How Safe Is Your Base?

July 6, 2011 06:17 AM

Q:  I have been reading your column on a regular basis, and I think you may be missing a serious issue. We rent ground from several landlords. Most of the farms we rent are small, but a few of them are quite large. It could destroy our operation if we were to lose a lease on a large tract. All of our operational plans, equipment purchases, etc., are based on our current size.

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Though I understand the need for a succession plan, I’m more concerned with the long-term instability of our operation, due to the number of landlords we work with.

Most of the current owners are farmers who are now retired. They understand farming and speak the same language that we do. I’m concerned about the next generation. Many of our landlords’ children don’t live in the area, don’t have an interest in farming and don’t understand our business.

I feel like I’m in a no-win situation. If I encourage our landlords to do a succession plan, they may write a plan that leaves the land to a relative who may sell it and/or rent it to another farmer. If I don’t encourage them to do a succession plan, the same results might occur. What should I do?

A:  You are certainly not alone. We work with farmers who manage a range of landlord relationships—and we all know that those relationships can be tenuous at times. Please understand that succession planning is about protecting the operation. You must ensure the long-term stability of your base in order to pass a viable operation to the next generation.

Most landlords are committed to farming and are intensely interested in knowing that their farm will continue to be productive into the future. There is a lot of mutual benefit in establishing a long-term lease, a buy-sell agreement, an option to purchase and a funding mechanism for the purchase. This will prepare you and the landlord and his progeny for the future.

Your landlord wants:

  • financial security and a monetary return from the land;
  • good stewards who will care for the land as if it is their own; and
  • satisfaction from a good working relationship with a farmer tenant.

You want:

  • financial security and assurance that the land will be available at a fair price;
  • well-cared-for land that will yield the best returns; and
  • peace of mind that your base is safe and your operation can grow.

Work together. You and your landlords should act as a strategic alliance in your farm operation—with each partner fully committed to the health and welfare of the entire farm operation.

I recommend you start a conversation with each landlord regarding your concerns. Let each of them know you understand and care about their interests. Share your plans for the future and, yes, talk about your succession plans. Introduce the concept of succession to your landlords by using your own efforts as an example. Be mindful that your landlords are not nearly as interested in what you say as they are in what you’re doing.

Building a business and achieving continuous growth are constant challenges. Landlords may expect more information about your operation. They will appreciate regular meetings to discuss your plans, support your efforts and celebrate your successes.

To achieve this level of communication, many farmers publish a newsletter to keep their landlords informed, invite them to drop by the farm and host an appreciation supper or BBQ after harvest.

The only way to address your concerns about the stability of your landlord relationships is by taking action. Don’t wait for them to broach the subject; it may be too late. Use these questions to start the conversation:

  1. Do you already have a succession plan in place?
  2. If you do, does it keep your land in farming for the long term?
  3. Do you want your farm to remain in agriculture?
  4. Are you willing to discuss long-term options for your land and future opportunities to enhance your family’s financial security?
  5. Can we negotiate a buy-sell arrangement that may better stabilize my farming base and offer both of our families viable business options for the future?
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