94 Ontario Ag Real Estate Better Farming | October 2024 It’s likely that most, if not all, farmers will rent some amount of land during their farming career. And while the road from A to Z with a farmland rental agreement is never the same, there are still some bedrock principles all farmers should understand. Price: Calculate productive value Craig Klemmer, Director, Portfolio Risk Management at FCC, explains that productive value is the revenue potential of the land if you were farming it yourself. To calculate productive value: Look at your past production. When the land worth is known, market rent can be calculated. Price: Determine asset value Asset value is the production potential, as well as local demand and the number of operators looking to rent. As the landowner, you can determine asset value by considering the willingness in the community to pay for land and factors such as: Return on investment (estimated appreciation of the asset over time) Gains from maximizing equipment usage and owning property as part of a larger contiguous block of land Other possible revenue sources the land may represent, such as infrastructure rental property The incalculable, like sentimental value of multi-generational property The price: Establish your objectives Landowners should know their objectives when renting out their land. These may include: Maximizing returns Finding a long-term renter Input into a renter’s operations Supporting the transition to the next generation Klemmer says renting for only the sake of making money comes with potential risks. Agreement: Open communication As you begin your land rental agreement with a renter, the more information, the better when it comes to clear communication and understanding expectations. If you want to know what crops are being produced and want crop updates, include those details — and any others — in the rental agreement, says J.P. Gervais, FCC Vice-President and Chief Economist. Agreement: Stewardship plans Stewardship is paramount to maintaining the value of any property, be it land or a home. A negligent landowner may discover renter damage, resulting in costly fixes and losses. Working stewardship into the rental agreement can help avoid any potential damage, Klemmer says. “Potential impacts of a bad renter are destruction or degradation of land improvements such as tillage, irrigation equipment, or other facilities, like bins, barns and sheds,” says Klemmer. Agreement: Type of contract Now that you and a renter have agreed to work together, it’s time to sign a contract. While split revenues and expenses are an option, the most common type of contract is a cash contract at a pre-set price. Land quality and land use will be the primary drivers in setting rates. Agreement: Get it in writing Think of a written contract as a business risk management tool. There are no surprises when everything is written down. Verbal contracts leave everything open and could be trouble. BF REAL ESTATE WANT TO RENT YOUR FARMLAND? How to set the best rental price & agreement. Based on an FCC release, By Richard Kamchen
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