Debra Elias, Minnesota Institute for Sustainable Agriculture
The information presented in this fact sheet is not intended to take the place of professional legal advice. In developing any written lease agreement, it is highly recommended that all parties seek professional legal advice.
The Conservation Reserve Program (CRP) has helped improve soil and water quality and enhance wildlife habitat throughout Minnesota. Many owners of CRP land will want to maintain these conservation benefits after their CRP contracts expire. Their reasons might include stewardship values, long-term land productivity and value, and government program requirements. But if owners rent their post-CRP land to another operator, how can they ensure the maintenance of conservation benefits?
Several federal conservation programs besides CRP were established or reauthorized in the 1996 farm bill, including the Wetlands Reserve Program, Environmental Quality Incentives Program, and Wildlife Habitat Incentives Program. State programs include the Reinvest in Minnesota Reserve and Minnesota River Conservation Reserve Enhancement Program. All provide incentives to establish conservation practices on eligible agricultural lands. See resources for information.
Maintaining conservation benefits on leased CRP land will be easier if the landowner has defined his or her conservation goals. Ideally, the landowner’s goals should fit into a comprehensive, long-term conservation plan. A professionally designed plan can help establish conservation goals. Examples of professionally designed plans include the Natural Resources Conservation Service (NRCS) plans required for participation in federal farm programs and various whole farm planning approaches (see Other Resources #7). NRCS works with landowners free of charge (see Other Resources #6). Landowners do not have to participate in federal farm programs to receive assistance.
There are at least three approaches to maintaining conservation goals on leased agricultural land. These can be used alone or in combination. The owner can specify the land use, utilize lease types that create greater incentives for conservation, or use land use provisions. Some approaches are restriction-based; others are incentive-based. While it’s important to meet conservation goals, leases should not be needlessly restrictive for tenants.
Landowners can determine the best use of the land and then lease the land for that use only. For example, steep, erosion-prone land generally is more suitable for pasture or hay than for row crops. Some lands may be well-suited for non-agricultural uses such as recreation or wind development. (See Controlled Grazing, Recreational Leases, and other information sheets in this series for ideas on post-CRP land uses.)
Landowners should ask themselves several questions to help decide on the land use that will best meet their conservation goals.
Landowners should carefully select the type and duration of the lease to maximize the tenant’s incentives for conservation and encourage desirable management practices. The type of lease agreement used can create incentives or disincentives for the tenant to carry out conservation practices. For example, under a fixed cash lease, the tenant bears all production risks but benefits from any increased production. This could encourage the tenant to use more fertilizers, pesticides, or tillage than in flexible cash, crop share, or livestock share leases which distribute risks and returns between the tenant and landowner. (For a description of these lease types, see Selecting a Lease Type in this series.)
The duration of the lease also is an issue. If the lease is for one year (as many fixed cash leases are), the tenant is unable to employ any type of crop rotation. The tenant also has few incentives to maintain soil and water quality since he or she won’t reap the benefits. Leases of longer duration, such as three to five years, can encourage the use of crop rotations and other conservation practices since the tenant may benefit from them. Even with a one-year fixed cash lease, a tenant who wants to renew the lease will be inclined to conserve natural resources if he or she understands that the landowner places a high value on conservation.
Meeting conservation goals may restrict the tenant’s management options. The tenant’s risks will increase if the methods he or she can use to respond to weather, pests, and other circumstances are limited. This may result in lower yields or higher production costs. Therefore, landowners should make the lease agreement equitable so that the costs and risks associated with required conservation practices are not borne entirely by the tenant. This could be done by lowering the cash rental rate or selecting a type of lease that distributes risk equally between the landowner and tenant. Flexible cash, crop share, and livestock share leases divide both the yield risk and the production-cost risk between the landowner and tenant. Percentage share leases for crops and share of the gain leases for livestock distribute yield risk, but not production-cost risk, between the landowner and tenant. (For an explanation of yield risk and production-cost risk and a comparison of who bears these risks under different lease types, see Basic Considerations for Leasing Post-CRP Land in this series.)
A written legal agreement is critical to protect the interests of both the landowner and the tenant. However, ongoing communication between the landowner and tenant ultimately ensures good stewardship on the land.
Land use provisions are clauses that require or prohibit specific agricultural practices on a parcel of leased land. Whether to add provisions into the body of a new lease document or attach them as supplements to an existing lease is a legal decision.
Objectives for Land Use Provisions Land use provisions can meet at least three different conservation objectives. The provisions may be used singly or together in any combination.
Sample Language for Land Use Provisions The following are examples of land use provisions that could be incorporated into a lease agreement or added as a supplement. They are adapted from the brochure Stewardship on Rented Farmland (see Other Resources #1).
Barbara Weisman, Conservation Program Specialistbarbara.firstname.lastname@example.org or 1-800-967-2474Ag Marketing & Development Division