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Leasing Agricultural Land

Jul 30, 2014

By Kim Dillivan

The leasing of both public and privately-owned agricultural land is prevalent in South Dakota. Using Census of Agriculture data, Pflueger (2011) estimated that approximately 40% of South Dakota’s total agricultural land was leased in 2007. Pflueger also found similar percentages of agricultural land rented in 1997 (38%) and 2002 (37%).

In South Dakota, most leased rangeland and pasture are in cash rent contracts. In western and central South Dakota, millions of acres controlled by federal, state, or tribal agencies are rented to producers using cash leases or grazing permits. For South Dakota cropland, popular lease arrangements include cash rent, crop-share, and flexible lease agreements.

The parties involved in the leasing of real property do so in anticipation of financial gain. South Dakota land owners who choose to lease their agricultural land receive either cash rent payments, or with crop-share, a portion of crop revenue. This compensation is payment for their willingness to accept the risks associated with land ownership and a return on their investment in a long-term asset. In addition to the expectation of profit, agricultural producers lease additional acres to achieve economies of size. Economies of size are realized when a farm or ranch expansion spreads fixed costs over more acres thereby reducing total cost per acre.

South Dakota law addresses many of the specifics regarding real property leasing, including agricultural land rental agreements. South Dakota codified laws are available from the South Dakota Legislative Research Council. This resource contains specific sections and language that pertain explicitly to cropland and grazing leases.

Written Leases

Some leases must be written. For example, leases that exceed one year in length are only valid if in writing (South Dakota Codified Law section 43-32-5). While many agricultural leasing arrangements in South Dakota have existed for years as annual oral agreements, most legal experts recommend that contracts be in writing. Pflueger (2010) discussed some of the benefits of a written farm or ranch lease.

According to Pflueger, a written lease provides 1) a clear record of the terms and conditions agreed upon, 2) useful documentation for tax and liability purposes, and 3) legal protection for both parties. South Dakota law also provides time limits on agricultural leases. South Dakota Codified Law (SDCL) section 43-32-2 states that a written agricultural land lease must not exceed 20 years.

Oral Leases

Oral leases are only valid for one year (SDCL section 43-32-5). However, oral leases remain in effect for the following year unless notification, in writing, is given by September 1. SDCL section 43-32-22.1 states:

  • In the case of farm tenants, occupying and cultivating agricultural land of forty acres or more, under an oral lease, the tenancy shall continue for the following crop year upon the same terms and conditions as the original lease unless written notice for termination is given by either party to the other by September first, whereupon the tenancy shall terminate March first following. The tenancy may not continue because of absence of notice if there is default in the performance of the existing rental agreement. For the purpose of this section, agricultural land includes grassland, either native or tame.
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