4. The Elements of a Tenancy Agreement
5. Good Practice with Respect to Licenses and Sharecropping Agreements
6. Recommendations for implementing good practice tenancy arrangements
Introduction
Names of the parties
The commencement date and duration of the agreement
Description of the property
A record of the agreement
Use rights and responsibilities
The right to termination
The principal covenants in the agreement
Covenants relating to the upkeep of the land
Covenant to return the land in a similar condition at the end of the lease
Arrangements for undertaking improvements or changes of use
Financial responsibility for shared resources
Rent or other consideration
Arrangements for compensation
Dispute resolution
4.1 Part 2 of the guidelines present the types of factors that should be included in tenancy agreements. To a large extent, it treats tenancies in the generic way in which they have been considered in Part 1. In so doing, the fundamental difference between interests in land and personal interests, present in many legal codes, will be largely ignored. While adopting a generic approach to tenancies, rather than a legal one, in this chapter, it is recognized that, at certain points, distinctions will need to be made between leases and licenses. Chapter 5 discusses the additional, or different, provisions that are essential good practice in license arrangements, with special emphasis on sharecropping arrangements given their significance in global terms. Chapter 6 describes recommendations for implementing tenancy arrangements.
4.2 It should be recognized that the discussion in Part 2 relates to good practice that may be found in societies that adhere to the rule of law, or aspire to it, and in which parties are able to enter into voluntary agreements that are relatively equitable. These practices help to clarify the leasing arrangements agreed to by the parties rather than attempting to change the power balance between parties. However, even in jurisdictions where there are imbalances of power, recommendations that introduce transparency can help to protect the rights of the weaker party.
4.3 Box 4.1 lists the generic elements of good practice in tenancy arrangements. While it is not necessary that every lease should include all the elements, any major deviation from them might result in a lease arrangement that is less than optimally efficient.
BOX 4.1 GOOD PRACTICE IN AGRICULTURAL LEASES
4.4 The identity of the parties to an agricultural tenancy is at the very core of the agreement, providing a level of protection and a basis for building trust for those involved. The identity of the parties is also a central concern to those formulating policy in this area. While agreements between single landowners and single tenants may present little problem with respect to identity, the presence of co-landowners or co-tenants may present particular issues that need to be addressed. If there are co-owners, do they own the whole farm jointly (thus offering a single agreement) or do they each own part (effectively dividing the agreement between them)? If there are co-tenants of the farm, good practice would be to ensure that the tenancy would continue in the event of the death of one of the tenants.
4.5 A greater potential issue emerges when all the effective tenants are not named as parties to the agreement. This is often the case in family farming, where a single tenant (the farmer, usually male) is named, although it is likely that the whole family is farming the land. This may not have any legal consequence while the farmer is living. However, on the farmer’s premature death, the tenancy could be terminated thus depriving the surviving family members of the land that they had been farming. This has been addressed in some jurisdictions, by granting certain family members limited succession rights. This is most commonly restricted to the spouse (usually wife) being allowed to remain on the land until the end of the lease term. In some cases this right is extended to allow the spouse to assume all the rights available to the original named tenant (which may include a right to a new or extended lease term, or to end-of-term compensation, for example).
4.6 The need for an agreed date of commencement (the term date) ensures that both landowner and tenant know when the responsibility for the property shifts from one to the other. It is also important to agree to the length of the agreement. This can be a fixed term (e.g. one year), with or without an option to renew, or it can be periodic (e.g. monthly or yearly), often subject to a minimum initial term. Some agreements allow for ‘hold-over’ with tenants remaining on the land at the end of the lease. This is formalized in some systems, by introducing formal procedures for agreeing (or imposing) lease renewal.
4.7 While term lengths can be the subject of statutory intervention and control (see Part 3), it is good practice in all cases to match the term length to the predictable outcomes required from the agreement. This could be in relation to the type of crops to be grown. Whereas the complete cycle for some vegetable crops can be two to three months, for example, a lease to grow coconut trees would need to be at least 50 years’ duration. Equally, the length of the agreement may be related to family requirements, such as the length of time needed for the next generation of the landowner’s family to be ready to farm.
4.8 In all cases it is desirable that the property to be leased should be clearly and unambiguously described. In the case of a small parcel of land to be leased for grazing on an annual basis, a verbal agreement will generally be sufficient (to insist on a written agreement for such informal transactions would be wholly contrary to most established practice, as well as being overly bureaucratic). However, regardless of whether the agreement is in writing, reference should be made to how the extent of the land has been determined. For longer terms, larger parcels, or land and buildings, a plan and written description are preferable. Not only will these documents set out what is, and is not, included in the agreement, but they can also form the basis of further agreements and covenants.
4.9 Although contracts for the occupation of property can be - and often are - verbal, it is good practice to ensure that longer-term agreements are recorded in writing. In Denmark, for example, all agricultural tenancies have to be in writing, making specific reference to the rent and the length of term of the agreement. A similar situation exists in Germany. In addition, under some jurisdictions such written agreements have to be in a particular style or format, or under legal seal. For example, customary tenants in Botswana receive a Certificate of Customary Land Grant as evidence of their rights. In other cases, the written version of the agreement merely adds clarity and certainty to a verbal agreement. In the case of longer agreements, it may be desirable to have compulsory registration of the lease (see Part 3). In many jurisdictions registration only applies to long term leases, for example, those of 20 years or more.
4.10 The degree to which tenants are granted exclusivity of possession is one of the key defining elements of tenancies and licenses. For a full tenancy, the expectation is that the tenant will have full and exclusive possession. This means that the landowner may have to make specific reservations about having access to the land, for example, by reserving the right to inspect the property at periodic intervals. Such an interval would be dependent upon the type of property and the use to which it was being put. Where an annual condition statement was being prepared as part of the agreement, the inspections might usefully be timed to coincide. Equally, if the landowner has specific maintenance or repair obligations, a right of access to undertake these will need to be reserved. In such a case, the tenant might have the right to exclude others, as if the property were in full ownership. Quite apart from passing occupational responsibility from landowner to tenant, this situation gives the tenant maximum managerial freedom, including the ability to create lesser interests, such as licenses and (sometimes) subleases, to bring contractors and other specialists onto the property.
4.11 No such exclusivity is transferred to a licensee. Rather, the licensee is given permission to undertake operations on the land (such as tilling or grazing), while all the occupational rights and liabilities remain vested in the landowner. In the case of a license, therefore, the landowner has no need to reserve rights of entry or other legal requirements, since full legal possession is not granted to the licensee.
4.12 Good practice would be for tenants to have freedom of choice of cropping within appropriate limits. It is recognized that, particularly with respect to short-term agreements, this type of freedom is largely aspirational in many parts of the world. Box 4.2 describes how labour tenants in Colombia struggled for and won some rights over the use of their land.
BOX 4.2 FREEDOM OF CROPPING IN THE VIVIENTE SYSTEM OF COLOMBIA
Vivientes were typically landless peasants who lived and worked on haciendas, in return for being granted a small plot upon which to cultivate their own crops. While, originally, their control over this plot would have been minimal, vivientes gradually gained some rights, through a series of legislative measures. Under Ley No. 200, 1944, Ley No. 290, 1957 and Ley Sexta, 1975, vivientes gained the right to a minimum plot size of 0.5ha, unrestricted use of this land (allowing them to grow coffee trees as well as food crops), no obligation to give part of their harvest to the landowner, and compensation for improvements to the land. While viviente rights over these small parcels of land have been strengthened, landowners have become increasingly reluctant to continue with this system, preferring instead to have sharecroppers, whose contracts can more easily be terminated.
(Raymond, P. 1986. ‘La aparcería en las haciendas charaleñas.’ Cuadernos de agroindustria y economía rural 17(2): 105-156).
4.13 When considering the duration of the agreement, both parties should have the expectation of completing the term. Where the lease is annual, or relatively short term, this may not be an issue. For longer terms, however, there may be some circumstances in which the landowner may wish to regain possession (due to business failure, or the tenant’s need to move to a larger or smaller farm or parcel of land). To cover these types of cases a clause can be included in the agreement, allowing either party to terminate at specified times, and for specified reasons. For example, Customary Land Grants in Botswana can only be terminated by the landowner against the tenant’s will in four specific instances:
4.14 Regardless of the type of lease, it is always important to establish the basis upon which the agreement is made, as set out in a series of covenants or agreements. The list of possible covenants relating to tenancies is long. However, the usual ones include covenants relating to the upkeep of the land, together with ensuring that the land is returned in a similar condition at the end of the term, arrangements for undertaking improvements, covenants against assigning or subletting the land or property without the landowner’s permission, and covenants to pay taxes. The types and forms of covenant suitable for a license may vary, since exclusive possession has not passed to the licensee. Interestingly, tenancy deregulation in England and Wales has led to the widespread imposition of environmental protection requirements with new leases.
4.15 While there may be a covenant or other form of agreement to keep the land in good condition, good practice - certainly for the leasing of farms - would also include a full allocation of the maintenance and repair obligations between landowner and tenant. The details of this allocation will depend upon the length and other terms of the lease, with longer terms tending to be associated with a greater obligation on the part of the tenant. These types of covenant should be included even if the agreement relates only to a small parcel of land, for even in these cases drainage channels and boundaries can still require attention.
4.16 The nature and length of full tenancies of whole farms might suggest that tenants should expect to undertake most maintenance operations. However, it is not reasonable, nor is it good practice, to expect them to repair the actual structure of buildings or other capital. While there is no common prescription, good practice would be to retain a landowner/tenant division of responsibilities, with the landowner taking care of the structure of the buildings and the tenant taking care of the internal fittings and equipment.
4.17 Regardless of the division of maintenance responsibilities between landowner and tenant, all leases should include a covenant by the tenant to return the land in good condition. It should be noted that this type of covenant often refers to ‘good condition’, rather than in a similar condition to when it was leased. This is on the basis that, under many legal jurisdictions, covenants to keep in good condition also include first putting the land into good condition.
4.18 An oral agreement can be enough to cover this covenant on a small parcel of land, or for a short-term agreement. For a larger parcel, a complete farm or a longer lease term, the preparation of a full statement of the physical condition of the property at the time the tenancy was granted can also be good practice. While a poor initial condition would be no defence to a failure to leave the property in good condition at the end of the term, there is always an element of reasonableness, about how much can be achieved within any given time. An on-going record of condition meets this need. In addition, the standard of repair that should be acceptable is that which is commonly found in the area. Again, a record of condition facilitates such a comparison.
4.19 In addition to establishing respective responsibilities for maintenance and repair, it is good practice to ensure that no alterations or changes of use are undertaken by the tenant without the landowner’s express consent. There may need to be exceptions to this, for example to create stock-proof boundaries around a parcel of land.
4.20 In longer agreements, particularly where exclusive possession is granted to the tenant, the landowner may need to assign responsibility for paying various charges connected with the use and occupation of the property. These charges might include local taxes and levies (such as a water charge), a proportion of the maintenance cost of shared resources (such as service roads and drainage) and a sufficient insurance premium to cover fire, theft and other damage. Again, the nature and extent of these shared responsibilities will be dependent upon both the character of the land being leased, as well as the expected duration of the agreement.
4.21 It is essential that the tenant pays a rent or other consideration (such as a share of the crop or other output) to the landowner. The actual value of the consideration may not be known at the start of the agreement (as would be the case with a share of the output under a share farming agreement). Nevertheless, the lease should specify clearly how the consideration would be calculated and when it is due to be paid (see Box 4.3 for an example from Nigeria).
BOX 4.3 CONSIDERATION FOR LAND IN IBOLAND (NIGERIA)
Like many African countries, the custom in Iboland was to pay a one-off ‘tribute’ or symbolic payment in consideration for the use of land. Having paid the tribute, farmers were then free to use as much land as they could farm. This system, known as the Kola tenancy, effectively meant that a single premium was paid for permanent occupation. In many cases, Kola tenancies are being supplemented by reference to the amount of land being used and the size of the annual harvest.
4.22 The overriding factor to be borne in mind when establishing the consideration is that it should be specified and certain. This does not preclude ‘non-paid’ elements, such as existing customary ‘mutual help’ arrangements, which are common elements of practice in many countries. What lease agreements should exclude, however, are the exploitative arrangements whereby tenants and their families are expected to provide ‘unspecified’ elements of rent, such as unpaid labour.
4.23 In addition to establishing the value of the consideration and the dates on which it is to be paid, it may also be necessary to reserve the right to review it at one or more of a series of specified dates in the future. Review clauses are more likely to be found (and are more necessary) in full long term leases, where the tenant is usually paying a cash rent. In these cases, where the real value of the rental level may vary because of inflation and/or currency fluctuations, and where the relative value of agricultural products may change over time, periodic reviews will protect the landowner’s financial interest in the property and the tenant’s ability to pay.
4.24 While many agreements do not address issues of compensation, it can be particularly important with respect to farming. This is because there is often a need, or a requirement, for improvements or alterations to be made to the land, to make it suitable for its use. In some cases, these improvements will incur costs that cannot be recouped at the end of the lease, yet may add value to the land. In these cases the tenant should be able to claim compensation for this increase in value.
4.25 Conversely, the alterations may have damaged the land, thus reducing its value. In this case it would be the landowner wishing to claim compensation for the loss in value. In order to avoid this, some jurisdictions insist that such investments be amortized over the life of the lease. This can, however, discourage major investments, particularly as the expiration of the lease approaches and the time horizon shrinks.
4.26 In all cases it is good practice to negotiate both the conditions under which compensation is to be paid, and the way in which the value of compensation is to be calculated. This is particularly important to establish, given the potential differential in the balance of power between landowners and tenants once the tenancy has commenced. In terms of calculating the amount due, this can either be in terms of an adjustment to the rent or other consideration paid, or it can be reflected in the capital value of the land.
4.27 Provision should be made for resolving disputes, should they arise. Such provision should cover both general disputes between the parties, as well as specific disputes relating to issues such as rent reviews, maintenance obligations and requests to undertake improvements. As important as dispute resolution is dispute avoidance. In all cases, therefore, agreements should attempt to anticipate where disputes are likely to occur, so that avoidance measures can be taken.
Introduction
Names of the parties
Agreement to share the land
Commencement, duration and termination of the agreement
Share of inputs
Share of outputs
Dispute avoidance and resolution
5.1 While Chapter 4 referred to the generic situation of the tenancy, this chapter describes the elements of those landowner/tenant relationships that are more properly viewed, in legal terms, as licenses or personal agreements to use land. Indeed, the ubiquity of the sharecropping agreement throughout much of Africa, Asia and South America indicates that it continues to be the dominant form of leasing in agriculture. Sharecropping and other license agreements have the effect of dividing the responsibility for farming between the landowner and the sharecropper/licensee and so have a different status and impact. Whereas the case of tenancy involves one party leasing out land to another, a sharecropping or other license agreement involves one party granting a license to another. The expectation is that, under a license arrangement, landowners will be more actively involved in the farming of the land. However, in many regions (particularly where there are large landholdings) they are seldom actively involved in farming, other than providing access to land and some minimal input to the sharecropper.
5.2 The rights to land transferred by a landowner under a licence agreement may be less than those transferred through a tenancy. However, it does not necessarily follow that a license agreement should be less comprehensive than a tenancy agreement. Indeed, ensuring that a license agreement adequately addresses the shared inputs and outputs can make it just as complex as a tenancy agreement, although in different ways.
5.3 In common with tenancies, there are a number of essential provisions which should be addressed in all license agreements. In the case of simple license agreements, the essential provisions relate to certainty and clarity, particularly in terms of the parties, the reason for granting the license, the duration of the agreement and the license fee that has been agreed. Sharecropping licenses can be more complex, having to address fully the share relationship between landowner and sharecropper. As a result, this section will deal with sharecropping agreements in particular, rather than license arrangements in general. The essential provisions of sharecropping agreements are illustrated in Box 5.1. In line with the discussion in Chapter 4, these practices clarify the agreement between the parties rather than change the power balance between parties. However, even in jurisdictions where there are imbalances of power, recommendations such as introducing transparency in assessing harvest outputs may help to avoid disputes.
BOX 5.1 GOOD PRACTICE IN A LICENSE AGREEMENT
5.4 In common with a tenancy agreement, a sharecropping agreement must refer to the parties by name, particularly since it is a personal agreement between owner and sharecropper.
5.5 This can relate to the whole or a part of a parcel of land, or a farm. It is fundamental to the relationship between landowner and sharecropper, since it sets out the reason for the agreement being reached (and, by inference, why it is not a lease) and the way in which the land will be managed. Since the agreement does not involve the transfer of rights in property, the sharecropper will need to specify a right of access to the land to undertake the farming operations.
5.6 In common with a tenancy agreement, the commencement date and duration of the agreement should be determined in advance. The key consideration in a sharecropping arrangement would be to ensure that the parties have sufficient opportunity to carry out their intended agreement. This intention could range from a few months, for a single season crop cultivation, to several years, in the case of livestock. Alternatively, either party may wish to add break clauses. These could relate to specific external events, such as the land being required for specified other uses, or to non-performance of the agreement by either party.
5.7 This provision refers to which of the individuals is responsible for supplying which of the inputs necessary to farm the land. While, in practice, both parties usually supply inputs, the agreement could range from a simple division between all fixed and variable capital (landowner) and labour (sharecropper), to a highly complex arrangement. In the former case a brief reference to the division may be sufficient. In the latter case, it could be necessary to draw up an inventory of all the capital and equipment, with a specific percentage allocation against each item. If appropriate to the scale of the agreement, reference should also be made to which party bears which costs, insurances, repairs and maintenance, and which party is responsible for accounting for farm-related expenditure.
5.8 Rather than the rent of a tenancy arrangement, a sharecropping agreement should refer to shares of the gross physical output of the land. This could be a straightforward division according to the share of inputs agreed between the parties. Alternatively, a more complex division can be used, reflecting not just the relative share of inputs, but also how these inputs have impacted on output. An example of this would be a first tranche of output - usually up to an agreed limit - divided according to the strict value of the inputs, followed by the remainder of the output (the top slice) being allocated according to managerial input. Given the value of the land, the landowner is likely to gain a larger share of the initial output, while the greater managerial input of the farmer should warrant a larger share of the top slice of output.
5.9 Although disputes could relate to any aspect of the agreement, the most common are those relating to the respective shares of output. These disputes commonly arise through a lack of trust between the landowner and farmer. It is often the case, for example, that the landowner believes that total gross output is greater than the farmer claims, implying that the farmer has taken a greater share than was originally agreed.
5.10 While dispute resolution procedures similar to those used in tenancies should be specified for such cases, good practice would be to avoid this type of dispute arising at all. This can be achieved by making it a condition of the agreement that the farmer must inform the landowner when the harvest will take place. This will give the landowner the opportunity to verify the gross output, either in person, or through the delegation of this right to an independent third party.
Introduction
The preparation of a model lease, or lease terms
An undertaking to refer to a model agreement when lease terms are in dispute
Improvements in transparency
Access to appropriate information
6.1 This chapter focuses attention on good practice in ensuring that agricultural tenancies can be implemented effectively. In this respect, a distinction can be made between technical factors, which relate directly to lease relations, and contextual factors, which relate to the environment in which leases operate, and which are discussed in Part 3. Developing an effective mechanism for improving agricultural lease arrangements is fundamental to achieving good practice. In addressing improvements related to technical factors, emphasis is placed on instigating achievable actions.
6.2 Model leases are already available in a number of countries. These are sometimes drafted by government, as officially-recognized forms of agreement, or by landowner or farmer groups, as services to their members. Model leases are also often available from lawyers and others involved in drafting lease agreements. While being necessarily general in nature, such an approach does ensure that all critical issues are addressed when the agreement is drawn up, even if a decision is made to vary or ignore them.
6.3 The development of a model lease may appear to deny the flexibility often demanded in landowner/tenant relationships. However, this need not be the case. Using the essential elements of a lease outlined in these guidelines, the simplest form of contract may be little more than a page in length, dealing only with the fundamental factors of the parties, the land, the commencement and termination dates, and the consideration. For more complex agreements, particularly for share arrangements, or for the lease of a farm, additional pages could be added, covering the other elements that need to be addressed. In this way, a model lease could actually comprise a variable number of standard pages, depending upon the complexity of the agreement and the wishes of the parties.
6.4 Related to the development of a model lease can be an official expectation of what is normally included in such agreements, including a standard, or ideal, division of responsibilities and entitlements, for both inputs and outputs. While not binding individual agreements, nor restricting the rights of parties to decide upon their own terms, this normative expectation can be used in the case of disputes, to imply the types of rights and responsibilities normally found in such arrangements. One such right might refer to the expectation that all agreements for the lease of an entire farm will be in writing. This might enable either party to an agreement that is not in writing to seek their right to a written agreement, subject to the lease terms which they have previously agreed.
6.5 In addition to promoting good practice in agreeing to lease terms, provision should also be made for ensuring that lease agreements, particularly those for long terms, are kept securely so that either party to an agreement can gain access to what they originally agreed, in the event of a dispute. Some jurisdictions require the registration of long-term leases (for example, of over 20 years) to provide publicity of the fact. Doing so ensures that any parties intending to enter into a transaction with the landowner are aware that others hold significant rights to the property. In recognizing that there could be considerable difficulty and cost in meeting this requirement in some jurisdictions, an interim or alternative measure might be to delegate the role of recorder to a senior member of the local community.
6.6 One of the principal factors inhibiting the development of leasing arrangements in all parts of the world is a lack of appropriate information on current lease practices and trends. The development of a simple recording system for rents, fees and input/output shares, for example, can put tenants into a much stronger position in negotiating a lease. Similarly, such a system will also inform landowners whether or not they are gaining appropriate returns from their land. Given the range of variables that can effect rents and other payments, such systems are usually best collated at the local level, and could be combined with the function of registering lease agreement documentation. More sophisticated systems could also include lists of common lease obligations, reference to commodity prices and to other sources of useful information, such as the cost and availability of credit.
