Who are the parties to the lease?

When it comes to a lease agreement, you need to be clear about who the contracting parties are. Is the participating farmer party an individual or his or her business entity (i.e., LLC or corporation)? Is the farm incubator party the landowner or the director of the farm incubator project, if they are not one in the same?

If the participating farmer party is a business entity, keep in mind that most landowners will be hesitant to lease to a business without any further
security or collateral offered by the individual farmer as a personal guarantee. This is because if the business doesn’t pay the rent, the landowner can only seek business assets to cover the debt. If the business is gone, it is difficult to recover. So if the farmer has established a business entity and that business entity is the contracting party on the lease, the farmer may have to negotiate whether and to what extent she agrees to a personal guarantee.

The farm incubator or landowner party will generally be whoever owns the land. So if the title to the land has been placed in an LLC or corporation, then that business entity will likely be the contracting party. Whoever has control to make decisions for that business entity will sign the lease and be the person(s) responsible for making sure all the terms are followed. However, it may be that the farm incubator project leader or administrator (whether an individual or a business entity) does not in fact own the land. Perhaps they’ve entered a lease agreement with the actual landowner to run the farm incubator project! If this is the case, the lease with the participating farmer would be considered a “sublease.” It is very important to be absolutely sure that the landowner approves this sublease arrangement and that the underlying lease permits it. It may be that both the landowner and the farm incubator project leader need to be parties to the “sublease” with the participating farmer. Note that this checklist and the Model Farm Incubator Lease provided in this packet assumes that the farm incubator party is the landowner and is therefore referred to as “landowner.” This may not be the case in your situation.

What is the duration of the agreement?

Some farm incubators have established multi-year programs. Others are more open. Either way, you can base the duration of your lease on the entire span of the farm incubator program, or you can make the lease season-to-season or year-to- year with an option to renew. It’s up to you. Keep in mind that while a long-term agreement may seem preferable to provide a sense of stability, a seasonal or annual lease allows flexibility for both parties to adapt to changing circumstances. This flexibility is particularly important for farm incubator projects that are just starting out and will likely want to make some adaptations based on lessons learned.

What is the process for renewing the lease?

Does the lease automatically renew? Or does renewal require some action? Oftentimes, leases require the tenant, here the participating farmer, to provide written notice in advance—such as 30 days ahead—if she wants to renew. Otherwise the lease would automatically terminate. Again, it’s up to you. Just be sure to clearly explain the terms and process for renewal in the lease.

What is the precise location and boundary of the site to be leased by the participating farmer?

It is essential that the farmer knows exactly what area on the property she has rights to farm. You may want to include a map to be as precise as possible.

May the landowner also use the site that’s leased?

Typically, when you lease a house or an apartment the tenant has exclusive rights to that space. The landlord can’t just move into the third bedroom even though he sees that the tenant isn’t using it. Oftentimes, farmers leasing land want to have the same exclusive rights and autonomy. However, here the landowner likely has interest in maximizing the use of the land. What if the landowner notices that the farmer is only cultivating one-quarter of the one- half acre that she has leased? The Model Farm Incubator Lease provides a creative arrangement to address this situation. It allows the landlord to start using any “uncultivated areas” if the farmer doesn’t explicitly give notice of her intentions to use the uncultivated areas later in the season. You may want to consider such an arrangement, particular if the overall acreage on the land is minimal and there’s a strong interest in maximizing yields.

What other areas of the property may the participating farmer access and what areas are off limits?

The lease should set clear parameters of where on the property the farmer can and cannot go and under what conditions.

Are there any restrictions or special instructions for accessing the property?

You should include specific terms regarding particular days or times of day that are off limits, specific roads or routes that the farmer must use to access both the overall property and the leased fields, and specific parking locations or instructions if they are applicable.

What uses are permitted and prohibited by the participating farmer?

It’s a good idea to include a detailed list of permitted and prohibited uses to establish clear expectations of what can and cannot be done. One option is to include a list of permitted uses and then a catch-all phrase that all other uses are prohibited without the prior written consent of the landowner. This will make sure any additional or unexpected uses are clearly communicated beforehand. Permitted uses could include things like production of annual crops, preparation for market of crops, sale of crops produced on the premises, raising of broilers, raising of laying hens, and so forth.

Can the participating farmer have employees, interns, and volunteers?

Allowing the participating farmer to bring on additional labor—whether employees, volunteers, or interns—exposes both the landowner and the participating farmer to liability. The landowner should be very cautious to openly allow it. One option would be to prohibit the participating farmer from having employees, volunteers, or interns on-site without the written consent of the landowner. Another would be to allow it only if the participating farmer has workers’ compensation insurance. See more about dealing with insurance below.

Key issue to consider if employees, volunteers, and interns are permitted

• If employees, volunteers, or interns are allowed, it’s also recommended that clear policies are in place regarding what they can and cannot do. What areas can they access? What equipment can they use? What times of day can they be on-site? Does the participating farmer need to be present to supervise whenever they are there? You could either include these terms and conditions in the lease or in a separate employee, volunteer, and intern policy that you require the participating farmer and all employees, volunteers, and interns
  to sign.
• Also, to ensure liability protection for both the landowner and the participating farmer, it’s essential to be sure that all permitted activities by employees would be covered by the applicable insurance policy. For example, if employees are not listed on the automotive liability insurance policy then they should not be permitted to drive the farm truck.

Can the participating farmer make significant changes or improvements to the leased area?

Significant changes include adding improvements such as fences, storage sheds, or other permanent structures. Do you want to openly allow this, allow it only upon written notice and approval, or strictly prohibit it? If improvements are allowed and made, what happens when the participating farmer leaves? For example, if the farmer puts a fence or a shed on the site, can she disassemble it and take it with her?

Does the participating farmer have shared access to tools and equipment and, if so, what policies and procedures must be followed?

If the incubator farm project offers access to tools and equipment, it’s a good idea to include a list of tools and equipment that are available in the lease. This could also be done with a catch-all phrase such as “all tools in the toolshed and all equipment in the barn.” If there are multiple farmers involved in the farm incubator project, is there a procedure for who gets to use what when? Who is responsible for day-to-day care and overall maintenance? If something breaks, who’s responsible for dealing with the repair and paying the costs? Ideally, the farm incubator project will have an equipment manual that provides detailed policies and procedures that the farmer must follow to make sure the equipment is used safely and is well taken care of. The Model Farm Incubator Lease refers to an equipment manual that the farmer is required to follow.

Does the participating farmer have shared access to facilities on the property and, if so, what policies and procedures must be followed?

Again, you should thoroughly list what other facilities are available to the farmer. This could include greenhouses, packing rooms, storage rooms, barns, toilets and washrooms, etc. It’s important to consider the roles and responsibilities for taking care of these facilities. Again, you could include general guidelines in the lease such as, “farmer must maintain the cleanliness of all facilities after each use,” and set forth the specifics in a separate policy document, or you could include the specifics in the lease.

Residential leases for residential farm incubator projects

• Note that if your farm incubator project is residential and housing is made available to the participating farmer, you should enter into a separate residential lease. Farmland leases are very distinct from residential
  leases in legally significant ways. It would be ill-advised to try to include provisions regarding the use of residential areas in your farmland lease.
• Templates for residential leases are widely available on the internet.
  Be sure you find one that is specifically applicable in your state.

Can the participating farmer bring farm animals onto the property and, if so, what animal husbandry practices or standards must be followed?

You should be clear upfront about whether farm animals are allowed to set the appropriate expectation of the participating farmer. If they are allowed, the lease provides a good opportunity to establish standards for how any farm animals will be treated. This, of course, includes abiding by any state or local regulations regarding farm animal care. The Model Farm Incubator Lease refers to an animal husbandry manual that the participating farmer is required to follow. Having such a manual is an effective way to make sure that if a participating farmer brings farm animals on-site she will take their care and treatment very seriously.

How is water handled?

Depending on the geography of the area, water usage may be a significant concern to all parties. A separate water or irrigation section may be helpful to fully hash out all the issues surrounding water usage, including timing, flow rate, repairs, cost, etc.

Are there any specific farming practices or stewardship standards that the participating farmer must abide by?

Do you want the farmer to abide by specific farming practices such as organic standards? Are there any other specific practices or stewardship standards you want to include? What about weed control—is the farmer responsible for
preventing excessive weed growth? Is the farm property subject to a conservation plan? Are there special waterways that need to be protected? Are there any specific issues you want to include related to your particular property or region? These are all things you should consider putting into the terms of your lease.

Organic farming requirements

• If the incubator farm property is Certified Organic or is in transition, it’s a good idea to include a provision in the lease requiring that the participating farmer understands and follows the requisite organic practices. This is definitely something that should be taken seriously, as one mishap by a participating farmer could risk losing certification for the farm or significantly prolong the transition process. Section 9 of the Model Incubator Farm Lease provides an example of a very robust provision that requires the participating farmer to follow organic standards. However, you should not expect that a beginning farmer will be fully up to speed on all the elaborate organic regulations and standards despite every intention to become an organic farmer. It’s not an easy feat to learn! The incubator farm project can safeguard its own interest in gaining or maintaining organic certification by taking on some of the responsibility to train the farmer and show her the ropes. This could include providing training and technical support on organic farming practices.

How is rent handled?

This is pretty straightforward. You need to decide and include in the lease clear terms on the rent amount, when it is paid and how, and what the penalties are if it is late. This will vary based on your unique situation.

If the participating farmers can use equipment and other facilities, is the cost included in the rent?

Some farm incubators include the use of tools and equipment and other facilities as part of the rent cost. Others charge an additional fee. If you have multiple participating farmers, it could be that some of the farmers won’t need any of these additional offerings while others will need all of them, and still others will need something in between. In this scenario, it may be better to establish a system to charge by usage rate for tools, equipment, and facilities. On the other hand, this will require tracking systems that will take additional thought and time. What’s best for you? Another consideration is fuel costs. If equipment is available that runs off gas or diesel, such as a tractor, who pays for the fuel costs and how will usage be monitored? Is it all-inclusive, do you charge by the gallon, or do you want to set up some other arrangement? Whatever the case, the basic cost structure should be outlined in the lease so that the participating farmer has a good idea of what her overall costs will be in the whole package.

Who pays for utilities and other services?

You’ll need to be sure to clearly set forth who is responsible for covering the costs of utilities and other services that are necessary to operate the farm. These costs could be prorated if there are multiple farmers. Or the landowner could cover all of the utility and services costs, which would of course be reflected in the overall rent costs. Utilities and services include things like electricity, natural gas, irrigation, trash collection, toilet facility maintenance, lawn-mowing services, and even snow removal if it’s an issue in your area. Again, it’s important to outline who is responsible for these additional costs upfront so the farmer knows at the get-go what her overall costs will be.

How is insurance handled?

Farm Commons strongly recommends that the farm incubator project has adequate insurance, which includes coverage for each of the participating farmers. This includes liability insurance to deal with injuries, workers’ compensation if employees are involved and it’s required in your state, automotive liability to cover things like farm vehicles, and property insurance. You’ll need to decide who is responsible for covering the costs of the policy and the minimum premium amounts.

Insurance

• Part of any farm incubator is educating the beginning farmer on all aspects of the business. There is an opportunity to teach the participating farmer the realities of insurance by passing the responsibility and cost of insurance onto the farmer. However, in some cases it may make more sense for the landowner to maintain the insurance and cover all of the costs. For example, if eight farmers are participating in the farm incubator project and each farmer is leasing just one-quarter acre to farm, it may be too cumbersome for everyone to get their own insurance. Indeed, in some states it can be difficult to find insurance agents who are willing to insure smaller plots. If this is the case, it may be more cost effective and efficient for the landowner to take on the responsibility to maintain adequate insurance covering the activities of all the farmers. If so, the landowner would need to contact his insurance carrier and add each participating farmer— or her business entity if there is one—to all policies in place. Also of note, if the participating farmers are allowed to have employees, they may be required to carry their own workers’ compensation. So be sure to check your state’s laws on workers’ compensation if employees are involved.

How can the lease be modified?

Be sure to consider how changes can be made to the lease if you realize certain aspects aren’t working or need to be tweaked. Oftentimes, leases require that any amendments must be agreed to by both parties in writing. How do you want to handle the amendment process should it arise?

How are disputes resolved?

Farm Commons highly recommends including a dispute resolution clause that provides an alternative mechanism for deciding disputes to prevent going to court. This could include appointing a dispute resolution committee or requiring an experienced mediator to resolve any dispute. Just know that if you don’t include an alternative dispute resolution clause you could end up in court with an expensive and drawn-out lawsuit.

What happens if the lease ends early?

It’s important to consider what will happen if the lease terminates before the established end date. What is the process for terminating the lease early? On what grounds can it be terminated? If one party breaches the lease, are they allowed a reasonable time to remedy the breach before the other party can terminate the agreement? What happens to pre-paid rent if the lease is terminated early? Will rent be adjusted on a pro rata basis based on when the farmer leaves? Perhaps rent is only adjusted if the landowner is able to find another farmer to take over.

Can the lease be transferred (i.e., assigned or subleased) to someone else?

If the farmer wants out, one option could be to allow her to find someone to take over the lease. Perhaps the farmer just wants someone to take over part of the site—such as one-quarter of the one-half acre leased. The legal terms for scenarios involving the transfer of the lease to another person are called assignments or subleases. Oftentimes landowners don’t allow outright assignments or subleases because they want to have a say in who takes it over. It makes sense that the landowner would want to meet the new person first to be sure she will be a good steward. It’s up to you how you address subleases and assignments.

What are the procedures and expectations for how the leased site is left once the participating farmer leaves?

How do you want the farmer to leave the land once the lease is over? For example, if the farmer is cultivating crops, do you want her to establish a cover crop before leaving? This should be clearly set forth in the lease to be sure the participating farmer knows well in advance what is expected of her once the lease ends so she can plan the wind-down of her farm season accordingly.