Christmas Tree Leases
By Mark D. Shipman
Saalfeld Griggs PC
It may be the time of the year that prompted me to write this article, then again, many owners and growers are considering Christmas trees to replace other crops that have not been financially profitable. Whether you are a property owner who is leasing to a grower or whether you are a grower looking to lease land from a property owner, at some point in time you may be involved in a lease of land for the growing of trees. This article is intended to identify important points to consider when leasing land.
Proper Parties – It is important to identify who the proper parties are. Whether it’s a corporation, a trust, or an individual party, early in the formation of the agreement you need to identify who the parties are that will be entering the agreement and signing for the landlord and tenant. If you have a history and/or relationship with that individual, this may not be as important, but if this is a new venture, you certainly want to know whether that party has authority to enter the lease and whether it is the appropriate party to actually be signing the lease agreement.
Property Description – Defining or describing the property is necessary in order to have a valid lease. There are several ways that this could be accomplished. One way is by property address and another is by a metes and bounds description. It is also appropriate to attach a map identifying the boundaries of the lease. It is important for the parties to consider whether personal property is to be included in the lease agreement. Are there tractors, sprayers or other equipment that are going to be used as a part of the tenant’s operation?
Finally, what additional rights may run with the property. Are there water rights that need to be maintained and used throughout the term of the lease? Are there specific roads or access ways that also need to be used.
Term – How long will the lease run for? Ten years or twelve years for the initial term? It is also good to indicate in the lease whether the tenant has the right to extend the lease provided they are not in default. Another provision to consider would be the condition of the property at the termination of the lease. Is the tenant responsible for stump removal? If so, what method is to be used.
Rent – You will want to specify what the rent is for the land. This can be per acre or for the entire property. In what intervals are the payments to be made, monthly or annually? Is it to be cash rent or is there other consideration: for example, clearing and grading of the property and stump removal at the end of the lease. Use of the Property – Will the use of the property be wide open, or restricted to the growing and harvesting of trees? Having a use provision in your lease is not necessary but can keep the parties honest with respect to how the property will be used.
Taxes – Taxes are another item that should be addressed up front. As the landlord are you expecting to treat the lease as if it was a triple net lease? If so, you will want to pass on the real property taxes to the tenant.
Maintenance – Most leases include maintenance provisions that require the tenant to follow good management practices and principles in the planting, cultivating, harvesting, use of herbicides or pesticides, and the maintenance of ditches, culverts, water, and roads on the property.
Hazardous Substances – The use of hazardous substances in farming operations is a fact of life. Therefore, it’s good to have these items established up front. I prefer to have the tenant and the landlord agree to indemnify each other and to allow the tenant to use whatever hazardous substances they would customarily use in their farming practice. The tenant should not be responsible for past activities of other tenants or the landlord, and likewise the landlord should not be responsible for the current or future activities of this tenant.
Insurance – Normally the tenant would be responsible for providing liability, workers compensation, environmental, and other insurance protecting the trees and activities of the tenant’s employees. The landlord should have insurance for the buildings that the tenant may be using and for additional liability coverage in the event that an accident or event occurs that could exceed the tenant’s coverage.
Default – Default provisions are good to have with respect to reminding the parties what the other party’s obligations are, and in the event of a breach of the agreement, the rights or obligations of both parties.
Attorneys Fees – It is nice to be able to have an attorney’s fees provision included in the lease in the event that litigation occurs and you prevail. Without the attorney’s fees clause, you would not be entitled to recover attorney’s fees. With it, you may have at least a potential chance of recovering costs and fees in the event of a dispute.
Miscellaneous Provisions – Miscellaneous provisions such as time is of the essence, waiver, inspection, binding effects, “as is”, notices, peaceable surrender, jurisdiction, and representation of the parties, are found in many leases. Christmas tree leases are no different, and again, depending on the complexity and the relationship of the parties, and the circumstances surrounding your lease, you may want to include none, some or all of these provisions.