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Rental contract buyout

My landlord is going to sell a farm I'm renting by auction this fall.  My contract is good through 2013 crop year and he just offered to buy out the contract, to make it more sellable.  This farm is 125 acres and I want to keep operating it at least through my contract terms and after the sale hopefully work with the new landowner. Anyhow my landlord's offer doesn't equal the profit potential from farming the ground, and accepting any offer would be doing him a favor and putting myself out of a nice farm.  This deal gets tricky because my family farms other land this guy owns. Just looking for opinions ?  Please no replies of just buy the farm at the auction because that's most likely not an option.   

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9 Replies
Advisor

Re: Rental contract buyout

Seriously,any way to buy the farm??? That lease will kill an auction and you would get a deal. How good of friends are you with your landlord and are you willing to help him out by stepping aside?

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Veteran Contributor

Re: Rental contract buyout

Step aside for a reasonable amount of money, and get a long term agreement on the rest of the land this fellow owns. I think your relationship is more important than short term money.

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Veteran Advisor

Re: Rental contract buyout

Wow, tough question.  I guess the best I can come up with, is to agree with letting the landowner buy back the lease, and sign a long-term commitment on the other land you rent from him.

 

We were on the other end of the stick, we were renting some pasture ground, from a guy who sold it privately to another fellow.  We were told by the seller, that we would get another year of rent, at the same terms that we had, since the land sold in the early spring, past when rent negotiations are usually done.  Myself, and the other renters (it was split by three renters) were all assured repeatedly that the rent contract went with the land, and we had one more year as/is, and could negotiate with the new landowner after that. 

Long story short, the new landowner told me, that my rent would be going up $70 per cow, PLUS I'd have a month less grazing time (even at the higher price) PLUS I'd be paying rent for the bull, PLUS if it were dry, and we had to pull cattle out early, the full rent was still due (all these were changes from the previous contract).

Long story short, we didn't rent it.  It turns out, the new owner never intended for us to have it, he rented it to one of his beer drinking buddies, pretty much changed the terms on all 3 of us, just because he wanted to.  We could have sued him, and probably won, but the cost would have pretty much eaten up the profit from renting, plus we would have made a couple 'enemies'.  This way, at least we're on friendly terms, so if his buddy decides he doesn't want it anymore, we're at least still on the list.

 

I guess, what I am trying to convey with my story, is that even though you have another year on your lease, you may have to fight, if you want to keep it.  Be sure you are prepared to do that, if you don't let the owner buy back the lease, as well as hard feelings that it may cause.  You don't want to be on the bad side of someone who you are still renting from, elsewhere.

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Honored Advisor

Re: Rental contract buyout

The truth is, if someone wants to get rid of you, he will get rid of you.  The only real question in the given scenario is whether he gets rid of you on one piece of land, or you tick him off, and he gets rid of you on everything he owns....IMHO. 

 

And, he may be in a selling mode on it all, anyway. 

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Veteran Advisor

Re: Rental contract buyout

Yea, he just wanted us gone.  At first, I thought it was maybe something we did, but it turns out, the other two tenants were kicked out, as well.  I made the decision, bitter of a pill as it was to swallow, to always be 'nice' to the landlord and tenant, both.  You often never know the whole story.  Turns out from talking to the tenant, he just asked if it was for rent, was told to make an offer, and was then told he had it.   He had no intention of kicking us off, or breaking the contract.  As for the new owner, he didn't do it to spite us, he is just one of those people, to whom more $$$ was more important than sticking with the agreement. 
What would be a worry of mine, if you fought it, and the landowner decided you were trouble makers, you could easily be replaced, with someone else.  If you stay on his good side, maybe down the road, he'll give you a chance to buy one of the other parcels.

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Honored Advisor

Re: Rental contract buyout

optimistic & young,

 

What a good name,  don't let this issue or or life in general steal either from you.

 

I agree it is a tough question.--------been there.

 

Once went to a 6 piece land sale-----hoping to stretch enough to buy one.  Biggest land buyer in 2 states sat beside me and bid on every piece except the one I bought.  I didn't think he knew me, but I found out as we visited he wanted to talk about rent if he got something bought.--------------He didn't buy anything, I didn't rent anything, but I got the best quarter on the sale bought at the cheapest price.

What I learned was----------Buyers have a plan, and If it includes you, they will tell you.------- It never hurts to ask, but he knew who I was when he sat down(he knew where he was going in his plan).-------- You never know how your opportunities present themselves(when he walked in the door I had decided I would not get anything bought, my best hope was to get on the possible tennant list), but I actually got a good piece bought with his help, because he couldn't get what he wanted---all of it.   The bonus was I got to know him a bit and see his perspective.------- even so---I still got a little respect & fear of the big dogs in the game.

-----------------

Point is hold on to your name and do things you can look back on with dignity, no matter how it turns out.  Sometimes your just along for the ride, til the next opportunity appears.  Communication is important and respected, even if your landlord cannot give you good news.

 

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Senior Advisor

Re: Rental contract buyout

What is the profit potential from farming the ground?  Is it the same as the profit likelihood?  What would be a conservative but safe return on your money?  What would your profit outlook be if you applied a local land grant university spreadsheet or other more-or-less objective set of standards to the situation?  Many states have a survey of rental rates - how does your situation rate?   How does that compare with his offer?   Could you get two-three ways of determining the value of your contract put together?

If his offer is close to a conservative ROI for you, that might be an incentive to accept it.  If it is way off, maybe you should show him the figures and make a counter-offer.

There are always a zillion unspoken and sometimes unknown aspects to this situation.

When you say the piece will be sold at auction, maybe you could round up an invester to buy it and rent from him.

It's tought if you get put in the squeeze because of what he could do to your family.  One benefit of showing him two-three ways of conservatively valuing your lease is that hopefully he can't take it out on your family if you ask him to reconsider an offer that isn't right.  If he pushes it down your thrraod, at least you have some logic and rationale on your side.

If I was you, before I did anything else, I'd run the numbers.

 

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Senior Contributor

Re: Rental contract buyout

I'd suggest double what the rent is for a buyout. If it's $200, then $400 to get me to walk away. If he was getting big $ then it'll cost big $ to get out. If he can be greedy to sell it, then so can I, right? Nothing wrong with wanting money, why should a tenant be any different.

Alot depends on the rest of the ground he owns. If it's 40 acres, I'd be a little more demanding than if it is 400. You can lose 40 and be alright.

Big picture- if you own it, you never have to deal with a landlord and decisions. I'm learning that as I get older and less tolerant of bs. I am young also, but our generation will have to step in and start buying sometime. I don't see price going down any time soon.
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Advisor

Re: Rental contract buyout

Are you a gambler?  Estimate what the land will sell for and what your profit would be.  Then tell him you will take x% of the sale price.  He may come out with a deal or if you get a couple of guys on a bidding frenzy you may win big.  And you can take this into consideration if you are bidding on it yourself.

  I bought a farm that was rented for one additional year and can say a lot of the neighbors did not want it because of the rental contract, so I understand why the owner wants out of it.  Either way I would just suck it up and come up with a price that you can settle with, especially since you have other rental land with him and sounds like a long term relationship.

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