Q: I am retired and have saved some pension funds. Recently, a nephew has suggested that I should buy a half section of farmland near where he farms. His plan is that he would then rent the land from me. I am trying to decide whether to do this.
A: There are several questions you need to consider. Would you buy the land as an investment or would you do so to help your nephew? If you are doing this as an investment, you would need to consider what kind of return (rent) you can expect, how many years rent will be needed before you pay off the purchase price and any tax issues that might arise. If your main motivation is to help a nephew, then the questions above are not as relevant.
Read Also
Stock dogs show off herding skills at Ag in Motion
Stock dogs draw a crowd at Ag in Motion. Border collies and other herding breeds are well known for the work they do on the farm.
If you decide to buy the land, there is no requirement that you lease the land to your nephew. As a landowner you are free to lease to anyone.
Assume you buy the land and decide to lease to your nephew. You will need to consider the same points as in any other lease of farmland. You must negotiate payments. Will it be cash rent or will it be a crop share where you get a percentage of the crop and contribute to some of the input costs? How long will the lease run? Will your nephew have the right to renew it? Will there be restrictions on his use of the land, such as what crops can be seeded and use of pesticides and weed spray?
There are many other points that should be dealt with in the lease. Those include whether the tenant has the right to make changes to the land such as drain sloughs or clear bush, responsibility for fences, payment of taxes and the rights and responsibilities of each party should there be oil and gas exploration on the land. I would strongly recommend that any lease agreement be in writing. That way, if there are problems in the future, the parties can refer to the written document. A lease can be registered at the land titles office.
Difficult issues may arise. For example, your nephew may expect a break on the rent. And difficulties may arise if he runs into financial problems and is unable to pay rent promptly. Unlike an unrelated landlord, he might expect that you won’t enforce your rights against him. He may feel that he can pay off other creditors first and keep you waiting.
What is his motivation in suggesting that you buy the land? Does he need more land to farm and is not in a position to purchase it himself?
I have painted a somewhat negative picture of a family lease situation. But a leasing arrangement can indeed work well, and there is nothing wrong with helping out a family member.
