A farm lease is a contract that allows a tenant to hire or rent land for a fixed period of time. Tenants pay landlords an agreed sum of money for each hectare, or for the farm as a whole. They pay this rent monthly, quarterly, half-yearly or yearly, in advance, depending on the agreement between the parties.
In typical leases landlords provide the land, buildings and fences and usually pay council rates, capital repairs and insurance on fixed assets. Tenants usually provide their labour, machinery and livestock and meet all the operating costs, including liability insurance covering their plant, stock and accidents connected with the farming operations. The tenants get all the income that comes from crops, produce and livestock.
When you take out a lease on a property you can put your funds to use to buy income-producing resources such as livestock, fertiliser or machinery, rather than buying land. As a tenant you are your own boss and you can get the full benefit of your labour and management skills.
If you are a new farmer you can gain experience, at low cost, to decide the type and size of the farm that you might eventually buy. If you are already an experienced farmer, you may be able to achieve efficiencies of scale. You gain control of increased acreage for less money than if you bought extra land. Further, a lease is distinguishable from an agistment agreement or a share farming arrangement as it gives the farmer exclusive possession to the land.
On the other side, if you own land and lease it to another farmer, you know your income in the year or years ahead. As an owner of land, you can make money without having any great knowledge of farming and you do not have to invest money in livestock or machinery. You can handle your farm from a distance with no day-to-day management worries.
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