Author Topic: Questions about land leasing  (Read 1530 times)

Offline SYCABO

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Questions about land leasing
« on: September 04, 2016, 01:20:03 PM »
I have 2-1/2 acres, and the back 1/3rd is basically still sitting.  We haven't planted on or done any earthworks or anything back there.  It's pretty much just overgrown field since we haven't had time since my wife getting pregnant and the birth of our daughter.

My next door neighbor has horses, cows, goats, dogs, etc. and asked me this morning about leasing that back part of the property.  He wants to let a horse, maybe two, graze in and out of it, with some temporary electrical fencing to keep them in.  He will make an opening in his barbwire fence to let them go back and forth.  I have never been involved in anything like that, so I'm not sure what all to watch for.  I am going to draw up a "lease agreement," and the terms my wife and I came up with so far are as follows:

We'll do a quick walk through together - I know there are 2, maybe 3 rabbit holes that I would want to fill in somehow so they don't pose a risk (if that's even a problem - maybe horses are smart enough to watch for them? I don't know horses at all)

Horses or cows only - no other animals

No vehicles or equipment unless it's needed for the care of the animal

Only the neighbor himself is allowed on the property - unless medical or similar situation requires it

If the horses keep breaking out - fix fence until it stops

One month notice before "termination" of the agreement, when we choose to begin using the property again.

It'll probably be at least a year before we get a chance to start doing anything major in that area, so this will be a monthly rental until then. He understands that and is cool with it. We'll put the money back and use it to help us put up a privacy fence in the front yard, or to help pay for trees and other property-related projects.

My history with this neighbor is overall positive.  He used his winch truck to pull my jeep out of my yard after a very wet spring last year, has brush hogged that back area for me once before, and has done the same on the front easement of the road where I can't get my riding mower to easily because of the ditch- all without accepting any payment at all, even in help with projects, free eggs, nothing.  The only negative experiences we've had is that they have dogs and goats.  There is one dog that barks a lot and really gets on my wife's nerves.  I had to talk to him and he and his family worked on it. (it's a little better now because they moved that dog to another spot) Their goats got out once, which he fixed and hasn't happened again since.  Overall, while we aren't hosting BBQs and going out on Fridays, it's a good neighbor situation.

I don't want to draw up an agreement that makes the arrangement weird, like a ginormous legal document, but I also don't want to leave my rear end uncovered and get stuck with a liability issue, or ruts and damage to the property when I begin to use it again.

ANY advice at all, would be appreciated.  Thanks!
« Last Edit: September 04, 2016, 01:49:39 PM by SYCABO »

Offline I.L.W.

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Re: Questions about land leasing
« Reply #1 on: September 06, 2016, 12:55:04 PM »
You won't get rich doing this. It's hard to break even. That's why you need a good lease agreement. If there are any incidents of lawsuit or damage, you could end up losing a lot more than you stand to make.

The going rate is generally Property Tax per acre x 2.
$3,200 / acre is average in Oklahoma (If that is indeed your location, found it on your profile page). With a tax rate of 1.05% per acre for agricultural land, your minimum price is about $70 per year, per acre. $200/year for an acre is probably the max you can get. With 2½ Acres, you're not likely zoned agricultural, so your tax rate may be much higher. Do the math on it and make sure your expenses fall within the amount agreed upon.

Make it clear you are not providing water, electricity etc. If you were to provide water, a horse drinks about 10 gallons a day. Two horses, about 7,600 gallons a year. Figure your rates on municipal sources and add in a good estimate. Likely between $40 - $200 for water costs (drinking... not washing the horses, lol. You might want to pad that a bit and specify usage). It's much better if he provides water, heating etc. If you provide any utilities, they need to be metered independently.

Liability-wise, there are several things to consider.
1) What if someone on your property is injured by the horse? It needs to be clear that responsibility falls to the owner of the horse, not the owner of the land. This is tricky. If a 3rd party is injured, they can still sue you, regardless of any agreement. You, therefore need something that says he assumes financial responsibility for losses you incur resulting from the presence or keeping of the horses. If you get sued, you, in turn can sue him to cover your losses. This goes beyond injury. If the county gets on your case because of manure management on your land and fines you, it makes him liable to reimburse you for the fines. You can't be free of liability, so you leave yourself an actionable means of pursuing reimbursement with the agreement.

2) A "Hold Harmless" agreement.
This says if the neighbor is injured, he can't sue you (well, he can, but he'll lose if you have this agreement). Likewise, if the horse eats a toxic weed and racks up $5k in vet bills, even if it happened on your property, he has preemptively agreed you are not at fault.

3) He assumes the costs of repairs to the property resulting from his use of it. If he parks a horse trailer in the mud and cuts 2' deep ruts in the ground, he has to fill them in. If the horses damage anything, he covers the repair costs.

However, not all of the benefits are monetary. The horses can help keep brush down and maintain a pasture. They'll fertilize the land. You're building a good relationship with the neighbor. Money aside, there are many reasons to go ahead with this agreement. Even if no money changed hands, you're helping him (feed the horses), he's helping you (improve the fertility of your land).

I'd talk to a lawyer. It wouldn't cost much for a consultation on this, even a paralegal can advise in these matters and draft a simple, but water-tight agreement. This is all routine, boiler-plate stuff you can do with forms that only require you to fill in the names and dates.

Start with something like this:

https://www.lawdepot.com/contracts/hold-harmless-agreement
www.lawdepot.com/contracts/personal-property-rental-agreement

Bring that to a lawyer and have them read it over. Shouldn't cost more than $50, which I'm sure you can get the neighbor to pay (just add it to the agreed rate).

All said and done, 2 Acres, without water and power access, you could get $25-$35 a month, depending on the quality of the pasture. That is taxable income.

At that rate, it might be worth a barter instead and keep the tax man out of it. What's that work out to in terms of Beef, Milk, Chicken and eggs? An equitable barter could benefit you both. Say he traded you in beef from his cows. He can assess the value higher than he would if selling to a meat processor, but lower than what you would pay retail. Split the difference and he's paying less than $35/mo, while you're getting more than you could buy for $35/mo. Cash can be traded for anything, and it's versitility puts it at a premium value. It's not always the best way to go in these types of deals. Just something to think about.