Producers may also want to try to get a reduced rental rate during times of low commodity prices. These issues and various rent structures are discussed in this fact sheet. The type of land rental or lease agreement utilized by a landlord and tenant is usually a function of the amount of risk and level of management sought by each party. As risk to either party decreases the corresponding degree of management required also decreases. Figure 1 shows, in diagram form, the concept of risk and management associated with a given type of lease agreement.
Most landlords desire minimum risk and minimum management involvement.
This desire is accomplished through a cash rental lease agreement. As shown in the diagram, if the tenant pays cash for leasing land, he or she accepts all the risk along with complete management responsibility for the land and crop being produced. Conversely, the landlord accepts virtually no risk and no land management responsibility other than checking to see that the tenant is not violating the lease or damaging the land covered by the lease. As the landlord and tenant move from cash rent to flexible cash or crop share leases, the landlord accepts more risk and management responsibilities while the tenant accepts less risk and management responsibility. Landlords and tenants must factor into the development of a lease agreement, the degree of risk, and management responsibility they are willing to accept.