A rural lease (“lease”) is a legally binding document which governs the relationship between the landlord and the tenant for the use of rural land.
Often rural leases are entered into as a gentleman’s agreement with a handshake to seal the deal. This works fine until something goes wrong and/or there is a disagreement between the landlord and the tenant. It is always best to discuss and put in place a written lease when both parties are on good terms rather than in the middle of a dispute.
Leases can be beneficial to both the landlord and the tenant. The landlord benefits by receiving regular payments for the use of their land; maintains the capital gains during the length of the lease; and if the farmer was considering selling because of retirement, possibly leasing is an alternative which creates income and the farmer continues to own the land. With the cost of land becoming prohibitive, for many young farmers, leasing provides the opportunity to build an asset base without the initial cost of land purchase.
The terms of the lease, the area which is to be leased, and the rent amount are minimum requirements required to be stated in a lease. Other terms can be drafted in to reflect the unique situation between the parties.
Some terms which are worth thinking about are permitted use; Landlord pays for? Tenant pays for? Rent review; Subletting; and Cropping.
- Permitted use
Does the landowner want only certain farming activities to take place and not others? Different activities could affect the soil quality for future use. Are animals allowed on the land? If so, which ones? Etc.
- Landlord pays for? Tenant pays for?
It is good to specify in the lease who is paying for what, such as the electricity, rates, water charges, insurances etc. With farmland, it is worth thinking about discussing, and possibly drafting into the lease; who is in charge of the weed control, fence repair, gate repair, fertilizer etc.?
- Rent Review
This can be an area where disagreements occur quite frequently between the landlord and the tenant. The lease can include when and how the rent reviews will be handled and the right to renewal. Having this set out in the lease from the beginning will allow the landlord and the tenant to avoid disagreements and maintain a good relationship.
It is common to require the tenant to obtain the landlord’s consent prior to subletting the property. Or the landlord may not want the tenant to sublet the property at any time. This will need to be discussed and agreed upon while parties are drafting the lease and on good terms.
Are there any restrictions as to what type of crop the land is used for? At the expiry of the lease, in what state does the tenant have to return the land to the landlord? Does the grass have to be a certain length, etc.?
Leases should not be entered into lightly as landlords are likely to be dealing with their biggest asset, land. There should be careful consideration and thought to make sure that the asset is protected during the duration of the lease and will be returned in an acceptable state after the lease expires.
We strongly advise that legal advice should be sought, prior to signing the lease, whether you are the landlord or the tenant. This is to make sure that the lease is a reflection of what both parties require to make this venture beneficial, what is expected of both parties, and when, and what the land can be used for.
If you have any questions around rural leases, please contact us at Horrocks Hampton – we’re happy to help.