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lease agreement for agricultural land
A lease agreement for agricultural properties is more than just a piece of paper. It governs the use and benefits derived from the soil and land. To prevent future conflicts, it is important to understand the legal framework and carefully draft the agreement. Do you need assistance in drafting or reviewing your lease agreement? Contact us now.
A well-designed lease agreement is crucial for the long-term security of agricultural use and creates a win-win situation for both landlords and tenants.
Observing the minimum lease terms according to LPG and adhering to the notice periods are essential to ensure legal certainty and to avoid unwanted contract extensions. Early planning is crucial here.
The integration of digitalisation and sustainability into lease agreements allows for a more efficient and environmentally friendly management, which can lead to a potential increase in yield of up to 5% and ensures long-term profitability.
What is a lease agreement?
A lease agreement differs from a tenancy agreement due to the right to benefit from the produce, meaning the economic use of the land. This is especially important for agricultural lands, where the tenant derives income through cultivation or livestock farming. The lease agreement allows farmers to use agricultural land without needing to purchase it, facilitating access to resources and promoting farming.
Why is a lease agreement important for agricultural land?
The lease agreement secures agricultural use by allowing farmers access to land without the need to acquire ownership. This promotes farming and the preservation of agricultural land, which in turn contributes to food production and the maintenance of agricultural diversity. A well-designed lease agreement creates a win-win situation where the lessor receives regular income, and the lessee has the opportunity to generate earnings through their work. More information on this can be found in the real estate lexicon.
Overview of the legal framework
Agricultural lease agreements are subject to both the Civil Code (BGB § 585 ff.) and the Federal Act on Agricultural Leasing (LPG). The LPG supplements and clarifies the BGB to regulate specific aspects of agricultural use. Compliance with both laws is crucial to clearly define the rights and obligations of the lessor and lessee and to prevent disputes. The legal framework is complex, so careful examination and, if necessary, legal advice is essential. Our experts in land lease agreements are happy to assist you with this.
Form of the Lease Agreement
A lease agreement should always be concluded in writing to ensure legal certainty. The written form serves as evidence and helps to avoid misunderstandings and disputes. While verbal agreements are generally possible, they are difficult to prove in the event of a dispute. Therefore, the written form is highly recommended to clearly and unambiguously record all essential parts of the contract. The written form is particularly important when it comes to long-term lease arrangements.
Minimum Content Requirements
A lease agreement must meet certain minimum content requirements to be valid and enforceable. These include a clear definition of the leased property, specification of the rent, agreement on the term of the contract, and determination of the terms of use. An imprecise or incomplete formulation can lead to interpretation disputes and make it difficult to enforce contractual rights. It is therefore advisable to record all essential points in detail and precisely in the contract.
Clear Definition of the Leased Property
A precise description of the agricultural land is essential. This includes information on size, location, and type of use. Any special features of the property, such as existing buildings or facilities, should also be listed in the contract. A detailed description helps to clearly identify the leased property and avoid future disagreements. Our valuation of agricultural land can assist you in this regard.
Specification of Rent
The amount of rent and the payment terms must be clearly and unambiguously stipulated in the contract. This includes information on due dates, payment methods, and any adjustment mechanisms. It is also advisable to make provisions for cases of payment default. A clear agreement on rent provides transparency and avoids disputes. Information on lease agreements can also be found at Firma.de.
Contract Term
The beginning and end of the lease relationship must be set out in the contract. Longer terms are often common in agricultural lease agreements to allow for long-term planning for the lessee. It is also possible to provide for an automatic extension of the contract if neither party terminates it. A clear agreement on the contract term provides planning security for both parties.
Terms of Use
The permitted and prohibited uses of the land should be detailed in the contract. This may involve, for example, the cultivation of specific crops, the keeping of certain animals, or the use of buildings. A clear definition of the terms of use protects the interests of the lessor and ensures that the land is managed correctly. For example, the cultivation of organic vegetables can be explicitly permitted to promote sustainable farming.
Minimum Lease Duration under LPG
The Federal Act on Agricultural Leases (LPG) specifies minimum lease durations to ensure the stability of agricultural operations. There is a distinction between agricultural enterprises and agricultural land. For agricultural enterprises, the minimum lease duration is nine years, whereas for agricultural land, it is six years (Art. 7 para. 1 LPG). These regulations aim to ensure that tenants have sufficient time to amortize their investments and guarantee sustainable management.
Distinction between Enterprises and Land
The distinction between enterprises and land is crucial in determining the minimum lease duration. An agricultural enterprise typically includes several plots and buildings that form an economic unit. In contrast, an agricultural plot may be a single area that is not necessarily part of a larger enterprise. The longer minimum lease duration for enterprises takes into account the more complex economic relationships and the higher investments often associated with an enterprise.
Automatic Extension
If the contract is not terminated one year before the end of the minimum duration, it automatically extends by six years. This regulation is intended to prevent tenants from losing their livelihood at short notice. Therefore, it is important to pay close attention to the notice periods and act in good time if an extension is not desired. However, automatic extension also offers a degree of security for tenants who wish to plan their activities for the long term.
Reduction of Lease Duration
A reduction of the lease duration requires official approval. The tenant must justify the reduction within three months of concluding the lease agreement. This regulation is designed to ensure that a reduction in lease duration does not impair agricultural use. The authority checks whether the reasons for the reduction are valid and whether the interests of the lessor and the public are upheld.
Official Approval Required
The official approval is a significant hurdle in reducing the lease duration. The tenant must demonstrate that the reduction is necessary for compelling reasons and that the interests of the lessor are not unreasonably affected. The authority can refuse approval if there are concerns about the agricultural use or the interests of the lessor. It is therefore advisable to seek advice from the relevant authority before concluding a lease contract with a reduced term.
Termination of the Lease Contract
The termination must be in writing and justified upon request (Art. 16 para. 1 LPG). The notice period is usually one year (Art. 16 para. 2 LPG). It is important to adhere to form requirements and deadlines to ensure effective termination. Oral termination or termination by email is generally insufficient. The termination must be demonstrably received by the contracting party, e.g., by registered mail with acknowledgment of receipt.
Form and Deadline
Observing the form and deadline is crucial for the effectiveness of the termination. The termination must be in writing and received by the contracting party within the notice period. The notice period is usually one year but can be contractually adjusted. Therefore, it is vital to examine the lease contract carefully and observe the notice periods. A late or improperly executed termination may be ineffective and unintentionally extend the contract.
Tenant's Obligations
The tenant has a number of obligations arising from the law and the lease agreement. This includes the duty to manage, the maintenance obligation, and the duty to pay the lease fee. Compliance with these duties is crucial for the proper management of the land and a good relationship with the landlord. A breach of these obligations can lead to the termination of the lease agreement.
Duty to Manage
The tenant is required to manage the agricultural land properly and in accordance with the contract (Art. 21a LPG). This means that the land must be used in a way that maintains or even increases its value. The tenant must apply standard agricultural practices and protect the land from damage. The duty to manage also includes compliance with environmental regulations and soil protection.
Maintenance Obligation
The tenant is responsible for regular maintenance and minor repairs (Art. 22 Paragraph 3 LPG). This means keeping buildings, fences, and installations on the land in good condition. The tenant must repair minor damages themselves and inform the landlord of any major damages. The maintenance obligation serves to maintain the value of the land and ensure safety. Our soil experts can assist you in assessing the condition.
Landlord's Obligations
The landlord also has a number of obligations arising from the law and the lease agreement. This includes the duty to repair and the obligation to ensure the contractual use of the land. Adhering to these obligations is crucial for the proper management of the land and a good relationship with the tenant. A breach of these duties may lead to claims for damages by the tenant.
Duty to Repair
The landlord is generally responsible for necessary repairs (Art. 22 I LPG). However, this obligation can be contractually transferred to the tenant. The duty to repair includes rectifying damages that impair the contractual use of the land. The landlord must carry out repairs in a timely manner to avoid hindering land management.
Compensation for Improvements
The tenant is entitled to compensation for approved modifications and improvements. This means that the landlord must reimburse the tenant for the costs of investments that increase the land's value. The right to compensation is contingent on the modifications and improvements being made with the landlord's consent. The amount of compensation is determined by the increase in the land's value.
Change of Ownership
A change of ownership generally does not affect the continuation of the lease contract. The principle 'Purchase does not break lease' (§ 593b BGB) also applies to agricultural lease agreements. This means that the new owner enters into the existing lease contract and assumes all rights and obligations of the previous lessor. The tenant can continue to cultivate the land and does not need to worry about a new contract.
'Purchase does not break lease'
The principle 'Purchase does not break lease' is an important protective provision for tenants. It ensures that the tenant can amortise their investments in the land and is not disadvantaged by a change of ownership. The new owner is bound by the existing lease and can only terminate it under certain conditions.
Termination rights of the new owner
The new owner can terminate the lease with a notice period of one year if they intend to use the land for construction purposes, public purposes, or for self-cultivation. This termination right is, however, subject to certain conditions. The new owner must prove that they genuinely intend to use the land for the stated purposes and that the termination is reasonable for the tenant.
Right of first refusal of the tenant
If a right of first refusal has been agreed upon, the land must first be offered to the tenant. This means that the lessor cannot sell the land to a third party without first offering it to the tenant for purchase. The tenant then has the opportunity to acquire the land under the same conditions agreed upon with the third party.
Contractual agreement
The right of first refusal must be contractually agreed upon to be effective. It is advisable to record the right of first refusal in the lease contract to avoid disputes. The right of first refusal can provide the tenant with an important opportunity to acquire the land and secure their livelihood in the long term.
Reasons for Termination without Notice
A termination without notice is possible if there is an important reason for termination. This means that the lease agreement can be prematurely ended if one of the parties significantly breaches their duties or if other serious reasons are present. However, termination without notice is only permissible in exceptional cases and requires careful consideration of the facts.
Important Reason for Termination
Examples of important reasons for termination include breach of management duty, arrears of payment, or the death of the tenant. A breach of the management duty arises when the tenant does not properly manage the area or violates environmental regulations. Arrears of payment occur if the tenant does not pay the rent on time or in full. The death of the tenant entitles the landlord to terminate without notice, unless the heirs continue the lease agreement.
Notice Period on Tenant's Death
The tenant's heirs have a notice period of six months. This means that the landlord cannot immediately terminate the lease after the tenant's death, but must allow the heirs a reasonable period to decide whether they wish to continue the lease agreement or not. The notice period begins when the landlord becomes aware of the tenant's death.
Compensation for Premature Termination
If the lease is prematurely terminated by the landlord, the tenant is entitled to compensation. This means that the landlord must compensate the tenant for the damage caused by the premature termination of the lease. The compensation claim is intended to protect the tenant from the economic consequences of an unjustified termination.
Tenant's Claim
Compensation includes the losses incurred by the tenant due to the premature termination. These include, for example, lost profits, costs of finding a new area, or relocation costs. The tenant must prove and quantify the damage. The landlord can avert the compensation claim if they prove that the termination was justified or that the tenant caused the damage themselves.
Digitalisation in Agriculture
Digitalisation is also transforming agriculture and land lease laws. Smart Farming and Precision Farming allow for more efficient and sustainable land management. Through the use of sensors, drones, and software, farmers can optimise their work and conserve resources. Lease agreements also need to adapt to these developments.
Smart Farming and Precision Farming
The integration of technology to optimise management offers many benefits. Using Smart Farming and Precision Farming, farmers can increase yields, reduce costs, and protect the environment. Lease agreements can benefit from these developments by including clauses on technology use or data collection.
Sustainability and Ecological Aspects
Sustainability and ecological aspects are becoming increasingly important in agriculture. Promoting environmentally friendly farming methods and protecting biodiversity and soil are key objectives. Lease agreements must also take these aspects into account.
Promoting Eco-Friendly Farming Methods
Considering biodiversity and soil protection is crucial for sustainable agriculture. Lease agreements can provide incentives for eco-friendly farming methods, such as agreeing on reduced rent if certain environmental standards are met. Promoting organic farming can also be an important goal.
Impact of Climate Change
Climate change has significant impacts on agriculture. Adapting lease agreements to changing conditions is therefore essential. Considering droughts and extreme weather events can help minimise risks.
Adapting Lease Agreements to Changing Conditions
Considering droughts and extreme weather events is crucial for future-proof agriculture. Lease agreements can include regulations to adjust rents for crop failures or provisions for field irrigation. Promoting climate-resistant varieties can also be an important aim.
Before Entering into the Contract
Before signing a lease agreement, you should consider some important points. These include checking the tenant's creditworthiness and inspecting the property. Careful preparation helps to minimise risks and ensure successful cooperation.
Checking the Tenant's Creditworthiness
Checking the tenant's creditworthiness is crucial to ensure that they can indeed pay the rent. For example, you can request a report from a credit agency or ask the tenant to provide proof of income. A thorough credit check helps to avoid defaults.
Inspecting the Property
The inspection of the property is essential to get an idea of the condition of the area. You should inspect the area carefully and document any defects or damage. You should also examine the location and the soil condition. A meticulous inspection helps to avoid future disputes.
During Contract Negotiations
During contract negotiations, you should ensure clear wording of the contract terms and, if necessary, seek legal advice. Careful negotiation helps to protect your interests and conclude a fair contract.
Clear Wording of Contract Terms
The clear wording of contract terms is crucial to avoid misunderstandings and disputes. You should record all essential points in detail and precisely in the contract. Avoid unclear or contradictory clauses as well. Careful wording helps to secure your rights.
Seeking Legal Advice
Seeking legal advice can be beneficial to ensure that the lease agreement aligns with your interests and does not contain any inadmissible clauses. A lawyer can assist you in drafting the contract and inform you about your rights and obligations. The costs of legal advice can be worthwhile to prevent future disputes.
After the Contract has been Signed
After the contract has been signed, you should regularly check compliance with the contract terms. Careful monitoring helps to identify and resolve issues early on.
Regularly Checking Compliance with Contract Terms
The regular checking of compliance with the contract terms is important to ensure that the tenant fulfills their obligations and manages the area properly. You should visit the area regularly and, if necessary, inform the tenant of any defects or violations. Careful monitoring helps to maintain the value of the area and ensure successful cooperation.
Summary of Key Points
A well-designed lease agreement is crucial for the success of agricultural use. It secures the rights and obligations of landlord and tenant and establishes a solid foundation for long-term cooperation. Observing the legal principles, clearly formulating the contractual terms, and regularly reviewing compliance with these terms are important success factors.
Importance of a Well-Designed Lease Agreement
A well-designed lease agreement is the basis for successful and sustainable agricultural use. It creates clarity, security, and trust between the landlord and tenant. Investing in careful contract design pays off in the long run.
The Future of Land Leasing
Land leasing will continue to play an important role in agriculture in the future. However, adapting to new challenges and opportunities is essential. Digitalisation, sustainability, and climate change require new approaches and innovative solutions.
Adapting to New Challenges and Opportunities
Agriculture faces major challenges, but also significant opportunities. Digitalisation, sustainability, and climate change demand new approaches and innovative solutions. Lease agreements must adapt to these developments, allowing farmers to future-proof their operations.
Do you want to optimise the valuation of your agricultural land or need support in designing a lease agreement? Enter assists you with cutting-edge technology and expertise. Contact us today to learn more about our services and find your tailored solution.
The Deutsche Bundesbank provides insights into land prices and agriculture through its publications on agricultural land prices and lease agreements.
Wikipedia offers a comprehensive overview of land leasing in Germany.
The Thünen Institute provides detailed market and price reports for agricultural land.
The German Farmers' Association offers insights and information on land use from an agricultural perspective.
Destatis provides information on leasing prices and purchase values for agricultural operations.
Statistics Berlin Brandenburg provides information on rising lease prices and ownership as well as lease conditions in Brandenburg.
What distinguishes a lease from a rental agreement for agricultural land?
A lease differs from a rental agreement due to the right to derive benefits. The lessee is allowed not only to use the land but also to harvest its produce (e.g., crops, animal products). This is crucial for agricultural land.
What are the minimum terms for agricultural leases?
According to the Federal Law on Agricultural Leasing (LPG), the minimum lease term is nine years for agricultural enterprises and six years for agricultural land. If the agreement is not terminated on time, it renews automatically.
What should be considered when terminating a lease?
The termination must be done in writing and justified upon request. The notice period is usually one year, but this can be contractually different. It is important to strictly adhere to formal requirements and deadlines.
What are the obligations of the lessee of agricultural land?
The lessee is obliged to operate and manage the land properly and according to the contract. They must use the land in a way that maintains or even increases its value. Additionally, the lessee is responsible for regular maintenance and minor repairs.
What are the obligations of the lessor of agricultural land?
The lessor is generally responsible for necessary repairs, although this duty can be contractually transferred to the lessee. They must ensure that the lessee can use the land as agreed and have the right to receive lease payments.
What happens to the lease if ownership changes?
The principle 'purchase does not break lease' applies. The new owner enters the existing lease agreement and assumes all rights and responsibilities of the former lessor. The lessee can continue to operate the land.
What is a right of first refusal and how does it affect the lease?
If a right of first refusal has been agreed upon, the lessor must first offer the land to the lessee for purchase before selling it to a third party. This gives the lessee the opportunity to acquire the land and secure their livelihood in the long term.
What role does digitalisation play in modern agricultural leases?
Digitalisation enables more efficient and sustainable farming through Smart Farming and Precision Farming. Modern leases can include provisions for the use of technology and data collection to take advantage of these benefits.
