by Sonja Heyck-Merlin
Mike Ghia, the Vermont field agent at Land For Good, gave an overview of best practices in developing sugarbush leases in a recent webinar. His presentation drew off leasing resources developed by University of Vermont Extension as well as his direct experience assisting sugarmakers and landowners in the development of maple sugaring leases, including the lease for his own maple operation.
Land For Good is a New England-based nonprofit working on issues related to farmland access and tenure as well as farm transfer and succession planning. The webinar was sponsored by University of Maine Cooperative Extension.
“One of Land For Good’s big missions is to help people put together agricultural leases,” said Ghia. “A lot of rental situations out there are based on a handshake, and we see all kinds of problems that arise with these handshake agreements. They’re not enforceable and when misunderstandings come up, it’s often because things were not spelled out in writing so that both parties understood them.”
According to Ghia, drafting a sugarbush lease begins with defining the parties and providing a description of the premises, being specific about what the tenant has access to and what they don’t. Access points should also be included.
“It’s not uncommon for a sugarbush to be embedded in a much larger forested parcel that’s owned by the same person. They may not want you to have access to the entire parcel, and they may want you to only enter and exit from certain places,” Ghia said.
Ideally, all of this access information should be recorded on maps which are included as appendices in the lease agreement. It’s also important to define when the land can be accessed, including the time of year and even the time of day. Otherwise, Ghia said, “People may have assumptions about when the tenant is going to be there.”
Insurance and liability clauses are a critical component of leases, with Ghia advising that the tenant name the landowner as the additional insured in their liability policy. “Basically, you’re sharing your insurance with the property owner in case something goes wrong on the property,” he said. He stressed that if a tenant has employees working on the leased land, it’s imperative to have workers’ compensation insurance as required by law. According to him, a liability policy typically becomes void if you’re required by law to have workers’ compensation insurance but do not have it.
Lease terms are another item that should be included in a lease. In Vermont, Ghia said, the most common length is 10 years. If a producer is investing in tubing, vacuum pumps, etc., they want to make sure the investment is protected for as long as it takes to depreciate it. It should also be clear who owns these investments – the assumption in the law is that the improvements belong to the landowner unless specified in the lease. Particularly if the tenant is paying for the improvements including tanks, vacuum pumps and releasers, it’s important to document that they are the owner.
It’s critical to include a clause that discusses renewal. Ghia suggested that the tenant and landowner discuss renewal options in year seven of a 10-year lease and this be required in the lease. A lease can also have an automatic renewal option.
“Have a clause that makes the lease bearing on heirs, successors, purchasers, assigns and agents. That way, if someone does pass away, becomes disabled or decides to sell the property, the lease will carry through to the new owner or the person managing their affairs,” Ghia said. “Also, think about inserting a buy back clause. This is if the tenant has not fully depreciated their investment when the lease ends, the landowner will buy the undepreciated value of the infrastructure. This, however, has to be of value to the landowner for them to go along with this type of clause.”
Ghia recommended codifying the extent to which a tenant is permitted to carry out forest management. Some landowners don’t want anything cut whereas others permit logging and practices to help the sugarbush produce for the long-term. It’s also important to be clear on who owns whatever wood is harvested and who will receive the income from its sale.
Should a conflict arise, Ghia said the lease should have a default clause that provides for a right to cure. If either party has a problem, they should have at least 30 days to fix the problem rather than have the lease terminated. A further step is to include a dispute resolution clause – if the conflict can’t be solved through tenant/landowner communication, the next step is professional mediation.
In the Maple Resource Library, found on the UVM Extension maple management webpage (uvm.edu/extension/agriculture/maple/bizmodules/node/7323), there is a sugarbush lease guide as well as a sugarhouse lease guide. The guides include boilerplate templates with different sample clauses for each section of the lease. Land For Good also has a Lease Toolbox of Resources on its website (landforgood.org).
Land For Good also provides up to two hours of free consultation to tenants or landowners but warns that although they can provide guidance about leases, they are not attorneys. Ghia recommended that people take their draft leases to their attorney before signing.
“We do all of these agreements with the idea that the tenant and landowner are communicating about all of these issues ahead of time. Good communication and building trust are the most important part of a lease relationship. Hopefully, the lease agreement can be put in a filing cabinet and not thought about again, but if there are any questions, it doesn’t have to be a dispute,” Ghia said. “The lease can be brought out again to clarify what everyone agreed to. If there isn’t good communication, and when it’s not in writing, good relationships can break down pretty quickly.”