Ohio
State University Extension Factsheet

Ohio State University Extension Fact Sheet

Agricultural, Environmental, and Development Economics

2120 Fyffe Road, Columbus, Ohio 43210


Managing Landlord-Tenant Relationships: A Strategic Perspective

FR-0004-01

LeeAnn E. Moss, Assistant Professor

Bernie Erven, Professor

Many farmers depend on leased farmland to have a business of adequate size and income. This makes long-term, positive relationships with landlords one of the keys to their success. Good production management and marketing do not overcome insensitivity to their landlords' values, objectives, and frustrations. On the other hand, many landlords depend on their lease income for financial security. They also seek stable and hassle free relations with their tenants. Landlords often have emotional ties to the land they are leasing. They likely assume that others, especially tenants, will be sensitive to the history, the sense of accomplishment, the sacrifice, and the pride embodied in the land. Just as certain principles and practices guide borrower-lender, employer-employee, husband-wife, and parent-offspring relations, some important principles can guide landlord-tenant relations.

The Landlord-Tenant Relationship

While the percentage of leased farmland has remained relatively constant in the U.S. over the past century, the characteristics of lessees, lessors, and the nature of the contractual arrangements between them have changed. About 65 percent of landlords are more than 60 years of age. Most are not actively engaged in farming. Over half live within 25 miles of the rented acreage. Women are a significant factor; while 31 percent of landlords are men, 40 percent are women, and another 29 percent are joint male and female (Rogers). Moreover, the significance of female landlords is expected to increase as the overall farm population ages.

The proportion of rented land is generally higher in states, Ohio for example, where land is more highly valued. In fact, in 1997 approximately 47 percent of land in farms in Ohio was leased (1997 Census). Though share leasing has historically dominated in the Midwest, results from the most recent Ohio Farmland Lease and Precision Agriculture Survey indicate that over 75 percent of leased land is now cash leased, and that crop-share terms vary significantly. Additionally, a 1998 survey of professional farm managers in Illinois reported that 93.2 percent had experienced a modest to significant increase in the level of cash leasing in their market area (Barry, Sotomayor, and Moss).

A recent study indicated that lease preferences are influenced less by risk aversion than by the characteristics of the leasing relationship namely the threat of opportunism from the landlord and the potential returns to the producer's management ability (Moss). Moreover, Bierlen and Parsch found that social capital is important in determining the terms of trade between lessee and lessor. For example, a tenant is less likely to pay higher cash rents when the landlord is a relative. In other words, the nature and extent of the relationship between landlord and tenant can have a significant influence on lease type and terms, which in turn can impact the profitability and competitiveness of Ohio farmers.

Guidelines for Tenants

Following some straightforward guidelines can help tenants ensure that their farm businesses remain profitable. The guidelines can also reduce the costs of day-to-day relationship problems. Dunaway and Dunteman remind us that the old adage of “keeping the landlord happy”is no different from an
effective public-relations strategy in any business. For example, they reduce a strategy for farmers, with the end goal of retaining control over rented land or other real estate, to six key points: (i) communicating with landlords, (ii) educating lessors about agriculture, (iii) explaining farm costs and their changes over time, (iv) providing regular crop reports during the growing season, (v) maintaining the appearance of the property, and (vi) treating landlords like family.

A successful strategy for managing relationships with your landlord should include the following:

Guidelines for Landlords

Landlords can help accomplish the objectives for the farm and build positive relationships with their tenants. A successful strategy should include the following:

A Landlord-Tenant Relationship Checklist

The type of information communicated between landlord and tenant can be as important as the amount of communication. Existing relationships may be strengthened, or new ones solidified, if the leasing parties ask appropriate questions. The following checklist of questions can guide communication. Landlords and tenants can use the same checklist.

These guidelines may have three potential applications. They can be used to guide communication during: (i) the first in-depth landlord-tenant discussion prior to leasing the acreage, (ii) annual meetings between the parties to the lease, and (iii) the first in-depth discussion following a life-changing event (e.g., death of the landlord's spouse, death of a landlord followed by assumption of lessor responsibilities by an heir).

Communication—A Critical Skill

A successful relationship strategy depends on effective communication. Removing barriers is an effective way of improving communication, and requires an understanding of the communication model. The model consists of sender, message, receiver, channels, feedback, and effect. The sender sends a message through appropriate channels, either verbal or nonverbal, to a receiver. A response is provided to the sender of the message via feedback from the receiver. Feedback need not be sent through the same channel as the message (e.g., it may be a nonverbal cue such as body language). Through interpretation of this feedback, the sender can determine if the original message was received in its intended form. Effect on the receiver completes the communication process.

Problems in any one of the components of the communication model can result in barriers to communication, such as:

Relationships between tenants and landlords can be enhanced if the parties improve their communication skills, make communication goal oriented, approach communication with a positive and creative attitude, and work to reduce barriers.

Summary

Relationships are an important and often under appreciated source of risk for Ohio farmers and their landlords. For the landowner, an effective relationship management strategy helps ensure that her investment (or other) goals for the farmland are reached. For the producer, it is fundamentally important to his security of tenure. For both parties, it prevents or mitigates the “costs” of conflict and disagreement. Finally, in an environment characterized by strong competition for leased acreage, superior relationships provide farmers with a potential source of sustainable competitive advantage.

References

Barry, P.J., N.L. Sotomayor, and L.E. Moss. “Professional Farm Managers’ Views on Leasing Contracts and Land Control: An Illinois Perspective.” Journal of the ASFMRA 62 (1998­99): 15­19.

Bierlen, R. and L.D. Parsch. “Tenant Satisfaction with Land Leases.” Review of Agricultural Economics. 18 (1996): 505­513.

Dunaway, R.M. and D.L. Dunteman. Farm and Ranch Lease Guide. Bushnell, IL: Ag Executive, Inc., 1995.

Moss, L.E. “A Transaction Cost Economics and Property Rights Theory Approach to Farmland Lease Preferences.” Ph.D. thesis, University of Illinois at Urbana-Champaign, 2000.

Rogers, D. Leasing Farmland in the US. Resources and Technology Division, ERS, USDA AGES-9159, 1995.

USDA. 1997 Census of Agriculture, Vol. 1 Part 13. Geographic Area Series, Ohio.

This series of fact sheets is produced under the Acker Professional Improvement Program, Department of Agricultural, Environmental, and Development Economics, The Ohio State University. Peer reviewed by Robert D. Fleming and Donald Breece of the Department of Agricultural, Environmental, and Development Economics, The Ohio State University.

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All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.

Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.

TDD No. 800-589-8292 (Ohio only) or 614-292-6181



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