The leasing of land is defined as a financial agreement where the land is rented for an extended period of time.
Leasing land can provide a steady return to a landowner without them having to do the actual farming. This may be valuable when the majority of your income and commitments require you to be away from the property.
Leasing can also allow a person to get into farming or expand their existing business without the high capital costs of land ownership.
Length of the lease
The length of a lease can vary from a couple of months to several years. Longer leases can pose additional risks for both the landowner and the lessee (the person leasing the land).
For instance, if the price of land increases during the period of the lease, the landowner can miss out on potential income, or if the lessee has a poor season then the rental price may be too high.
Cost of the lease
The rental price depends on many factors including the location of the property, carrying capacity of the land, soil type and available water.
Before setting the rental price, it is a good idea to research past prices, seasons and yields and to draw up a budget to determine a fair price for both parties involved.
An economic valuation, which places a price on the pre-determined return and productivity of the land, can also be sought to help decide the lease price.
For the lessee, rent expenses are fully tax deductible. For the lessor, any rent received is not considered as primary production income for the reason of income averaging for tax purposes.
What to consider
When entering into a lease there are a number of things that both landowners and lessees will commonly provide.
For the landowner this comprises the land, buildings and fences; the payment of council rates and insurance on fixed assets. Alternatively, tenants will usually provide the labour, machinery and livestock, the operating costs, repairs and maintenance on fixed assets and the insurance for their machinery.
Tenants will also bear the responsibility for any accidents associated with their farming operations.
When determining the terms of the lease and the responsibilities of each party, legal advice should be sought. Below is some of the information that should be included.
Expenses that should be considered include:
- price to be paid per hectare per year
- payment methods
- plan if rental fees are not paid on time
- legal advice (if sought).
Responsibilities that should be considered include:
- paying power, water, gas, telephone and other utilities associated with the leased land
- maintenance of fences and watering facilities, including the supply of labour and materials
- weed control
- livestock monitoring (for example supplementary feeding and provision of clean water, and checking for wandering stock) and animal husbandry activities (e.g. drenching)
- unloading and loading of stock.