After finding the perfect land, you would want to secure its ownership for a specific period. To do so, you need a land lease agreement to detail the use and financial aspects of the land. Land lease agreements are legal documents and need consideration when drafting one. We get into the details of a land lease and expound on the different types available. Let’s get into it.
What is a Land Lease Agreement?
A land lease agreement is a contract that allows a tenant or lessee to lease land from a landlord for use in exchange for a specific amount. The uses can range from commercial to residential. Land leases can be single-page documents to multipage documents. Both variations capture the specific uses, rent amount, lease period, among other essentials that facilitate the lease. Land leases are also called ground leases.
Note: Land lease agreements vary from state to state. It is essential to obtain a template from your state’s land department.
Land Lease Agreement Templates & Examples
When to Use a Land Lease Agreement
A land lease allows the landlord to earn passive income for vacant land they own. The agreement stipulates the use and monthly payment you will receive. You can terminate the contract when the tenant contravenes it or follow the termination provisions.
The lease states the rights and obligations of the tenant and the landlord to avoid any conflicts in the future. Ensure both parties’ interests are well represented before signing the contract.
Essential Elements of a Land Lease Agreement
A land lease is not an overly complicated document. That does not mean you should take its drafting lightly. There are vital components that make any land lease a worthy contract. At the minimum, any professional land lease should have:
- Land details include the plot number, boundaries, and total acreage on lease. A land title deed usually has the basic information required. Also, note down the demarcations if there is adjacent land the lessor owns.
- Property use can be vague or specific depending on the contract.
- Land maintenance information describes who will be responsible for maintaining and upgrading the land and how the improvements will affect the lessee’s operations. It is best to be specific and include any remuneration details that facilitate the improvements. State how the lessee will receive compensation for investment or if the improved facilities will be the sole property of the landowner.
- Duration of the lease. Include the specific start and end date to the lease and extension provisions.
- Legal provisions that bind the contract. Including termination provisions of the lessee violates the terms of the agreement, and if there is a premature end to the contract, detail how both parties will handle the situation.
- The party responsible for paying tax.
- Financial aspects such as insurance and payment details for the lease period. State which party will pay for the damages and the insurance policy covering them. Land price appreciation is necessary to determine the monthly rent or lease amount.
- Rights of the tenant and the lessor.
- Signatures of both parties.
Tip: Seek legal advice before signing the contract. You need to understand all the fine print before formalizing the land lease.
The Consequences of Not Using a Land Lease
Sometimes individuals lease land verbally to people they trust. Verbal leases are still a thing but not enforceable as written agreements. Land lease agreements safeguard the interests of the landlord and tenant.
The major complication with leasing land is the financial obligations and advantages that come with it. Subordinated leases allow the lessee to borrow loans and claim the interests of the land. If the tenant defaults on loan, the landlord will lose the property.
In contrast, unsubordinated land leases do not cede the interests of the land to the tenant from the landlord. The downside is that the tenant will pay lower premiums. It is essential to use a land lease and define the use of the land among crucial financial aspects. Dissensions occurred when enforcing a verbal lease. Have everything in writing and provide witnesses to add the extra layer of enforceability.
Types of Farm Land Lease Agreements
Farmland lease agreements are typically for farming and agriculture purposes. The lease can also allow the lessee to hunt on the ground. There are different types of Farmland lease agreements are:
- A cash lease is a direct lease that disregards fluctuating crop prices. Under a cash lease agreement, the tenant pays the lessor a specific amount for using their land. Whether the prices of crops go up or down, the fixed monthly payment stands. The principal merit of a cash lease is the farmer registers more significant profits during a bull market.
- Crop share lease distributes the risk associated with fluctuating crops prices. The landlord gets a cash payment dependent on the harvest or a percentage of crops to sell. The farmer also drafts the contract contingent on costs from land preparation to the market-ready stage. There is no fixed monthly rent. The landlord and the farmer bear the risk, albeit the landlord has more to lose. But there is more to gain in equal measure, especially when crop prices are high.
Yes, a land lease allows you to earn passive income without investing in the vacant land. Use an agreement to record all the details of the lease.
A land lease allows a tenant to use the land for commercial or residential purposes for a specific period. The landlord gets monetary benefits from the lessee in exchange.
The main pros of a land lease are that the tenant can own a prime location without purchasing the real estate, start lucrative businesses on the land, and lease the land as sublets. On the flip side, a landlord can lose the land if the tenant borrows and defaults.
- A land lease agreement is a covenant that allows a tenant to use vacant land from the landlord for residential or commercial purposes in exchange for monetary benefits.
- There are different types of land leases depending on the state you reside in.
- Ensure you seek legal advice before signing a land lease agreement.