Renting Out Your Land

Wednesday, January 29, 2025

Know The Risks & The Potential Benefits

By Mary Loggan

Renting out your land to a farming tenant can have many benefits; however, being aware of the potential risks and making informed decisions about land management is essential.

What are the benefits?

Jaycee Adrian, farm management extension specialist and agriculture program specialist with the Government of Saskatchewan, says one of the most compelling reasons for renting out farmland is the potential for generating extra income.

“It is a guaranteed source of income, without having to farm the land yourself. This is a great option for farmers to still be involved in the industry, even though they may not be farming the land themselves.”

Darren Bond, farm management specialist with the Government of Manitoba says, “for farmers, the ability to receive an annual payment for land rent with an appreciating asset makes retaining ownership in the farmland an attractive scenario.”

Brenna Grant agrees, and adds an additional motive – it could be a good way to start reducing your own workload.

Grant, the executive director of Canfax, explains that “land ownership and farming are two separate businesses. Renting out farmland can provide a steady income stream without the need for active farming. Especially during years when personal circumstances or age make active farming less viable.”

She believes “it offers flexibility and can be a strategic move for those considering retirement or downsizing.

“For farmers looking to transition out of day-to-day operations, renting out land offers a way to remain connected to the industry while easing into retirement.”

Renting out farmland can also offer opportunities to advance succession planning.

Adrian says that “allowing for the gradual scaling down of land can help set up the next generation to inherit the land.

“This allows farmers to still maintain their legacy, while transitioning into retirement.”

Renting out your farmland can also help mitigate the risks associated with farming.

Adrian points out that “there are always risks with farming, especially when it comes to crop failure. By renting out farmland, you can avoid some of these risks while still gaining income.”

What are the risks?

Renting out farmland is not without its challenges, especially considering potential disputes between landlords and tenants.

Bond stresses the importance of clear communication. He points out there are always things that can go wrong when renting out land and says having all parties on the same page is essential.

“Farmers who rent out land want to be paid a fair price, paid on time, and know that their land is being looked after properly.”

Adrian agrees. “Payment issues are always a concern when renting out land; in some cases, different payment options are essential. Often payments can even be made twice a year to help minimize risk.”

Farmers also face a certain type of risk when renting to an outside party because they are no longer directly in charge of land maintenance.

Grant warns about that “loss of direct control.”

She explains that “tenants may have different management practices. Having clear communication up-front to understand what the renter plans can help with the transition.”

Land rental agreements come with various legal and financial implications as well.

Grant says that “there could be legal and financial challenges if the lease agreement isn’t well-structured. Poorly drafted lease agreements can lead to disputes over land use, maintenance responsibilities, or payment terms, potentially resulting in financial losses or legal conflicts.”

What are the best ways to minimize your risk?

When it comes to minimizing risk, one of the most important things to consider is finding the right tenant.

“Finding the right tenant to rent your land is the key to success. It’s essential to find someone you can create a good relationship with and share clear goals regarding land planning and stewardship,” says Adrian.

Grant agrees. “Select the right tenant. Finding one who shares your values and land stewardship goals is essential. Have a clear understanding of the land’s value and a well-defined objective for rental income. Clear and active communication ensures that both parties are on the same page.

“Building a strong relationship with the tenant and regularly monitoring the land is crucial. Maintain open communication and a positive relationship with your tenant. Regularly visit the property to see how it’s being managed.”

Effective communication between landlords and tenants is vital.

Bond adds that “long term relationships built on communication and trust will result in the most success when renting out farmland.”

Again, a clearly-written lease agreement is crucial.

“Having a clear understanding of the lease agreement can help minimize risk and keep everyone on the same page.

“It is important that both the landlord and tenant agree on stewardship practices and price before the agreement is signed,” says Adrian.

Renting out farmland can have many potential benefits for farmers. However, it is always important to consider risks. Adrian points out that this can be a balancing act.

“It is always important to consider market values and how the market can change.

“Perhaps you have a good tenant; however, what if they can’t afford the increased rent as the market alters?

“Balancing the changing market while keeping good tenants is an essential factor for farmers to consider.” BF