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2008 Lease Considerations

Yolo County FSA Office, 12/5/07

Many operators are in the process of negotiating or have already negotiated 2008 crop year leases.  The following guidance regarding leases is provided for your consideration:

A lease is a cash lease if the lease provides for only a guaranteed sum certain cash payment or a fixed quantity of the crop (cash, pounds or bushels per acre).

A lease is a share lease if the lease bases the amount of rent on the quantity of crop produced or the proceeds derived from the crop, or the interest a producer would have had if the crop had been planted.

A sliding share lease (e.g. if production is high, landlord takes a smaller share; if production is low, landlord takes a larger share - or the landlord is taking a guaranteed dollar amount at the end of the year according to the market price) effectively constitutes a cash lease because the landlord is essentially taking a guaranteed amount.  In order to be considered "actively engaged" in farming, a landlord's contribution to the farming operation (interest in the crop, not the land) must be considered "at risk."

A sliding scale lease ($/acre varies according to fluctuations in operating inputs [e.g. water, fuel]) is considered a share lease because they are not "flat-rate" or "sum certain.  Due to the sliding scale, the landlord is sharing in the risk of production.  The operator and landowner must agree upon the shares, and the County Committee reviews the designated share percentage to ensure equity (1-DCP Par. 370).

In the event that the County Committee determines that a share lease constitutes a cash lease, it must consider whether the producers have adopted a scheme or device designed to evade, or have the effect of evading, the rules of payment limitation and payment eligibility, which could result in ineligibility for the applicable and succeeding year (1-PL Par. 71).

The above is procedure based upon the 2002 Farm Security and Rural Investment Act (the 2002 Farm Bill), which expired September 30, 2007. The extent to which it may be revised under the new Farm Bill is unknown at this point, but the "at risk" requirement will likely remain.

Please feel free to contact me if you have questions. 

Marianne A. Morton
Yolo County FSA Office
221 W. Court Suite 3B
Woodland, CA 95695
(530) 662-3986 x 104