Tuesday, May 27, 2008

A New Lease on Farmland

by Susan Witt and Jay Rossier


Conservation land trusts in the Northeast have been eager to attract environmentally concerned farmers for their farmland. As organizations depending on volunteers they frequently resort to a short-term lease with terms that are simple to monitor. A lease might require only that the fields be cut twice a year. The organization relies on one of its members driving by to check for compliance.

Short-term leases, however, invite short-sighted farming practices. Without the incentive to plan for future generations a farmer, as a businessperson in a highly regulated market environment, may have to force the highest and quickest yield without adequate attention to the health of the soil.

If owners of farmland in the Northeast are to attract and retain the ecologically committed farmer, they must be prepared to offer farm leases that incorporate long-range concerns.

Partnership

The land, the farmer, and the community (represented by a conservation land trust) all can be equal partners in a carefully developed long-term lease of farmland. By taking the time to prepare a thorough land-use plan for a farm and clarifying such use in the written lease, the conservation land trust can retain enough control to assure that the land is improved instead of degraded or left fallow, and the farmer can be given enough flexibility, independence, and security to make crucial business decisions while farming in a sustainable manner. There are several critical elements to a farmland lease that will make it possible for a farmer to farm responsibly.

Land-Use Planning

A land-use plan should designate the location of existing farm and residential buildings and should include a careful analysis of the soils and terrain and possible water sources on a piece of farmland. A good plan will divide the land into different sections based on these natural conditions, and will specify upper and lower limits to the intensity with which the lease allows each of these sections to be farmed.

Most intensive use might be an organic market garden, while least intensive might require that a field be mowed at least once a year. Permitted tillage methods might also be delineated in a land-use plan.

The plan should also specify where residential and farm buildings should be located. The placement of buildings must serve the residential and farm needs of the farmer in a way that minimizes their adverse impact on the agricultural land and on neighbors as well. Buffer zones designed to minimize the impact of all farm activity on neighbors should also be designated in the plan.

A land-use plan is not a farm plan, which is the concern of the farmer and the investors in the farm enterprise; rather, it is a statement by the farmland owner of the conditions under which the land may be used. If a conservation land trust has identified a particular farmer as the future lessee of farmland, it is important for that farmer’s input to be included in the land-use plan. But the prime responsibility for developing the plan rests with the lessor. A farmer considering a lease can then quickly evaluate whether or not the land’s potential, as defined by the land’s owner, will address the farmer’s interest.

Once committed, the farmer is free to change a business plan as local markets change, without renegotiating with the land owner. The land use plan provides the framework for protecting the natural resources of the land, but the farmer is independent within that framework.

Security

A long-term lease gives the farmer the long-term security usually associated with ownership of land. Improvements in soil fertility and productivity occur very slowly, and farmers need to know they will be able to reap the benefits of improvements that may take them ten or more years to realize.

For many kinds of enterprises, a farmer needs the security of a lifetime lease. Community land trusts use ninety-nine-year leases, with rights of transfer and renewal. This leaves no ambiguity as to the landowner’s intent and also provides security for the investor in the farm enterprise. For example, a bank would be unlikely to consider a fifteen-year investment in farm equipment if a lease of the land ended after ten years.

Ownership of Improvements

Of course, unforeseen circumstances do occur, and farmers need to know that should they have to give up their lease, they can retain the value of the improvements they have made in the farm. A barn and an orchard represent investments that a farmer must be able to capitalize at resale. A properly written lease can allow farmers to sell those assets that are a result of the skill and hard work they have applied to the land.

Only with ownership of the improvements can farmers afford to invest themselves and their capital in a piece of land. Without these investments, farmland will not be preserved as farmland.

Continued Affordability

While it is of the greatest importance that farmers be able to sell the improvements they have made in and on the land, it is equally important not to sell them at a speculative price that prohibits another farmer from buying them. The land can remain productive only if the improvements remain affordable.

A thoughtfully written lease can limit the price of improvements at resale. A nonprofit organization can accomplish this by holding a first option to repurchase buildings and improvements at a formula price. One formula, for instance, requires the buildings and improvements to be assessed independently of the land at current replacement cost at the time of sale. Assessors can be local farmers, extension agents, real estate agents, contractors, Soil Conservation Service scientists, or other suitable experts.

The average of three assessments would determine the cost for the nonprofit organization to purchase the improvements. The new farmer can then repurchase the improvements from the nonprofit for the same nonspeculative price, which keeps costs affordable.

Low Land Cost

High land prices in the Northeast make starting a profitable farm difficult. The income from a small-scale, intensive operation, even when complete with nearby markets, cannot carry the debt incurred by land purchase. A lease at a low monthly cost will allow farmers to invest their capital in equipment and supplies rather than in land payments, thus making the farm more productive.

Initially the monthly lease fee should at least cover local taxes on the land and buildings, insurance on the land, any town recycling fees, and fire department assessments as well as the cost of establishing and managing the lease. Eventually the lease fee should include a fair rent for the land itself. One way to determine this is to calculate the value of the land as farmland and determine comparable rentals for farmland in the region. The ground rent for that portion of land with existing or potential buildings should similarly be determined using comprable building site values in the region.

The nonprofit expenses for overseeing the lease are paid from the management fees, but the ground rent for the land itself is placed in a separate fund for the purchase of new farmland. This policy ensures that the farmers helped by the initial community effort, contribute to helping future farmers gain access to the land. The process stays dynamic.

In Summary

By offering long-term, low-cost leases under which ownership of improvements rests with the lessees, conservation land trusts can help ensure that the farmland they preserve remains actively farmed by local resident farmers.

Organizational Implications For Land Trusts

Long-term leases will require a long-term commitment to their management. This may present a challenge to conservation land trusts which have traditionally been volunteer organizations. In addition providing equity to individual leaseholders may jeopradize the charitable status of your organization as a purely conservation-oriented group. Your conservation land trust may need to establish a separate management group or corporation to hold in trust that land on which equity leases have been granted and to oversee compliance with the terms of the leases. Or you may want to work closely with another nonprofit organization in the area with similar goals.

Community Land Trusts and Lease Management

Community land trusts can be an important resource for conservation land trusts because the former are experienced in management of long-term leases that provide for ownership of improvements. In order to make these improvements (primarily housing) affordable to the next buyer, community land trusts hold first option to repurchase them at a nonspeculative price. Community land trusts are nonprofit organizations with membership open to anyone within a given region. As such they serve local areas that often overlap those of conservation land trusts. They work with land-use planners, lawyers, and investors in preparing lease agreements. They also work with leaseholders to encourage as much self-management as is appropriate in order to lower costs for and maintain the independence of those leaseholds.

A conservation land trust might also consider forming its own community land trust as a separate but related management organization should the number of productive farm leases represent a significant part of the income and activity of the conservation land trust. Those portions of the land donated to the conservation land trust that are productive farmland could be turned over directly to the community land trust for management. Any lease income from the land over and above expenses would be returned to the conservation land trust to establish a fund for purchase of additional land.

The Community Land Trust in the Southern Berkshires in cooperation with the E. F. Schumacher Society has written lease agreements, particularly for agricultural land, and continues to refine these documents through actual practice. Either of these organizations may be contacted for information or consultation.

Repurchase of Improvements

Whatever form the management group takes, it is responsible for collecting lease fees and monitoring fulfillment of the terms of the lease, including the use of its first option to repurchase the farmer’s home and farm improvements at a formula price in order to keep them affordable for the next farmer. In order to exercise this option the management group must actively seek potential farmers by maintaining a list of those interested in purchasing improvements and leasing the land for farming. It can then proceed to resell the improvements to another farmer at an affordable price.

In Summary

The preservation of farmland for productive agricultural use will require an active commitment and responsibility to long-term land management. This will mean working with leaseholding farmers as they adjust to changes in farm practices, changes in farm markets, changes in human circumstances.

As a local membership organization your land trust has the resources, knowledge, and capability to best provide the continuity necessary for land management. It may be a new role for you as a volunteer organization, but it is a role critical to the future of farming in your region.


E.F. Schumacher Society

Interview with Thomas Storck

On Cooperative Ownership

John Médaille Interview in Romania

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