Farmers can rent these buildings to expand their operations or for storage purposes
By Kaitlynn Anderson
While many Ontario producers are familiar with the practice of renting farmland, they may have questions about another type of lease that could benefit their operations.
Often, farmers rent production facilities, like barns or sheds, from other growers to expand their capacities, Matthew Innes, an associate at Miller Thomson LLP in Waterloo, Ont., told Farms.com today. They may also use these buildings for storage.
While customizing rental agreements for these facilities, renters and landlords may want to consider a few key factors.
One important element involves the length of the leases.
Parties should specify start and end dates within the agreements, Innes said, particularly when the owner needs the facility for another use by a certain date. To ensure renters vacate the premises on time, landlords may want “to include penalties … that can be applied if the other side does not meet those commitments.”
In addition, parties may want to agree on who will pay for certain bills, since “the use of the facilities by the renter may increase property taxes, utility costs and insurance costs,” Innes said.
In the agreement, both sides should also decide which party will carry out maintenance activities and replace equipment, he said.
“Production facilities and the equipment within them can often depreciate at relatively high rates,” he said. “The lease agreement should be tailored to carefully lay out each party’s obligations.”
For example, renters may be responsible for daily maintenance, while landlords may take care of larger repairs.
On another note, producers who intend to lease buildings for multiple years may want to upgrade the facilities – such as improving ventilation or feeding systems – at their own expense, Innes said. In these cases, parties should ensure the agreement specifies “who these improvements belong to when the lease expires,” he said.
In agreements where renters retain ownership of upgrades, landlords may want to state that the individuals “will not damage the facilities when removing the equipment,” he added.
Parties can also include termination clauses in these leases.
Renters “may want to include language that allows them to terminate the lease early provided they give a certain amount of notice” to the landlord, Innes said.
Producers may also want to have the option to terminate these agreements if events, like fires, damage the facilities to a predetermined extent, he said.
Finally, parties may want to discuss their individual liabilities.
“It’s essential that the lease properly allocates who will be responsible if anything goes wrong,” Innes said. “For instance, if the person renting misuses manure storage facilities and causes a spill, the landlord will not want to be left responsible for clean up costs.”
Farmers who want to learn more about these leases can reach out to their lawyers.
These professionals can answer “questions on what issues should be addressed in the lease and how the lease might be best drafted to address any specific concerns the farmer may have,” Innes said.
For more information on farm building leases, producers can also check out this OMAFRA fact sheet.
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