Southern Virginia Land Lease Survey
Farm Business Management Update, February 2008 - March 2008
Eric Eberly (firstname.lastname@example.org), Extension Agent, Farm Business Management Agent, Central District
Southern Virginia farmers were mailed a land lease survey in the fall of 2007 and the results were summarized by Extension's Central District Farm Business Management agent, Eric Eberly. A total of 186 landowners and tenants representing 386 separate lease agreements responded to the survey from 21 counties. There were more landlord respondents than tenants with 61.7% landowners and 38.3% tenants. Several respondents indicated that they were both a landlord and a tenant.
This information is not intended to be a specific recommendation for rental rates but should be used by landowners and tenants as a reference point in determining the fair market rental value for land. Farmers, agricultural lenders, and others can use this information in developing budgets and the viability of expansions. This information is also useful for estate management during a farm transition in conjunction with Section 2032A of the IRS code, which requires knowledge of lease rates.
Terms of leases vary greatly from contract to contract: 27.1 percent of those answering the survey said that their lease agreements were written documents, while 72.9 percent said that their leases were oral. In many situations, individuals had both oral and written lease agreements. Of the 84 written leases, 33 were for longer than one year ranging from two to ten years. Two-thirds of these contracts were for five years.
The Table 1 summarizes results of the 2007 survey. It provides the average rental rate and length of lease for use of land. However, averages tell only part of the story. Knowing the range in lease rates and length of the lease that has been negotiated is valuable. These data are also available from Table 1.
Averages are reported by Planning District and Southern Virginia. All averages are weighted averages, meaning that larger tracts of land rented at a given rate have more influence on the overall average rate than a small parcel of land. Rental rates are reported for the following categories: Pasture per acre; Good Cropland and Average Cropland as determined by soil productivity groupings and farmer management in a typical year (Good Cropland = Class 1 & Class 2 and Average Cropland = Class 3 and Class 4 land - these categories also include hay land); and Whole Farm leases.
The reliability of the average figures reported increases as the number of responses increase. Table 1 show the number of responses providing data for a specific category. To maintain the confidentiality of the survey, no data were reported for a District unless at least three lease agreements were reported.
Within the rental category, the very high rental rates were generally for adjoining parcels of land, and the very low rental rates often had other circumstances involved, such as the desire by landowner to maintain Land Use Valuation on the parcel or a family relationship between landowner and tenant. There were also what appeared to be unique circumstances for a parcel of land that met very specific needs of the tenant.
Barter agreements are complex and difficult to compile as an average and range because each barter situation is different. Past surveys have indicated that a notable number of leases use barter. Though difficult to determine averages because of their complexity, most barter rentals involved hay and pasture on small acreages. Generally, the tenant has to keep the farm in good working order by maintaining fences and soil fertility. The tenant is compensated by keeping at least two-thirds if not all of the hay that is cut. There were no 50:50 splits on hay land, which was a common practice in the 1990’s. There were only a few arrangements where the landlord provided herbicides and fence building materials. The two primary reasons given for participating in a barter agreement were to keep the land maintained in a productive state and to be eligible for land-use taxation rates.
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