You purchase 40 acres of beautiful, irrigated alfalfa. You calculate that you will have unlimited free hay for your horses.
But a month after you move in, a green tractor rolls onto your property and a local farmer starts cutting your grass. When you run out to stop him, he tells you he has been farming this field for fifteen years. Who owns that hay?
When buying large acreage in Colorado, it is incredibly common to inherit an agricultural tenant. A good lease is a massive asset, saving you thousands of dollars in property taxes and maintenance. A bad lease, or a poorly documented one, is a legal nightmare.
Here is what you need to verify about farming agreements before you close on a rural property.
Is There a “Lease Agreement” in Place With a Local Hay Farmer?
Quick Summary: The Crop Share Reality
- The mutual benefit: A lease agreement allows you to own large acreage without the burden of buying heavy farm equipment. The farmer gets the crop, and you get the property tax benefits of active agricultural use.
- The handshake hazard: Many rural leases are informal verbal agreements. These handshake deals rarely hold up or transfer cleanly during a real estate sale, leaving the new buyer in a legal gray area.
- The crop share model: Instead of cash rent, many leases operate on a “crop share” basis. The farmer cuts the hay, and the landowner keeps a percentage, often 30% to 50%, of the baled hay for their own horses.
- The eviction rules: You cannot simply lock a tenant farmer out of the field mid-season. Agricultural laws heavily protect a farmer’s right to harvest the crop they planted and fertilized.
A good agricultural lease can be a major asset. A vague one can turn into a dispute the day you close.
1. Why You Actually Want a Tenant Farmer
Owning a massive hay field sounds romantic until you price a new tractor, a baler, and an irrigation pivot.
The equipment barrier
- Commercial hay production requires hundreds of thousands of dollars in heavy machinery.
- If you only own a few horses, buying that equipment makes zero financial sense.
The tax strategy
- To keep your property taxes incredibly low with Ag-Status, the land must be in active agricultural production.
- A formal lease with a commercial farmer satisfies the county assessor perfectly.
The maintenance
- The farmer takes over the hardest parts of land management.
- They manage the irrigation schedules, coordinate the harvest, and keep the property looking manicured.
2. The Danger of the Handshake Deal
The biggest problem in rural real estate is the lack of paperwork.
The old ways
- The previous owner might have let “Bob down the road” cut the hay for the last decade based on a conversation at the local diner.
The title issue
- When you buy the property, you need to know if Bob has a legal right to the upcoming harvest.
- If there is no written contract, the legal default often favors the farmer who put the time and fertilizer into the ground that spring.
Before you buy, require the seller to produce a written lease. If one does not exist, the seller should put a termination agreement or a formal transfer agreement in place before closing.
3. Understanding the Lease Terms
If a written lease does exist, you need to read the fine print. Agricultural leases are very different from residential house leases.
The payment structure
- Is it a cash rent lease where the farmer pays you a flat fee per acre?
- Or is it a crop share lease where no money changes hands, but you keep a certain number of bales for your own barn?
The input costs
- Who pays for the fertilizer, the weed spray, and the electricity to run the irrigation pumps?
- A good lease clearly divides these heavy operational costs.
The expiration date
- Most farm leases run year-to-year and automatically renew unless canceled by a specific date, often in the late fall.
- You need to know exactly when your window to terminate the lease opens.
4. Taking the Land Back
If you want to use that acreage to graze your own herd or build a cross-country course, the transition has to be managed carefully.
The growing season
- You generally cannot evict a farmer during the growing season.
- If they planted the crop, watered it, and fertilized it, the law often protects their right to harvest it and make their profit.
The notice period
- To take the land back, you usually must provide written notice well before the next planting season begins.
The transition burden
- If you end the lease, you become fully responsible for weed control, irrigation maintenance, and proving your own Ag-Status to the county assessor.
We Review the Farm Contracts
We do not just look at the deed. We look at the operations.
When Mark Eibner and Belinda Seville help you buy a working farm or ranch, we ask the seller for all active tenant leases immediately. We help you understand the crop share math, verify the farmer’s water rights access, and make sure you are protected from surprise harvest disputes.
Contact Us Today to find a property with a profitable and clear agricultural setup.
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Frequently Asked Questions (FAQ) About Hay Leases
Do I have to pay income tax on the hay I get from a crop share?
Yes. The IRS generally considers your share of the crop to be rental income. Even if you feed that hay directly to your horses instead of selling it, its fair market value may need to be reported as income on your tax return.
What if the farmer ruins the field by overwatering or neglecting weeds?
A well-written lease should include good husbandry clauses. These require the farmer to maintain soil health and manage noxious weeds to state standards. Violating those clauses can be grounds for early termination.
Can I require the farmer to use organic methods?
You can negotiate that into a new lease, but you generally cannot impose brand-new rules on an existing tenant mid-season. Organic production changes their input costs, management plan, and expected yield.