Negotiating cash rental rates and agreements are seldom fun or easy conversations. But having these discussions with trade uncertainty and volatile markets as backdrops make them even more difficult.
How you communicate with your landlords is critical to the big picture. A strained or nonexistent relationship could reduce your chances of keeping land, negotiating lower rent or getting buy-in for land improvements.
“In a recent survey, we learned landowners care more about experience and reputation of a farmer than a rent payment,” says Mykel Taylor with Kansas State University. “Financial was the last concern. These results are almost opposite of what most farmers assume.”
As you talk with landlords, use these tips to enhance communication, approach a tough conversation and put yourself in their shoes.
1. Cater to landlord expectations. “Listen first and be responsive to what is important to the landowner,” says Doug Hensley, president of Hertz Real Estate Services.
When you understand what the landowner cares about and expects, you can meet their needs.
“You want to be cognizant of how much interaction each landlord wants,” Taylor adds. When you sign a contract, ask the landlord how often he or she expects communication and in what form—letters, phone calls, texts with pictures, etc.
“The average landowner is in their 70s, so their communication preferences might be different than a farmer in their 30s,” he says.
Some farmers create a calendar, so they send something to their landlords every four to six weeks, adds Mark Faust, business consultant and columnist for AgPro.
The “something” could be a newsletter, calendar with pictures of their farm or gift cards. “Those things make a big difference,” he says.
Customize your communication with each landlord, if possible. Find a way for each landlord to feel included in what’s happening on his or her land, which only improves your reputation in their mind.
“The more a farm operator makes things personal the more successful they’ll be long term,” Hensley says.
However, if yaou have a large number of landlords it might be hard to cater your approach individually—so get creative.
2. Prep multiple options to manage tough conversations. If you hope to reduce your rental rate or share costs for an improvement, your landlord needs to understand the big picture. You don’t have to reveal every financial detail, but you can share those that help inform your landlord.
“Show the correlation between cash rent and expected revenue. Show how prices have dropped over the past three years and how that means revenue has dropped,” Taylor says. “That’s the info to share that will help you negotiate.”
Be honest in the good—and the bad—years. When profit opportunities are more likely, she suggests negotiating for a higher, but fair, rent. Then, when prices are low, your landlord might be more willing to come down on price.
“I also think it helps to adjust leases year by year,” Taylor says. It protects the tenant and the landowner in case of major price shifts.
Knowing the conversation will likely be tough, present multiple options to negotiate with your landlord. It’s also helpful to have a specific price and agreement in mind.
It’s not adequate to just want to “move the needle” on a price, Faust says. Write down your ideal agreement and then work backward.
“Negotiations are not a zero-sum game,” he adds. “It’s not about splitting the pie, it’s about expanding the pie.”
3. Think like a landlord. “Most of the time we only think about ourselves in negotiations,” Faust says.
Instead, think through the agreement from your landlord’s perspective. What are his or her soft and hard costs if you change lease terms or don’t come to an agreement? What questions will your landlord have? What are his or her goals and objectives for their land?
Through this process, you can create options for each landlord, such as a different rental rate, type of lease or contributions to field maintenance.
“Landlords want to be proud of their farm,” says Jeff Troendle, president of Hertz Farm Management. “Their objectives aren’t always monetary. Some are more concerned about conservation, for example.”
Land is an investment and income source for landowners. They want to make sure it’s well cared for and will continue to provide for their families. Help them understand your efforts and why those efforts benefit them.
“Anytime you have a reason to meet an owner or have them ride with you in the combine or planter—do it,” Troendle says. “It gives you the opportunity to talk openly in an environment that is low pressure.”
Plan on Multiple Meetings
Before you sit down to talk to landlords in the days and weeks ahead, block out time to prepare and think through each conversation.
“Negotiations are the most valuable per-hour work you ever do in your life,” says Mark Faust, business consultant and columnist for AgPro. “Map out on a calendar how and when you’ll meet with each landlord.” Start with the discussions that might take the longest.
“There’s a false belief a negotiation must be completed before you leave,” Faust says. “It’s better to slow it down and space out the conversation to make sure it’s a win-win for both parties.”
For example, at the first meeting with your landlord, present an overview of the previous year and your expectations for the upcoming year. Paint your profitability picture, even if it’s pretty bleak.
“Show a business case for how they are mitigating unprofitability and market volatility,” Faust says.
After the initial meeting, schedule another time to actually decide on the rental rate. “In two or three conversations, you can refine and zero in on what you want to agree to, without rushing it,” he says.
Also, never negotiate alone, Faust advises. Maximize your family or team’s talent to increase your odds of success.
For more news and resources on how to negotiate cash rent prices, visit AgWeb.com/farmland