Leasing and Alternative Tenure

There are numerous tenure options available to new farmers. Farmers do not necessarily need to own or hold title to farmland into order to farm it.

Contents:

  • Lease Arrangements – Overview
    • Questions To Ask Before Crafting a Lease Agreement
    • Short term leases
    • Long term leases
    • Determining the Right Rental Rate
  • Other forms of alternative tenure
    • Community land trusts/ground leases
    • Cooperative ownership
    • Incubator Farms

Lease Arrangements

Leasing land is the most common option for non-ownership tenure, allowing farmers to gain legal access to land for a time period agreeable to both land owner and farmer. Leasing allows beginning farmers without credit histories or financing to get onto the land with very little start-up capital. Depending on the situation, the land owner might not even charge money for the land rental. The farmer’s services alone, such as keeping fields hayed and manageable are sometimes benefit enough for the land owner. In some cases the farmer and land owner create a bartering arrangement. For instance, the farmer provides food in return for use of the land owner’s land. Lease agreements where the farmer pays cash for rent are common. In these cases, the rent amount can be a tax-deductable business expense for the farmer.

If certain criteria are met, leasing land can also allow the land owner to obtain considerable tax benefits by enrolling land in Vermont’s Use Value and Appraisal (Current Use) Program. As of 2007, about 23% of farmland in Vermont was leased. An annual “hand-shake” or oral lease is common, although these arrangements can leave both the farmer and the landowner vulnerable if disputes arise. Written leases are also often necessary for either the farmer or land owner for certain services or state programs.

Questions to Ask Before Crafting a Lease Agreement (PDF)

This two-page bulletin offers helpful questions and ideas for beginning farmers to consider before crafting a lease. It will help you think through what you need and want in the agreement to make sure it works for your farm operation.

Short Term Lease
Leases from a one to five-year duration are by far the most common alternative tenure arrangements found in Vermont. Most of these agreements are purely verbal, and often don’t last for more than a growing season. The short duration allows both the farmer and the land owner to frequently modify the terms of their agreement if changes are needed. Short term leases allow land owners to take on minimal risk and avoid some of the more far-reaching changes that might accompany a long term stay. Some farmers favor short term leases because they allow for the most experimentation with the least level of commitment. On the other hand, short term tenure does not give the farmer the assurance that they will see an economic return on investments in farm infrastructure or soil fertility. In cases where the land owner is also looking for long term stewardship of the land, short term arrangements might not live up to expectations.

Long Term Lease
Lease agreements with durations of longer than five years are considered long term. Organic farmers or farmers whose operations depend on gradually building soil fertility, pasture quality, infrastructure, perennial plantings, or local markets benefit most from long term leases. Long term leases can offer the farmer significant flexibility in planning and modifying their enterprises. They are far more complex than short term leases. Both land owner and farmer need to spend time to determine their needs and acceptable terms. It is in the best interest of all parties to seek legal counseling from a lawyer familiar with long-term lease requirements.

Determining the Right Farm Rental Rate (PDF)

This 2014 guide is designed to help farmers and landowners determine a fair cash rental rate for farmland, equipment and infrastructure.

Other Forms of Alternative Tenure

Community Land Trusts or Ground Leases
Community Land Trusts (CLTs) have traditionally operated in urban and suburban areas to increase access to affordable housing. The Trust typically owns the land, while the housing and improvements such as barns and greenhouses are owned by its occupants. In some cases in the Northeast, CLTs own farmland and lease it to farmers for renewable 99-year terms. This mimics land ownership in the sense that the farmers can take advantage of long term improvements and the ability to pass tenure down to future generations when the lease provides for family succession. Farmers can build equity in the housing and infrastructure they own. CLT arrangements often have formulas that determine the resale value of the housing and improvements in a way that will allow for the farming opportunities to be kept affordable to future generations. The CLT model has the potential to be an excellent strategy for ensuring long term affordability and accessibility of farmland for Vermont’s beginning farmers.

Cooperative Ownership
Cooperative ownership of farmland is where members own shares in the property.. Forming a legal Cooperative might represent a feasible strategy for beginning farmers to pool resources and purchase farmland. Vermont law regulates how cooperatives can be established, and details related to land tenure and stewardship can be specified when creating the cooperative’s by-laws that are submitted to the state. In some cases, another cooperative, such as a food co-op might own the land and lease the land to farmers.

Incubator Farms
Incubator farm programs are typically run by non-profits, universities, or other organizations supporting farm start-ups. Beginning farmers can secure short-term tenure by leasing land owned or managed by the incubator program. The lease terms range depending on the specific program. Incubator programs enable beginning farmers to “jump start” their enterprise with access to land; but also often offer shared access to processing infrastructure, equipment, water, marketing channels, and other technical assistance related to production and marketing. Once operations mature, farmers are expected to move out of the incubator program and re-establish elsewhere. The Intervale Center’sFarms Program in Burlington, VT is a nationally known incubator program. It currently serves as a successful model for many other programs currently being developed in Vermont and around the country.