However, often there is a cash lease price floor that the landowner is guaranteed. Other types of flexible cash rental arrangements include flexing only price or yield or flexing both. Also, producers have found in certain situations leasing machinery and equipment from dealers can be cheaper than purchasing. Additionally, machinery and equipment leasing arrangements can be between renters and owners to allow the renter to avoid paying full value and the owner to generate revenue to cover the ownership costs. Renters need to compare the size, condition, obsolescence, use, location and lease cost of the capital good versus the cost of purchasing the capital good outright.
Owners are primarily interested in recovering ownership costs.
The lease price should equal the amount needed to cover ownership costs and variable costs, such as upkeep costs incurred from renting the capital good. Both renters and owners should consider current value, depreciation, interest, insurance and taxes, inflation, repairs and maintenance when agreeing on a lease value. Normally, conservation and other improved farming practices require additional labor and expenditures. Give important consideration to questions such as who contributes the labor and cost of implementing the practice and how these contributions affect income for both tenant and landowner. In many instances, tenants provide equipment that legally becomes permanent fixtures on the farm.