Commercial and Agricultural Leases

A lease entered into for a period exceeding one year must generally be in writing to be enforceable (Civil Code §1624(a)(3).  A lease must include a description of the property such that the parcel can be identified, the amount of rent to be paid, the time and manner of payment of rent, and the duration of the lease.  Agricultural leases may not exceed a term of 51 years (Civil Code §717).

Leases of agricultural property for farm or ranch purposes present specific issues that should be addressed in a formal written lease agreement, such as the responsibility for the maintenance and repairs of improvements on the land, i.e. wells, pipes, out buildings, and fences; the manner in which the land will be used; provisions for automatic renewal of the lease term; the cleanup of the land when the lease term is completed; the sources of water; the issues concerning shared infrastructure and roads; and the adjustments in rent for increase in property taxes, assessments, insurance or other expenses.

If a relationship in an agricultural venture is characterized as a partnership agreement, rather than as a lease agreement, then there may be undesirable consequences, including joint liability for partnership losses (Corporations Code §16401(b)), joint and several liability to third parties (Corporations Code §16301), and the right of one general partner to bind other partners to agreements concerning partnership affairs (Corporations Code §16301).  Generally, a lease of farm or ranch land will include a denial of any partnership relationship between the parties.

The landlord should consider the financial condition of the tenant.  For example, a tenant might become insolvent and allow crops to waste, resulting in substantial expense to the landlord to evict the tenant, clean the land of debris, and prepare the property for lease to a subsequent tenant.   The provisions of a lease pertaining to damages in the event of breach are important and may determine whether the landlord can only recover the rental value while the tenant was in possession, or whether the landlord can recover damages based upon the unpaid rent for the contractual term of the lease.

Commercial leases of real property often involve issues such as the manner of calculating common area maintenance fees, the use of common areas, the hours of operation, provisions concerning non competition by the landlord or other tenants, additional rent based on increases in gross revenue, the rights to assign the lease or sublet the premises, renewals of the lease, automatic increases in rent, and the responsibility for the maintenance and repair of the premises, including the roofs, heating and air conditioning systems, and electrical and plumbing systems. Again, provisions concerning the calculation of damages in the event of breach of the lease are critical.

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