Top 5 Tips for Drafting Grazing Leases
Nicole Lane Erceg
How to make leases a worthy investment and a painless experience.
He’s leased the land for 11 years. It’s acreage his cattle depend on. He’s cared for the acreage like it’s his own, investing his hard-earned cash into improving the ground, making it better so his cattle have healthy pasture to roam. It’s an agreement struck on a handshake that’s been benefiting both the landowner and the cattleman for the better part of a decade. No paperwork needed. The pair had kept the deal going well for so long without issue, that there didn’t seem to be a need.
Until the landowner passed away.
His next of kin took over land management and with no written proof of the lease, the cattleman was left with no pasture and wasted cash invested into land he’ll never use again.
It’s a story ag lawyers across Texas hear all the time — an oral agreement gone wrong, a lease stripped out from underneath someone when the unexpected strikes. It’s one James Decker, attorney from Stamford, has heard before. He’s a Texas cattleman, too, raising registered Angus cattle, along with a commercial herd, in addition to his law practice. As a lawyer who specializes in estate planning and real estate law in agriculture, Decker has seen firsthand how a good grazing lease (or lack thereof) can make a big difference to a cattleman’s business.
In Decker’s nearly 9 years of law practice, he’s drafted hundreds of leases. He shares his Top 5 Tips for drafting a lease that protects both parties and helps cattleman avoid leasing problems.
#1 Prepare for Murphy
Folks in agriculture are used to dealing with Murphy’s law — the idea that what can go wrong, will. Whether it’s the cattle markets or mother nature, there always seems to be something that can thwart plans for a profitable year.
Decker says that in the instance of grazing leases, it’s is like getting Murphy Insurance. It’s about having a plan for the unexpected.
“You don’t draft a lease based on if everything goes right,” says Decker. “If everything goes right, then you don’t need a written lease to begin with. You draft a lease so that everyone is clear if something goes wrong.”
Decker says that a good lease must include who the involved parties are, what exact land it concerns, how long the lease will last, the terms of payment and how a dispute will be settled. He suggests that written leases be drafted with an awareness of what major issues might arise.
“Don’t just assume that everything is going to work out according to plan,” says Decker. “Treat your written leases like you would any other aspect of your businesses. Use common sense and don’t assume that it’s all going to work out according to plan because odds are, something will go wrong eventually.”
Although it might be an uncomfortable preliminary conversation, Decker says it’s about having a plan to protect both parties if the unexpected happens.
“Leases aren’t about you or your landlord or tenant who understands what the rules are,” says Decker. “They are about if someone passes away unexpectedly and you as a landlord are owed money or you as a tenant are suddenly faced with dealing with a surviving spouse or children who have no idea what Dad was up to and what the terms of the deal are.”
#2 Get it in writing
Decker says a lease doesn’t have to be fancy, but it does have to be on paper and signed by each participating party.
“When you don’t have it written down, there tend to be gaps in understanding of the terms between all parties,” he says. “What if something happens? If someone dies and there is a lapse in payment or disagreement and terms aren’t recorded, then it becomes a dispute. It’s the number one issue I see on leases.”
Decker says it doesn’t always require getting a lawyer involved — although he recommends it — but written terms help avoid issues and can stand up if a dispute goes to court.
“If you’ve never seen a grazing lease or don’t have any familiarity with them, then you probably don’t need to be drafting one yourself.”
He shares that for some people, oral agreements can work if both parties are clear on the essential terms. However, to be enforceable in the state of Texas, the terms of the lease need to be recorded on paper.
#3 Use a good lawyer
Decker recommends hiring a lawyer with a background in agricultural real estate law to help draft a lease agreement.
“Don’t cost yourself a bunch of money later because you were trying to save a little bit of money in the short term,” says Decker. “The key is to make sure you hire a good lawyer.”
He says to look for a lawyer who adds value, someone who will help minimize risk by a small investment up-front.
“I’ve seen folks who didn’t want to go to a lawyer to save a few hundred bucks, get into a bind later and spend thousands of dollars having to hire a lawyer to clean up a mess that could have been avoided by hiring a lawyer on the front side of things,” says Decker.
While leases don’t have to be drafted by an attorney to be enforceable, hiring a lawyer to help draft and review the lease does ensure that it includes all the necessary items for risk management.
#4 Store an original copy in a safe place
Once a lease has been drafted, Decker says to make sure to store an original copy in a secure place.
“If you go get a legal document drafted and you can’t find it when you need it, then you haven’t accomplished anything other than wasting some money,” says Decker.
Depending on the situation, some leases may be recorded with the County Clerk’s office. Though not required by law, Decker says it can be beneficial in some cases. Filing the lease with the local County Clerk puts third parties on notice that the lease was created. This can help protect a grazing lessee from getting land sold out from under him, but it puts the lease into public records, which some parties may want to avoid for privacy reasons. If the lease is going to be recorded with the County Clerk, Decker says by law it must be notarized.
Grazing leases do not have to be filed with the County Clerk to be enforceable. Decker says keeping an original on-hand and stored so that it can be referenced if needed is a fine option.
#5 Update and use as necessary
Leases should be updated and renewed as terms end or situations arise. If a dispute occurs, he recommends following the protocol outlined in the lease to allow the document to work as needed.
Leases should be updated in the event that Texas law changes or the parties both agree that the terms should change. Decker says the lease should also outline terms for renegotiation.
No one ever hopes for business deals to go wrong, but when disaster or disagreements occur, a written agreement can make unfortunate circumstances easier to navigate and resolve issues with less impact on a cattleman’s bottom line.
“5 Tips on Leases” is excerpted from the February 2018 issue of The Cattleman magazine.