A rural lease (“lease”) is a legally binding document which governs the relationship between the landlord and the tenant for the use of rural land.
Often rural leases are entered into as a gentleman’s agreement with a handshake to seal the deal. This works fine until something goes wrong and/or there is a disagreement between the landlord and the tenant. It is always best to put in place a written lease when both parties are on good terms, rather than needing to in the middle of a dispute.
Leases can be beneficial for both the landlord and the tenant. The landlord benefits by receiving regular payments for the use of their land and maintains the capital gains during the length of the lease. If a farmer is considering selling their land to retire, leasing is an alternative which creates income and enables the farmer to continue owning the land. With the cost of land becoming prohibitive for many young farmers, leasing provides the opportunity to build an asset base without the initial cost of land purchase.
The minimum requirements that need to be stated in a lease are; the terms of the lease, the area which is to be leased and the rent amount. Other terms can be added in to reflect the unique situation between the parties.
Some terms which are worth thinking about are; the permitted use, what the Landlord pays for, what the Tenant pays for, Rent review, Subletting and Cropping.
The landowner may only want certain farming activities to take place on their land. This is because certain activities could negatively affect the land for future use. It needs to be clearly stated which animals are allowed on the land. Often rural leases prohibit pigs, due to the mess they can make of paddocks. The landlord may also want to specify the grazing rotation and fertiliser requirements to ensure that the land is not degraded during the lease.
What the Landlord and Tenant pay for
It is good to specify in the lease who is paying for what, such as the electricity, rates, water charges, insurances etc. With farmland, it should also be specified in the lease, who is in charge of the weed control, fence repair, gate repair and fertilisation.
This can be an area where disagreements occur quite frequently between the landlord and the tenant. The lease should specify when and how the rent reviews will be handled and the right to renewal. Having this set out in the lease from the beginning will allow the landlord and the tenant to avoid disagreements and maintain a good relationship.
The usual kind of rent review is market rental reviews. It is best to include in the lease what factors can and can’t be taken into account when calculating the market rent. For example the parties may wish to exclude tenant improvements from the calculation, so that tenants aren't penalised by higher rent for improving the premises. There also needs to be a workable process for any dispute over the market rent value.
It is common to require the tenant to obtain the landlord's consent prior to subletting the property or for the landlord to prohibit subletting. This will need to be agreed in the lease.
The landlord may want to include restrictions as to what type of crop the land is used for. As well specifying the required condition of the land at the expiry of the lease. For example the landlord may specify a certain amount of grass and/or the number of hay bales required at the end of the lease. Depending on when the lease ends, it may be necessary to include terms regarding the autumn saved pasture, this would ensure the tenant refrains from graze a certain amount of land in preparation for autumn.
There should be careful consideration and thought to make sure that the land is adequately protected during the duration of the lease and will be returned in an acceptable state after the lease expires.
We strongly advise that legal advice is sought prior to signing the lease, whether you are the landlord or the tenant. This is to make sure that the lease is a reflection of what both parties require.