Hemp Farm Lease – Cash Rent or Crop Share Agreement for your Hemp Farm
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If the farmer has a license to grow hemp, you can probably rent your farm. The average farmer does not own all the land he farms. And, in Illinois, the hemp farm license application allows an applicant to indicate that he rents the farm on which he intends to grow hemp.
Why Have a Lease for Your Hemp Farm?
Many farms do not have a written lease, or the written lease is decades old. In Illinois people can have oral farm leases, but hemp is not like beans or soy – hemp requires a license from the state and has restrictions against who may grow it or process it. So it is a good idea to protect your farm with a written lease.
We will discuss the common forms of payments for farm leases and provide the top three benefits for having a written lease for your hemp farming business. Consult a hemp lawyer about your business to ensure its protection from unknown risks.
Cash Rent or Crop Share for Farm Lease Payments.
Farm leases fall into two main groups: Cash Rent, or Crop Share. In Illinois, where 2019 will be the first year hemp is farmed, either type of lease is very common. A farm lease is just as likely to call for cash rent as it does for crop sharing, but hemp may lend itself more toward a crop share for reasons discussed below.
Top Three Benefits of Written Farm Lease
- stay compliant with best industry practices
- clearly define the terms of the deal with protections to both farmer and landowner
- set payment terms as “cash rent” or “share crop”
Cash Rent Agreement
A cash rent farm lease is pretty simple, money for rent. The hemp farmer puts a dollar figure on how much he will pay per acre. Often only two rent payments come due for the crop year, one about March 1st, and the other about October 1st, or when harvest comes in to turn the crop into proceeds.
A crop is often sold through grain marketers throughout the year – but as 2019 is hemp’s first crop year – grain marketing and futures contracts cannot be used to sell the crop as freely as other commodities.
Cash Rent farm leases trade participating in the profit from the sales of the crop with the predictability of specific amounts of rent that become due.
Farm Leases need not be in writing – but termination of a farm least does.
(735 ILCS 5/9-206)
(from Ch. 110, par. 9-206)
Notice to terminate tenancy of farm land.
Subject to the provisions of Section 16 of the Landlord and Tenant Act, in order to terminate tenancies from year to year of farm lands, occupied on a crop share, livestock share, cash rent or other rental basis, the notice to quit shall be given in writing not less than 4 months prior to the end of the year of letting. Such notice may not be waived in a verbal lease. The notice to quit may be substantially in the following form:
To A.B.: You are hereby notified that I have elected to terminate your lease of the farm premises now occupied by you, being (here describe the premises) and you are hereby further notified to quit and deliver up possession of the same to me at the end of the lease year, the last day of such year being (here insert the last day of the lease year).
Crop Share Agreements
When the farmer and the landlord agree to work together to grow and harvest the crop, then a crop-share is formed A crop share can also be called tenant farming. The landowner gives up his acerage, the farmer gives the labor and equipment, and they both share in the profits or losses.
The Cannabidiol (CBD) market explosion is pushing a lot of the industrial hemp farming operations. Many farmers getting into the industry want to grow hemp as a better cash crop than what is currently possible. Brightfield Group believes that CBD will be a $22 billion dollar industry in just a few short years.
Because of the market economics, and the excitement in the industry, crop share agreements may provide the hemp farmers a way to share the profits with their landlords. The contract provisions to allocate expenses and profits can be drafted any way the farmer and the landlord want.
What Farm Lease is Best for Your Hemp Farm?
That depends on what you want out of the lease. Do you want predictable payments and for the landowner to stay out of the farming business? Then, consider the cash rent option. But watch out for the CBD boom to bust and the price of CBD rich hemp to fall. Falling prices could make those high rent payments painful for startup hemp farmers.
Does the landowner have its own dreams of profiting from the CBD market bonanza, and have a good working relationship with the hemp farmer? Then a crop share agreement enables both parties to split the costs and the profits in the new hemp industry.
No one answer is correct, but there is one big reason that your hemp farm lease should be in writing.
Hemp is new and highly regulated
The hemp may only be grown if the farmer has the license that grants the authority to grow it. The hemp farmer cannot process the hemp unless he is also registered as a hemp processor. The state will inspect the hemp and see that that operations are in order.
Not only does a written hemp farm lease provide the exact terms of the deal that both parties have, it also shows that your hemp farm is complying with best practices in the industry. Having policies and procedures in place for your hemp farm will help it stay in compliance and in good standing with the state licensing your hemp farm.
Good luck growing your new crop. And call if you would like to speak with our lawyers on your hemp venture.
Thomas Howard has been in business for years and can help yours navigate towards more profitable waters.
Our cannabis business attorneys are also business owners. They can help you structure your business or help protect it from overly burdensome regulations.