What to keep in mind with flexible lease arrangements

As you may know, flexible leases are gaining in popularity.  Flexible leases are just that — more flexible than your straightforward cash or share lease.  There are various iterations of the flexible lease, from a bushel rental to bonus provisions based upon price and/or yield but regardless, there are a few more moving parts in these leases.  What does that mean?

First, like all leases, the lease must comply with the statute of frauds.  You also need a meeting of the minds. All the essential elements of a lease must be present.  That means while the rental price is not determined until after the growing season, a formula or method to determine the price must be in the lease contract to satisfy the essential elements.  But what else?

Make sure you understand how the numbers work in the lease.  Run various scenarios to truly understand the implications of the rental price.  Also explore any impact, positive or negative, on the use of government programs.  For example, you’ll want to ensure whether there are any USDA payment limitation implications from the lease.

Specifically from a landowner perspective, other considerations include whether the lease will subject you to income tax complications.  For example, will you be able to defer income for a year?  Will you be subject to self employment tax?  Alternatively, do you need to build a base for Social Security payments?

If you are a beginning farmer in Nebraska, we’re happy to discuss any flexible lease arrangement you may have in mind and the potential issues that may arise.  Feel free to contact us at any time!

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