Understand the benefits of long-term land leases
Long-term land leases have both positives and negatives for landlords and renters, experts say, and it's important all parties know the possibilities before reaching an agreement.
Eric Dalke, a lawyer with MLT Aikins in Calgary, Alta., and Dean Dyck, retired farm business management specialist, offer these top three tips for creating a successful long-term land lease relationship.
1. Have a written agreement
Dalke says he still sees many oral agreements made over a handshake. There are too many details left unclear in this kind of an arrangement, he says.
"If you have an oral arrangement, or an arrangement that isn’t clear as to when the start or end date is, you run into the risk of not having certainty between the parties," Dalke says. "There is an increased risk of litigation. There’s increased risk of arguing on things like, 'do I have a lease next year or not and what are the terms?' " Dalke says.
2. Provision to exit lease
Having a termination clause is imperative to allow both the renter and landlord the option to get out of the lease if the relationship goes awry, or if circumstances change.
Dyck says a termination clause helps make it easier for both parties to part ways.
“If you are just not happy with the renter or what he or she is doing, then you can get out of it,” Dyck says.
He says the same goes for a renter who feels a landlord is making too many decisions about the use of property or the rental fee.
Dalke recommends the termination agreement including a notice provision, which sets out the exact amount of time either party must give to the other before exiting the lease.
3. Property upkeep
One advantage for the landlord of having a long-term lease is the incentive on the part of the renter to have good soil management practices. They have the land for the long-haul, Dalke says, noting a typical long-term lease is around five years.
“They have that certainty of term; they have the certainty of the rental rate; they know their expenses and because perhaps they want to keep the land on a renewal basis or they know they are there for the long-haul, they have the incentive to undertake good management practices, fix the fences, that kind of thing," Dalke says.
He adds if it’s a short-term lease, the incentive may be lacking on both sides to have a good working relationship and on the lessee side to do proper management practices.
Dyck adds communication is key.
“For both the landlord and the renter, you can set up a proper rotation and do the best management practices to keep the soil healthy and preserve long term productivity of the land.”
Bottom line
Experts stress the importance of a written agreement in long-term land lease agreements, detailing rental costs, length of lease, land upkeep expectations and a termination clause.
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