In a recent interview with Robert McNamara of Halderman Real Estate & Farm Management, he explained the basics and some of the nuances of the cash-flex lease, a type of agreement that can benefit farmers and landowners alike.
As a farm management tool, a cash-flex lease provides landowners with a minimum base rent and farmers have certainty during years with low prices and/or yields. One of the best things about a cash-flex lease is that it makes it unnecessary to keep adjusting the base rent for the forthcoming year.
Rather than increasing the rent for the next year due to higher than expected income in the current year, the extra rent is paid in the year the extra income is earned by the farmers. As the name of the tool suggests, it is a very flexible agreement that helps both parties in up and down years alike.
What is the basic concept of a cash flex lease?
A cash-flex lease establishes a base rent/acre, along with a provision that when the gross revenue for a crop exceeds a predetermined amount, there is a bonus payment.
What are the basic components of a cash-flex lease?
The factors are the base rent, the crop yield and the crop's price. The base gross amount is established as a yield times price that both parties agree to. In the cash-flex lease, this amount is expressed in terms of dollars per acre.
In the event the actual gross amount exceeds that number, there is a revenue split among the landowner and the farmer. As you can see, either the price, yield or a combination of the two can influence the total rent paid by the farmer to the landowner.
What is the percentage split that is typically applied for the overage?
The typical range we see for revenue that exceeds the base revenue is between 20% to 35%. Let me give you an example: If the per acre yield of a corn crop is 200 bushels, and the price is $4/bushel, the gross revenue is $800 per acre.
Assuming expenses of $400 and a base rent of $200, the profit is $200 per acre. If there is a cash-flex lease in place stipulating a 30% profit split to the landowner, they would receive an additional $60 per acre in revenue.
How long have you used cash-flex leases, and is there anything distinctive the company offers?
Halderman has been involved with cash-flex leases for nearly a generation, and we have established ourselves as the go-to resource for this type of lease. Many customers hear about our expertise through word-of-mouth, and we have the experience and know-how to negotiate with farmers and landowners to ensure that both parties are treated equitably.
With our experience, we have seen so many cash-flex leases over the years that we think we can handle setting one up for just about any owner or farmer, even in a difficult environment.
At this point in time, I would estimate that between 60% to 70% of farms we manage have cash-flex leases in place, and Halderman Real Estate & Farm Management, based in Indiana with appraisers and agents in Indiana, Michigan, Ohio and Illinois, welcomes your inquiries about this powerful farm management tool.