Restrictions on the property
Any restrictions on the property should be considered, such as:
- use of herbicides, fertilisers and other chemicals
- types of crops that can be grown
- buildings or other infrastructure not part of the agreement
- grazing of animals (for example stocking rate)
- type of livestock that can be brought onto the property
- the quality of supplementary feed to be brought onto the property (in relation to weed seeds).
Other details may include:
- option for lessee to appoint a local person to have access to the property to monitor the stock if they are unable to do it themselves
- description on how the property shall be returned at the conclusion of the lease (for example the condition of the pasture on the property or any improvements that need to be made)
- a dispute resolution process in case of a disagreement.
A default on the lease can occur when either party fails to adhere to the terms of the lease.
A default may include:
- late rental payment or failure to pay utility bills
- use of chemicals or products that are deemed to be restricted on the property
- equipment not used or repaired as agreed
- overstocking of paddocks
- activities taking place that were not agreed to in the contract.
The lease contract should clearly define a plan of action in the event of a default and determine the consequence.
This may include compensation to either party, agreed replacement of damaged equipment or property, or termination of the agreement.
Leasing at a glance
A few key points about leasing:
- legal advice should be sought when drawing up a lease agreement
- consider the cost and length of the lease
- leasing land makes more efficient use of labour, land and capital for both parties
- landowners can retain ownership of land and still earn an income from it without all the hard work
- farming business can be expanded and/or diversified
- use of leased land needs to be considered by both parties — will it be for grazing, cropping, use of chemicals, machinery, weed control and other considerations.
What happens when the lease expires?
The lease agreement can also state each party’s intentions once the lease expires.
At the conclusion of the lease, the lease can be renegotiated and a new agreement drawn up to specify the new terms and conditions. This must still occur even if all details remain the same.
A first option to buy the leased land after the term has concluded can also be written into the agreement. An already agreed price is generally stated in the contract along with a note that the lessee has the first right to buy, but no obligation.
The agreement should clearly state whether or not the rent paid during the term of the lease is to be deducted from the overall purchase price.
Leasing land can be a great way to get into agriculture or expand your existing business without the high capital cost of purchasing land. For the landowner, it can also provide a steady income from land they are not currently farming.
However, before you enter into any agreement, legal advice should be sought to help determine each parties' responsibilities and in drawing up the final lease agreement.