Agriculture and Farm Leases in Oklahoma

Oklahoma landowners frequently lease acreage to agricultural producers for agriculture, equine, livestock, farming, ranching, and crop production. Some landowners even lease to wind energy or telecommunications companies. While these land rental lease agreements can take many forms, a written lease agreement with carefully negotiated terms is important to protect both the landowner and the tenant. Whether a farm cash lease, flex lease, crop lease, crop share lease, or other type of agriculture-related leasing arrangement, it is essential to have the following terms negotiated and agreed between the parties.

Each landlord-tenant relationship is different and so is each property being leased. Despite their unique features, needs, and circumstances, all parties should address the following issues in every farm or agricultural lease situation:

Due Diligence

Landowners should carefully consider who to accept as a farm tenant. A bad tenant with a right to operate on your hard-earned property could mean soil degradation, building and facility dilapidation, or worse. Likewise, tenants should know the history of the leased land, quality of the soil, restrictions imposed by any superseding agreements or encumbrances, and all other relevant factors when deciding from whom and where to lease. Private parties may allow informal inspections of the land to be leased or may require a more formal letter of intent (LOI) in order to allow the tenant and their agents access for inspections.

All Leases Should Be In Writing

This point is fundamental, but it is nonetheless the most important. Without a written lease, tenants are subject to default state tenancy laws which leave many gaps in guidance and do not address the most troublesome issues associated with having a handshake agreement for farm leasing.

Should you be a party to an unwritten agricultural lease, you may have a limited opportunity to file a legal claim under the unwritten agreement under Oklahoma real property statutes or statute of fraud provisions. To ensure the landlord is entitled to certainty of payment and the tenant is entitled to protections for their efforts to cultivate and remain a profitable producer, each party should insist on their rights and obligations being defined in a carefully considered and negotiated written agreement.

The Leasing Parties / Who Has Rights in the Farm Land

As a general rule, most farm lease tenants should be leasing in the name of a company or legal entity, rather than their individual name. Oklahoma law affords strong protections to business owners who have registered their business entity with the state, and those protections vary by the type of entity, whether that is a corporation, limited liability company (LLC), limited liability partnership (LLP), cooperative (co-op), family trust, non-profit organization, or other unincorporated business structure. Tenants should avoid the legal liability involved with using their personal name in farm and ag leases wherever possible.

Residential Housing in Farm Leases

Another significant issue to be discussed and negotiated is whether any residential rights exist for the tenant. Can the tenant, or the tenant’s workers, live on any part of the property? If so, this will create a residential landlord-tenant relationship between the parties. Oklahoma has specific rules and statutes in the Oklahoma Residential Landlord and Tenant Act which would be triggered.

Duration or “Term” of the Lease

The lease should have very specific start and end dates, along with options for extension or renewal. The parties should also define what happens if or when they have the right to terminate the lease early, or under what conditions. For example, should the lease stay in place if the property owner transfers title to a third party?

Permitted and Prohibited Uses

Some property owners are particular about what types of operations they will allow on their agricultural zoned land. Your lease should define what kinds of farming will be allowed, what counts as agriculture operations, whether the tenant has the right to remove lumber from treed areas, and more. Can the tenant allow recreational uses by customers or make profit in non-ag operations? Is there a right to hunt on the property being granted to the tenant?

Ability to Publicly Record the Lease

Public land records are crucial to providing certainty of the status of a parcel’s title for landowners, lessees, possible future owners, and any other party who is interested in the land. One of the ways a farm lease tenant can ensure their rights are a matter of public record is through recording the lease, or a shortened memorandum of the terms of the lease, in the public land records. This step may not be essential or beneficial in all circumstances, especially if there is an existing mortgage on the land, among other considerations.

Miscellaneous Terms: Dispute Resolution, Insurance, Liability

Other miscellaneous terms are often included in ag leases to provide clarity between the parties. How should disputes be resolved; through mediation, arbitration, in court, etc.? Which parties will carry insurance coverage on the property, it’s operations, and how much should the coverage be? Who will be legally or financially liable for certain issues that may arise during the lease term?

Oklahoma Farm Lease and Ag Lease Lawyers

When it comes to farm and agricultural leases, one size does not fit all. The stock/standard farm lease you may have found online will almost certainly let you down when it comes time to rely on its terms or enforce them in court. You may need a little bit of advice and a simple document review, or you may need assistance from concept to negotiation through closing.

If you are considering leasing farmland as either a landowner or prospective tenant, contact Avenue Legal Group and speak to an attorney to ensure your investments and hard work are protected.