What is a Lease?

In considering the length of the lease term, both parties should take into account their goals and needs, plus transaction costs and the social capital or good will that the term might reflect. A year-to-year lease requires annual renegotiation. This can range from a simple extension or renewal to issuing a yearly notice to terminate or a more complicated recalculation of fees. A multiple-year lease can include built-in adjustments for rent, eliminating the need for renegotiation. It also creates longer-term relationships between the tenant and landowner, which help to build trust and ease of communication. The term of the lease can have a significant impact on what practices the farmer may reasonably employ. A term of several years gives the tenant a longer planning horizon and more incentive to care for and improve the farm’s resources. It also, of course, binds the parties to the terms of the lease for a longer period of time, which can be a matter of worry for landowners.