USDA changes flex lease rule

Cattle Market & Farm Reports, Editorials
Dec 2, 2008
USDA changes flex lease rule

Flexible or combination leases will be considered cash leases under proposed regulations by USDA, even if the bonus calculation uses specific farm production figures (rather than county averages). This would be effective for the 2009-2012 crop years.

Previously, USDA said flexible leases (which guarantee a minimum rental rate plus a bonus payment if prices and/or yields climb above a certain level) would be considered cash leases ONLY if the yield for the bonus is based on a county average and the crop price is based on an elevator/ posted county price/futures price (not what the tenant actually received for that specific farm). For bonus payments tied to the landowner’s specific farm’s yield, USDA previously determined those leases were share leases and direct and counter-cyclical payments needed to be shared between tenant and landlord. However, in the Federal Register on Monday, June 30, 2008, USDA printed a notice that stated, “In response to concerns [about rental lease contracts] an Advance Notice of Proposed Rulemaking was issued on September 28, 2007. Accordingly, regulations will be issued to clarify that for the purpose of determining payments made with respect to the 2009 through 2012 crop years, combination or flex leases will be viewed as cash leases.”

Final regulations will be coming in the next month or two, said a USDA official, and then state and county Farm Service Agency (FSA) offices will be notified. US- DA explained the regulations, now in the draft stage, as “for 2009 through 2012, a lease that provides for the greater of the guaranteed amount or share of the crop or crop proceeds, shall be considered a cash lease if the lease provides for a guaranteed amount and a share of the crop.” How the landowner and tenant figure the bonus is up to them and will not affect how FSA categorizes the flexible lease. If there is a guarantee and a bonus, it will be considered a cash— not share—lease.

Until the final regulations are published, farm program advisers are cautiously optimistic this will be favorable to flexible leases.

“USDA’s ruling will now match the spirit of the cash/ flex lease contracts between the tenant and landlord and make them easier to implement,” said Howard Halderman with Halderman Real Estate and Farm Management in Wabash, IN. “This is good news, I think,” said agricultural attorney and farm program expert Bill Penn of Williamston, MI. “Of course, they still haven’t told us the details and as they say, ‘the devil is in the details.’ Those will come with the final regulations.” — DTN