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Introduction
Agricultural leases are an essential part of Maryland agriculture. According to the 2022 Census of Agriculture, 23.7 percent of all farms in Maryland lease farmland in some way. As many of you start to think about terminating leases or renewing, it's also essential to think about with renewal what is working with the lease and what is not. Negotiating a lease that works for both parties can require the landowner and the farmer to consider what terms would work in those new leases. Taking a moment to consider best practices in those contract negotiations can benefit landowners and farmers alike.
Lease Agreement Contracts
A lease can be a steady source of revenue for the property owner, help with property taxes and lower property maintenance responsibilities. Leases can also keep land designated for agricultural use and create opportunities for new farmers. A lease agreement contract is a written agreement between a property owner and a farmer. In Maryland, land leases do not have to be in writing if they are for less than a year, but both parties benefit from clear, comprehensive written contracts (Goeringer, 2013). The contract must contain certain elements, such as the responsibilities of both parties and the duration of time allotted. Still, the contract can be customized to accommodate property owners' and farmers' specific goals and motives through effective negotiations.
Negotiation
To create contracts, the property owner and farmer must negotiate the terms. Both parties should minimize risks, reach long-term success, and build positive relationships. The intent of negotiation is not to work against the other party to gain more from the contract but to work with the other party to reach the long-term goals of both participants. The success of a negotiation can measure the success of the entire operation.
Negotiation Best Practices
Goal-setting. Goal-setting allows negotiation participants to create terms that are specific to the operation and their values. When setting goals, the farmer and property owner should identify the needs and wants they wish to achieve through the contract. Needs are objectives that the contract must meet. Wants are objectives that would be beneficial if met but can be changed or omitted while negotiating. To determine their needs and wants, the farmer and property owner should consider their assets, specific financial goals, personal values such as environmental and community values, and how much risk they are willing and able to take on. Both parties should enter the negotiation process with specific goals to make confident decisions, plan for possible concessions, and measure their success.
Research. Research into different types of contracts and goals is necessary to prepare for the negotiation process. Different types of contracts allocate risk and responsibility in various ways. For example, a cash lease (fixed cash lease) gives most of the risk and responsibility to the farmer because they pay the property owner a lump sum and then manage the property and resources independently. Alternatively, a crop share lease distributes risk more evenly between the property owner and the farmer because under a crop share lease, the farmer pays the property owner a set percentage of their crop, and the property owner allows the farmer to use the land and might pay a percentage of the input costs (Goeringer, 2013). (For more information on the different types of leases, click here). Research can also include learning from other farmers with similar goals. Elements of a contract that helped one farmer might help another farmer, too. State-specific restrictions on contracts should also be considered. Inventory of the leased property can make contract terms more specific and effective. Factors such as size, location, and capital on the property influence what needs to be addressed in the contract, including time scales, prices, and the allocation of responsibilities. When the property owner and farmer research before negotiating, they can make informed decisions specific to their goals.
Communication and Trust. Communication and trust are essential during the negotiation process to form successful relationships and reach the most favorable results for both participants. Uncertainty from a lack of communication or trust can cause a negotiation participant to hold back or not offer more favorable terms because they are wary of risk. A lack of communication can also prevent misunderstandings that can lead to conflict. The farmer and the property owner should read all of the conditions suggested by the other party, ask questions, and make changes if something seems unfair before reaching an agreement (Contract Farming Resource Centre, 2021). Both the property owner and the farmer should act in the best interests of both parties. Before negotiating, each party should identify the inputs they have to offer, such as time and money, and what inputs they might expect from the other party in return. To maintain communication, the property owner and farmer can use the contract to require mandatory meetings at certain times or for specific reasons. The negotiating process should make both parties feel secure about the contract and the operation.
Planning for Uncertainty. Farming is a highly variable practice. Planning for potential issues can help both parties prepare for difficult situations, build trust, encourage teamwork, and prevent future conflicts. The property owner and farmer should discuss production, market, financial, institutional, and human risks related to the operation (Risk in Agriculture, 2020). These conversations can cover complex topics such as death and relationship conflicts, but it is better to discuss potential problems upfront instead of during or after the problem occurs. The property owner and farmer should plan for worst-case scenarios, address specific concerns, and consider the role of the law. If the contract does not address a legal situation, there may be a default procedure. For example, a lease usually transfers to the farmer’s heirs automatically unless the farmer specifies that they wish the lease to terminate after their death instead (Hannum, 2017). Another variable to consider is that the lease price may change over time. Leases extending over a long period (usually more than 10 years) and including a cash rent agreement often incorporate a plan to keep the price fair. One method is to include an escalation clause in the contract. An escalation clause requires the property owner and farmer to revisit the contract to discuss possible changes in the rental amount. Changes in the market can be beneficial or detrimental for either party, so an escalation clause reduces risk for everyone involved. Other methods include implementing a stepped rent where a fixed rate increases rent or requiring the farmer to pay for capital improvements while renting the property. Some types of leases include a natural rent adjustment.
Using Outside Resources. Contracts are sometimes challenging to understand. Farmers and property owners can contact other resources to make informed decisions (Contract Farming and the Law: Understanding the Content of an Agricultural Contract, 2021). One resource is an attorney. Attorneys have experience and knowledge about contracts and can ensure that an agreement is clear, concise, and legally accurate. Attorneys cannot make decisions for farmers, but they can help farmers make decisions by assisting them to understand their options and rights. (Creative Leasing, n.d.) Another resource is a local Extension agent. Extension agents are land grant colleges or university employees that educate and provide tools to farmers and the general public. They are familiar with the local area and have experience working with farmers.
Following Through. To preserve a positive partnership and achieve long-term goals, both parties must honor the contract terms and continue communicating when necessary after the contract is finalized. If the contract has a problem, it is best to discuss it openly with the other party. Leases can be amended if necessary (Hannum, 2017). Both parties should be committed to solving problems or disputes quickly, ensuring that they do not occur again, and not focusing on placing blame (Marsh, 2001, p.118). The negotiation process requires effort before, during, and after creating the contract. By implementing best practices in negotiation, property owners and farmers can form mutually beneficial relationships and maintain successful operations.
References
Brown (n.d.). Maryland Attorney General. Landlords and Tenants. Retrieved March 24, 2025, https://www.marylandattorneygeneral.gov/Pages/CPD/landlords.aspx#leases
Food and Agriculture Organization of the United States. (2021). Contract Farming Resource Centre. Retrieved March 24, 2025, https://www.fao.org/in-action/contract-farming/training-and-learning-center/learning-resources/en/
Goeringer, P. (2013, January). Agricultural Leasing in Maryland. Agriculture Law Education Initiative. Retrieved March 24, 2025, http://umaglaw.org/publications-library/agricultural-leasing-in-maryland/
Hannum, E. (2017, September 29). Inspirations for Creating a Long-Term Agricultural Lease for Agroforestry: A Workbook. Retrieved March 21, 2025, https://www.fs.usda.gov/nac/assets/documents/morepublications/longterm-lease-workbookbook.pdf
Marsh, P. D. V. (2001). Contract negotiation handbook. Gower.
Risk in Agriculture. USDA ERS. (2020, June 30). Retrieved March 25, 2024, https://www.ers.usda.gov/topics/farm-practices-management/risk-management/risk-in-agriculture
Creative leasing - Farmland Access Legal Toolkit. (n.d.) Retrieved March 24, 2025, https://farmlandaccess.org/creative-leasing/
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