What to consider in a rural land lease

August 1, 2023



green lush paddocks with hills and forest in the background with a blue and cloudy sky

Rural land leases are legally binding agreements between landowners and tenants that allow the tenants to use the land for agricultural purposes, such as grazing, cropping, or horticulture, in exchange for rent or other forms of compensation. Rural land leases can vary in terms of duration, terms, and conditions, depending on the needs and preferences of the parties involved.

Leasing can be beneficial to both the landowner and the tenant. It provides an opportunity for young farmers to build an asset base without the initial cost of land purchase and can enable the retiring farmer to continue to own the land and create income for retirement.

If you are considering a land lease some of the benefits are:

As landowner:

• You can generate income from your land without having to manage or operate the farm yourself.

• You can retain ownership and control of the land and its future use, subject to the lease agreement.

• You can benefit from capital appreciation of the land over time.

• You can reduce your exposure to market and environmental risks associated with farming.

As tenant:

• You can access and use high-quality agricultural land without having to purchase or finance it.

• You can expand or diversify your farming operations without increasing your debt or equity.

• You can benefit from economies of scale and operational efficiencies by leasing multiple properties.

• You can avoid some of the costs and responsibilities of owning land, such as rates, insurance, maintenance, and compliance.

If you’ve decided a land lease is the way to go then the next step is to research the market and the property, including the land value, rental rates, productivity, profitability, and potential risks and opportunities. Don’t rush in to negotiating without doing this preparation.

Consult with professional advisors such as lawyers, accountants, valuers, agronomists, or consultants who can provide expert guidance and assistance on legal, financial, technical, or operational matters.

Negotiate fairly and reasonably, considering the interests and needs of both parties, and seeking to create a win-win situation that is sustainable and mutually beneficial. Both parties need to trust each other.

Document the lease agreement in writing, covering all the essential terms and conditions, and ensuring that it is clear, accurate, complete, and enforceable. Terms to consider include:

• What is intended to be the permitted use for the land?

• Can there be animals – if so, what type(s)?

• Can the land be used for cropping?

• Are there any restrictions as to what type of crop the land is used for?

• Will the intended use affect the soil quality for future use?

• What will the landowner pay for versus what will the tenant pay for?

• Which party is responsible for electricity, rates, water charges, insurances?

• Who will pay for weed control, fence repair, gate repair, fertilizer?

• Will there be a rent review process?

• Will the tenant be able to sublet the land or part of it?

• At the expiry of the lease, in what state does the tenant have to return the land to the landlord?

It is extremely important that the terms of the lease are well thought through before the lease is signed as grey areas or issues that are not covered could lead to disputes as the lease progresses. Make sure you fully understand all terms and conditions.

Review the lease agreement periodically, monitoring its performance and compliance, and making adjustments or amendments as necessary to reflect changing circumstances or expectations.

Before you sign the lease, we recommend that you consult us for legal advice, whether you are a tenant or a landowner. This will help you ensure that the lease meets the needs and expectations of both parties, clarifies the timing, and terms of use of the land, and avoids any potential disputes.