa.


    Pretty funny Faust, I am a pretty smooth talker, but even I don't think I could talk a landlord into a "I will pay what I feel is fair"
    lease. Have never heard of this in my 20+ years of farming. I own my
    land, but negotiate leases on 2000+ acres of other family owned land,
    however we only do a 80/20 modified crop share or I custom farm the land, never cash rent. Also, it is very common in a cash lease to say
    that a 10 acre grid sample be done on a 160 acre farm and the tenant
    is responsible for paying to bring the soil fertility up. This prevents the mining of the soil. In my area, I just do not see a large turn-over of tenants.

  8. #8
    Senior Member 48 is on a distinguished road
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    Spring2010: All good comments. You definitely want a
    written contract. You should go from year to year.
    What most posters have left out is the importance of
    the FSA. FSA will insist that the contract spell out
    how payments are distributed. They will also insist
    that the lease specifically says: This lease runs from
    1-1-10 to 12-31-10...or whatever you want it to be.
    Make sure you take your contract to the head of your
    FSA office and have him/her review it for compliance
    with their requirements.

    Your contract should contain auto termination for the
    next year. On oral leases in KS, either party must
    terminate in writing 30 days prior to March 1st. This
    does not apply to written contracts cuz they contain
    their own Terms and Conditions.

    On an oral lease in KS you must pay special attention
    to March 1 cuz Feb only has 28 days. So, if you give
    written termination on Feb. 1 it is null and void cuz
    notice has to be given 30 days prior to Mar. 1.

    In IA ban the growing of winter wheat. Insist on a
    SB-C or C-C rotation. Just because you are Cash Renting does
    not mean that you can not stipulate this. If you let
    the tenant plant winter wheat, it will tie those acres
    up for two years...whether you terminate him on 12-31-10
    or not. No winter wheat...period.

    Your contract should specify that the tenant must
    fertilize to crop removal rates.

    Your contract should specify who is responsible for
    tiling, drainage, terrace repair, etc. Usually, these
    are the responsibility of the landowner.

    With an elderly person you should go for straight
    cash rent, and it should be paid on Jan. 1st prior
    to the tenant taking possession. This way you don't
    have to worry about filing UCC statements and liens.
    If the tenant has a crop failure, the bank is going
    to take any crop and insurance proceeds. That's why
    you want your Cash Rent in your hand before he steps
    onto the property.

    The other reason that you should take cash rent...
    especially with an elderly person...is FSA has tightened
    up the requirements for receiving a Direct Payment
    and their rules on "Actively Engaged In Farming."
    Also, if your elderly relative is well to do, that
    can make your relative ineligible to receive payments.
    You get Cash Rent. The tenant gets ALL the FSA payments.
    But, the FSA payments are built into your cash rent,
    so you are not losing anything.

    You want a Hold Harmless clause from your tenant and any
    of his help or employees.

    You want the standard clause about leaving the property
    in as good or better condition as when he took possession.

    You want it specified that he takes care of grader ditches
    and weeds.

    You want a clause on wind/water erosion and best farming
    practices. He should stop blowing ground immediately.

    Make sure you have an attorney prepare the contract and
    make your tenant go to the attorney's office to sign the
    contract&give rent to the attorney. Make sure the attorney is
    not his attorney. lol. This way the tenant knows that you
    are not putting up with any funny business. Your attorney
    may charge you a small escrow fee for this service.

    You should have an independent CCA crop consultant pull
    soil tests each year. If the tenant is not maintaining
    fertility baseline levels, in other words, he is mining
    your soil, you should request compensation. If he refuses
    you should not hesitate to sue him for recovery. You are
    talking big bucks here. Make sure the CCA is not your
    tenant's crop consultant. lol.

    Roger McEowen is the Ag Law expert at IA ST. He used to
    be at KSU. I know him well. He is a nice guy and will
    be glad to give you good advice at no charge. Your tax
    dollars at work.

    mceowen@iastate.edu

    Good luck.


  9. #9
    Moderator ses is on a distinguished road ses's Avatar
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    48 I have to disagree with you on planting wheat . If your old tenant planted wheat and you evict him I agree he doesn't owe next years rent but has the right to reenter to harvest his crop. Your new tenant , when he takes posession on Jan1st, owes you rent on the acres planted to wheat even if he is nonparticipating in the wheat crop. The rational is , he has the right to take posession right after the wheat is harvested to do what he wants with the land. In your way of thinking, why couldn't the new tenant continuous crop the wheat and skip out on paying any rent at all? The last guy didn't have to pay rent, why should he? Or even double crop beans or another crop behind the wheat. He wouldn't owe rent, right? lol.In wheat country the new tenant pays rent on all acres regardless of when he takes posession , be it July one or Jan. one. JMO

  10. #10
    Senior Member 48 is on a distinguished road
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    Spring2010: An increasingly common practice around here
    is Lease Auctions. You already have your contract prepared
    as aforementioned. The bidders also have it and understand
    the Terms&Conditions. The only thing to be filled in is
    the amount of the Cash Rent. Auction/Real Estate companies
    can handle this for you, or you can do it on your own, or
    you can have your attorney do it. He never has to leave his
    office. You advertise it. The prospective bidders give him
    a CERTIFIED CASHIER'S CHECK. High bidder wins. This way you
    know you are getting the highest available Cash Rent.

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