From all indications, we may be in for some lower crop yields. And for some producers, the losses may be significant. And according to a Purdue economist, this could lead to some problems with farmland rental agreements.
“The ability to meet rent payments will vary widely among tenants due to the differing financial impacts of the 2012 drought,” says Chris Hurt.
But regardless of financial circumstances, Purdue Extension agricultural economist Gerry Harrison says tenants and landlords are legally locked into lease agreements.
“The law is clear on the duty to perform under a contract,” he said. “A cropland lease, oral or written, is a contract.”
A tenant’s overall financial position will couple with the type of lease agreement to determine whether rent can be paid and what options tenants and landlords have. Common lease agreements include crop sharing, straight cash rent, or a variation of the two.
The bottom line: Tenants and landlords need to communicate with one another, and both parties need to review the terms of lease agreements.
There’s a publication available from Purdue that covers leases in Indiana, but given the widespread nature of this year’s drought, it’s a good review to get you thinking about your own situation, no matter what state you are from.