Grazing Leases Important

OMAHA (DTN) -- A man is as good as his word, unless it comes to future disputes over a handshake agreements. While some livestock producers may only have a handshake agreement for renting grazing land, having a written lease is important in protecting both the tenant and landlord.

Having a written grazing lease can help avoid future conflicts, according to Kate Binzen Fuller, assistant professor/extension specialist for Montana State University. Fuller recently updated and modified a publication on Grazing Leases, along with Jeff Mosley, MSU professor/extension range management specialist.

"Some of these leases can get pretty complicated, so it's nice to have a document you can look back to, to make sure you know who is responsible for what within the lease," Fuller said.

Some disagreements do end up in court and different states have different laws about whether a written lease is required for it to be enforceable. For those reasons, Fuller advised that producers and landlords brush up on the laws in their particular state. In some states, unwritten leases may be legal, but can be difficult to enforce. Fuller recommended both parties have an attorney go over the lease, or write it with them.

IMPORTANT ELEMENTS OF A GRAZING LEASE

There are a number of elements that are vital to include in a grazing lease, Fuller said.

Grazing leases should contain an accurate property description; not just an address, but actual tract information on the specific parcels of land. A lease should also contain the names, address and emergency phone numbers for all those involved in the lease.

Stocking rates and the kind of animals allowed to graze should be included in a grazing lease. Most leases require the tenant to keep records of turn-on and turn-off dates, the number of livestock grazed, and should submit those records to the landlord at the end of the grazing season.

A grazing lease should also outline who is responsible for maintenance and improvements, such as maintenance of fences, corrals, water development and other structures, as well as range improvements practices such as weed control, seeding, fertilization, etc.

The lease should define the lease rate and how it will be calculated, as well as the method and conditions of payment, when the rent is due and whether insurance is required. It is generally recommended that the lease carry a stipulation requiring the tenant to carry liability insurance for the livestock on the leased property.

Special clauses may also be included regarding the right to terminate the lease if it is breached, or procedures to modify or terminate the lease in case animals need to be removed because of fire, drought, flood or other emergencies.

Lease agreements may also specify prohibited activities such as hunting, fishing or logging. Some leases may specify that the tenant's vehicles only travel on established roads or trails, except to perform weed control or in case of emergency.

Fuller said she encourages people to work through a budget so they know what their break-even is. Tenants should strive to make sure they're not paying more than they are getting out of the lease, and landlords often want to cover the costs associated with maintenance and property taxes.

Lease agreements should be signed, dated and notarized by all parties and it may be a good idea for the signed lease to be filed with the local county clerk's office, so an unbiased third party will have a record of the transaction and so it will show up in a title search.

"I just heard about someone who purchased land unaware there was an outstanding written lease for several years, so they had had to rent to that person," she said.

NEGOTIATING RATES

One of the trickier aspects of negotiating a grazing lease is finding a fair and equitable rate. Unfortunately, Fuller said that for many states, detail on market rates is lacking.

She finds that, at least in Montana, the best information on current grazing lease rates are from the U.S. Department of Agriculture's National Agricultural Statistics Service's website (https://goo.gl/…) or monthly grazing rates at the NASS Quick State website (https://goo.gl/…). However, those statistics may not be entirely representative, as they are averages over a wide range of variable property and could have been in place for a long time. Also, the statistics may not account for fluctuating cattle prices.

Fuller suggested that producers can talk to their extension agents, local lender or neighbors to get an idea of current rates in their area.

TYPES OF LEASE RATES

Lease rates for grazing can be written in a number of ways and should be suited to fit the needs of all parties to the less.

The MSU publication lists several types of grazing leases:

-Per acre lease rates vary with the productivity of the land and lease conditions. The rental rate remains the same for the duration specified, however, the tenant assumes the risk of changes in annual forage production due to weather.

-Per whole tract leases apply to a block of land for a specific annual fee and are normally used if leasing an entire ranch for a specified number of years. These kinds of lease arrangement are also used when the leased land consists of various land types (rangeland, seeded pasture, crop aftermath, forest, etc.)

-Per animal unit month (AUM) leases provide some flexibility for various types of livestock. To eliminate confusion about the definition of an animal unit month (AUM), it may be simpler to write a grazing lease on a per-acre basis, then stipulate the number and kind of livestock allowed. The typical definition of an AUM (what one 1,000-pound animal requires to graze for one month) has caused a great deal of confusion, as most cows now are significantly bigger than that.

-Per head or per pair lease rates typically are monthly or seasonal rates. But since types of livestock can vary greatly in quantities of forage, using AUMS as a common denominator may be a better plan.

-Share of gain lease rates are usually used for seasonally-grazed, weight-gaining livestock such as stocker cattle, replacement heifers and lambs and consist of a charge per pound of gain or a share of the total weight gain for the grazing period.

-Variable leases involve a fixed base rate for the term of the lease, and a variable rate that allows for fluctuations in livestock prices. This type of lease rate is set by considering the relative contribution of both parties to total production costs, as well as livestock prices.

Fuller added that grazing lease rates and their structure are very regionalized.

"I think out here in the west we see a lot more leases that are on a per-AUM basis," she said. "In the Midwest, you hear of more per-acre and per-head leases."

The MSU Grazing Leases publication, as well as a variety of lease rate information, resources, guides and presentations is available on the MSU Extension website at http://msuextension.org/….

Cheryl Anderson can be reached at cheryl.anderson@dtn.com.

(SK)

Copyright 2016 DTN/The Progressive Farmer. All rights reserved.