Leasing a dairy property
Leasing is a term used to describe a financial arrangement between two parties where one party ‘owns capital’ (the Lessor) and another party rents the capital from the owner (the Lessee). Leases are applied to plant and equipment, land, water and livestock within the dairy industry. Leasing may be an option for:
– Landowners looking to step back from active farming and generate an income without having
to sell the property (Lessor)
– Investors who are mainly interested in capital growth of the land and receiving a reasonable rental for the asset (Leesor)
– Farmers who seek full control over their dairy business without borrowing heavily to purchase land. Dairy Operators can grow wealth while leasing a property and may use profits to increase equity in their dairy asset, expand their business or invest in non-farming assets (Lessee)
The Australian dairy industry has developed the Leasing Dairy Assets Resource Pack which contains information and tools for assessing and establishing a leasing agreement.
Each tool can be downloaded individually (see below).
Note: there are 2 sections within the resource pack and the final tool in each section has 3 documents:
Section 1: Leasing a dairy property (4 tools)
-Tool A: assess a range of factors and do due diligence using the Farm Scorecard
-Tool B: check the arrangement is fair & affordable with the Leasing Property calculator
-Tool C: use the Checklist for arranging a lease (Word) to discuss the key elements involved
-Tool D (3 docs): prepare a draft with the property lease agreement template – standard clauses
To complete the template, you will need the Schedules and property information sheet,
Section 2: Leasing dairy cows (3 tools)
-Tool E: assess a range of factors and do due diligence using the Cows Scorecard
-Tool F: use the Checklist for arranging lease of dairy cows
-Tool G (3 docs): prepare a draft with the cow lease agreement template- standard clauses
To complete the template: you will need the Schedules and cow information sheet (updated May 2017), a guide to the standard clauses (agreement) and signposting.
A successful lease arrangement involves mutual respect and trust but should always be based on a written document which clearly states the expectations and the responsibilities of each party.
Seek help in developing a leasing agreement
The model Lease Agreement for dairy property has been drafted so that it will stand up to legal analysis. It is recommended that the parties work with a dairy adviser to develop their lease agreement. Prior to signing, both parties should consider obtaining independent financial and legal advice.
Like anyone involved in a business, the long term goal for dairy farmers is to grow assets and wealth during their time in the industry.
Traditionally, progress in the dairy industry has been focused on achieving the ultimate goal of farm ownership, as this has been seen as the best way to grow wealth. Entrants into the industry have generally spent time as an employee and/or experienced a period of share farming, during which there is growth in skills and assets, followed by a period of leasing, with a further increase in assets and skills and eventually dairy farm ownership.
Read more about how leasing can assist towards farm ownership
Stepping Stones provides information on the different career opportunities on a dairy farm – it includes farmer stories, tips and explores the pathways available to progress your dairy career.
Dairy operators (Lessees) may lease a property as a step in their career path towards farm ownership. Others may choose always to rent land to create wealth. Regardless of the long term goal, a major reason for individuals moving from share farming to leasing is to gain complete control and reward for their efforts. If they are good operators, they will also increase net returns and build wealth.