Respecting the Renter

Welcome And Listener Request

Devon Davidson 0:00

The Farmland Exchange, the official podcast of chbid.com. Expert insights on buying and selling farmland in Western Canada. Welcome back to the Farmland Exchange, the official podcast of CLHBid.com, where we provide you with expert insights into the process of buying and selling farmland in Western Canada. I'm Devon Davidson, your host and digital media strategist for CHBid.com. If you haven't already, please take a second to go and like, rate, and review the show on your podcast platform of choice. It really helps us out and we would really appreciate it. On today's episode, we are going to be talking about the all-important discussion about the relationship between the seller and the renter and how to fairly treat the renter during the sales process. And to help me in that conversation, we've got Roy Carter, CEO of CLHBid.com. Roy, how are you? Good. Good to have you here. And uh joining us for the first time ever, uh, a new member to this the CLHBid.com team, uh, Ryan Lang, general manager for CLHBid.com. Ryan, thanks for joining us. You bet. Pleasure to be here. Absolutely. All right, so let's kick it off here. Um,

Why So Much Land Is Leased

Devon Davidson 1:06

I guess for a little bit of context, Roy, we want to talk about the percentages of rented farmland in Western Canada. So it's it's roughly 40% in Saskatchewan, 30% in Alberta, and over 25% in Manitoba. Uh how does that figure into the sales at CLHbid.com? Thanks, Devon.

Roy Carter 1:22

Yeah, I think those numbers continue to go up as you know, they're on the uh farms get bigger and people move to town, uh, they're they steadily creep up. It how does it figure? I would say over 80% of our the land we sell is under lease. Um, you know, the the farmers that are farming aren't selling. We're we're getting the people that have moved to town, maybe sold their equipment 10, 15 years ago.

Speaker 3 1:49

Right.

Roy Carter 1:50

So a lot of the land we get is under lease. Uh and we, you know, we tend to or respect the lease contract. It's much more of a personal contract with farmers and tenants than maybe leasing a shop in town.

Speaker 3 2:04

Yeah.

Roy Carter 2:05

You know, often it's, you know, uh the guy down the road or maybe the nephew or whatever. Uh there's there's quite a personal element to it. There is. So, and a lot of these tenants enter into it assuming that their landlord's gonna stay the same. They don't really want to get a new landlord or some you know, uh businessman from town that's buying farmland and deal with somebody they don't know.

Speaker 3 2:28

Yeah.

Roy Carter 2:29

So for that reason, we don't sell land under a long-term lease. You know, we'll sell it in the last year of the lease, but um we respect those um agreements. And uh, you know, we've we'll get a call and uh the guy'll say, Sell my land, and is it leased out? Usually our first question, Ryan, right? You know, what's the terms? That's right. And uh, you know, you know, once in a while, not very often, uh, but it'll be yeah, it's sort of oral. I give them uh uh an oral agreement for three years, but I got nothing in writing. Right. Our answer to that is well, you got a three-year lease, right? It doesn't have to be in writing. Yeah, call us, you know, in the third year. Okay, so um, yeah, uh leased land, lease is is big just because of the amount of leased land in Western Canada.

Devon Davidson 3:15

Yeah, well, I I know it's a very common topic of discussion. I we've seen it at lots of trade shows. Um, I know I was at Ag in Motion this this summer with Don Carson's, another sales uh rep for us, and we had that conversation several times and in-depth conversations, and it's just um so it's good it's good to have that answer. Yeah, come talk to us in the last year of the lease. Yes, totally.

Farmers And Investors As Buyers

Devon Davidson 3:35

Uh Ryan, when farmers are considering purchasing farmland, would you say they're okay with a lease and passive income or do they want to get on the land themselves?

Speaker 3:42

I mean, far farmers are in the game of farming, right? So of course, when uh a guy acquires a new piece of land, the first thing they want to do is is get on the land and make it their own, right? Um, you know, if if there is a lease there there with you know passive income, um, I wouldn't say that's that's a big focus. You know, on average that's about two and a half percent. Um right. The the margins are in farming, not not in passive income, right? So uh for that reason, yeah, guys would prefer to just get on the land if there's no lease, lease in place.

Devon Davidson 4:11

What about investors when they're buying farmland? Do they like those leases in place or would they rather negotiate their own terms?

Speaker 4:16

You know what? Um similar to farmers, right? Um investors are are looking to you know watch that land appreciate over time. Um if there is passive income there um through an existing lease, they'd prefer to set the terms themselves, right? Find their own renters um and and move on from there, right?

Devon Davidson 4:35

So I think part of that must stem from the fact that it's a lot of personal relationships, right? Right. So I I know I have a someone I know, and their rental agreement is is a sweet one because of the personal relationship, right? And that's not always the case. Yeah, that's right.

Roy Carter 4:49

Yeah, totally. Ryan is totally right there. You know, investors, which are a small segment of buyers, but they tend to be people that want to set their own terms. They maybe have other land in other areas. They got a lawyer that they use that uses a certain lease that maybe deals with SLR in a certain way. Yep. Uh, options, rofers, that type of deal. Um, anybody you know that's playing at that level investor buying uh farmland in Western Canada, they generally like to control everything, the narrative, and like they like to get that land with a clean slate.

Devon Davidson 5:23

Right. Yep.

Ending A Long Tenant Relationship

Devon Davidson 5:25

Um, do you find it hard to uh unwind that rent relationship given all the history involved? How hard is that sometimes?

Roy Carter 5:33

Yeah, you know, hard, you gotta respect it. It's it's a long-term relationship, but at some point it's gonna come to an end. Uh, you know, for for whatever reason. So um, you know, we really as at CLHbid, we saw the difficulty in unwinding it before.

Speaker 3 5:52

Right.

Roy Carter 5:52

It's really difficult. Um, you know, often it seemed to be the widow on the farm and a tenant. These tenants tend to be good and they do a lot more than just crop the land, you know. They look after stuff in the yard. Their first call if the furnace quits. There's a relationship there beyond just farming. So, but it was really tough when it came time to call it a day and say I wanted to sell. Um, you know, they're at the kitchen table, and uh, you know, the the young renter wants to buy, and uh, you know, it's she's not adversarial. Mabel at the table at 86. How do you unwind this, right?

Speaker 3 6:28

Yeah.

Roy Carter 6:29

And uh, you know, CLHbid gives her the ability to respect them and say, You've been awesome. I hope you get it. You won't overpay, just bid, right?

Devon Davidson 6:39

So maybe can you talk a little bit about how CLH deals with that owner-renter relationship? I I can only assume that they'll want to sort of insert themselves sometimes into these situations where obviously they have an interest in the land, they want to buy it. Um, how do we how do we make that situation a little bit easier for the seller?

Fair Market Value Without Overpaying

Roy Carter 6:57

You go ahead, Ryan.

Speaker 6:58

Yeah, I mean, there's a a mutual respect um between renter and owner. Um you know, of course, here at CLH we we we get both sides. Um at the end of the day, um, you know, we want to respect the tenant as much as the landowner, but the landowner is entitled to you know fair market value at the end of the day.

Devon Davidson 7:20

Of course.

Speaker 7:21

Um with that being said, our platform does allow, you know, the the current renter an equal opportunity just as much as anyone else to to come to the sale day and have a shot at acquiring the land. Um the landowner, of course, you know, can wish them wish them the best and and hopefully things work out for for them both.

Roy Carter 7:40

Yeah. Yeah, I totally. And one of the biggest deals is the tenant doesn't overpay. Um, you know, the other deal is it was like trying to do a deal where nobody, it's not like houses in town, nobody knows what that land's worth for sure.

Speaker 3 7:54

Yeah.

Roy Carter 7:54

And but there's always a chance of did you overpay by 100 or 150? Or uh it's uh it's problematic. So with CLHbid, you know, the owner can say you won't overpay. Just click, you're gonna be one click more. And uh if you want it, they know the land better than anybody. There's no spook in it.

Speaker 3 8:14

Yeah.

Roy Carter 8:15

And uh quite often they've cleaned it up, they've fixed up fence lines, uh, they deserve it. So, you know, just click and you're gonna be a hair above somebody else, and good luck with the land.

Devon Davidson 8:27

Uh Ryan, would you encourage owners to give renters lots of notice? What's what's fair?

Speaker 8:33

You know what? I mean, if if notice can be given well in advance, we always encourage um landowners to do that. Um, it's it's probably the most courteous thing a landowner can do for for their uh renter that's been renting the land in a lot of cases for you know anywhere from five to twenty years, right? Yeah um gives gives that owner or that renter, you know, time to plan and and kind of set things in motion for themselves down the road. Um it also is a good time for for the landowner to speak with the renter, you know, about you know, if they're using CLH platform or the CLHbid platform, that uh there's gonna be an opportunity for them, like I said earlier, yeah, um, that they'll have a a fair chance at paying fair market value and acquiring the land. So um yeah, all in all, you you if you can do it, of course there's gonna be things that happen in life where you know it's uh it's a short fusion and it's gotta go. But um you you kind of take it as it comes, right?

Devon Davidson 9:34

Sorry, Ryan. Would you say most tent or most renters are are understanding of that? Like it's um obviously as a seller, you if if it were their land, they would want to maximize value or get fair market value for that land. Are most renters sort of cognizant of that?

Speaker 9:47

Um, you know, uh at first it's always shocking to hear, you know, there's a degree of shock that uh that your your landlord is going to sell the land, but you know, after they've had to s some time to digest and think about it, most guys do come around and and are understanding and and they'd probably want the same if if they were in the seller's shoes, right?

Roy Carter 10:06

So yeah, yeah. It is surprising the amount of owners will call us. And if you ask them where did you hear about us or where did um you get our name, because often they're in town, you know, and they're kind of you know, they're maybe going to Arizona, playing pickleball. Right. They've got a new life, and they're not so dialed into the egg sector anymore. So you ask them, you know, how'd you get our name or why are you calling us? And it'd be the tenant. The tenant said to call you guys.

Speaker 3 10:34

Okay.

Roy Carter 10:34

So it's like, you know, that's good. Um, so obviously we got the respect there where the tenant

Notice Periods And Setting Expectations

Roy Carter 10:40

knows they're gonna get a chance, get treated fairly, not overpay. So um, yeah, that's reassuring always when we hear that from owners getting recommended by their tenant.

Devon Davidson 10:49

Yeah, that's definitely a positive sign. Uh, on that thought, Roy, how do how does CLH differ from traditional tender in an envelope regarding the renters or the tenants?

Roy Carter 11:00

Yeah, I mean the big one is uh uh like we talked about in another podcast, transparency, fairness. Um the biggest deal is again, they got a a chance at it. It's not sold where you know they've been farming it for 15 years, it's kind of they got the rotations figured out, yeah, and they're just told you're off here next year, right? And or uh, you know, uh they could tender to a lawyer, single tender, they could have been low by a thousand bucks on a quarter where 600 and lose it. And you know, they would clearly opt it if they had a chance with a different system.

Speaker 3 11:37

Of course.

Roy Carter 11:38

And, you know, our system allows them to, if they're outbid, they can make a decision. You know, do I want to go further and do I want to continue to farm it and do I actually want to own it?

unknown 11:48

Right.

Roy Carter 11:48

Um, so um we're quite different there than old school tender to a law firm.

Devon Davidson 11:53

I guess another difference, Ryan, is that the the bidders, they're not just bidding on the price, but they're also bidding on the the terms of the offer to purchase. So maybe you want to dive into that a little bit and what it means for the renters?

Speaker 12:03

Yeah, that's correct. I mean, um, like you like you mentioned, um, not only is a buyer or bidder potentially acquiring the land, they're also acquiring the offer to purchase. And within that, we can include terms to kind of provide some insulation or or some you know confidence to to the renter that they're not gonna be a band in the left hang and right. Um things like um access, for example, right? Um we can put in, you know, a set date or until harvest is is finished. And in the event, you know, we run into a wet fall or something like that, we'll often include a term where it's you know next spring at X date they have to get the crop off. So there's things like that that uh landowners can work with their renters on just uh provide a bit of buffer for them.

Devon Davidson 12:50

Yeah, and there's no surprises, they know exactly what's happening.

Speaker 12:52

Exactly, very transparent. Yeah, yeah.

Transparency Versus Envelope Tenders

Devon Davidson 12:55

Uh Ryan, what's the standard term of a lease and and do they tend to have renewal periods?

Speaker 13:00

Yeah, so I mean common. I think these days is in that three to five year range, right? Uh you get beyond that that scope of five years and who knows what can happen in life, right? Yeah. Um so from that perspective, um, yeah, it's best to probably stay within that range, that five years I'd say. Um you know, after the term of the lease has expired, a lot of leases just go um to a basically an annual lease, right? Uh year over year they just keep renewing, right? Yeah. Until until there's time to to terminate that that lease agreement and move on or go your separate ways. Okay. Yeah.

Devon Davidson 13:36

Roy, if you're selling the last year of a lease, what safeguards do you put in place for a renter? Or would you?

Roy Carter 13:41

Yeah, R Ryan, I think just alluded to that too. Um we'll we put in safeguards there that often aren't in the lease, but as Ryan mentioned, often it's a whirl. But you know, we'll put in safeguards to get we protect them for their crop. We protect them until next spring on a harvest, that type of deal. Um so yeah, it's we'll give them more protection than they might even have right now. But part of that's just treating tenants fair. And you know, often often they're a fairly motivated buyer too, right? Right. So that's part of the process. Going back a bit there to Orion's comments about the leases, you know, beyond five years, you know, that's uh people just don't know what's in in store in life, right? Totally, yeah. Health-wise and that, and it's problematic. Uh so one thing we're starting to see a lot more um is break fees, where you know, these farmers, again, something may change in their life, something may change in their kids' life, they may want to help out grandkids or whatever. And uh so we're starting to see break fees quite often in like a five-year lease that I'll get I'll give you a five-year lease. But if I decide to sell, um, you know, after year two, um, maybe the break fee is you don't pay rent in that year, but allows them an out. But it's an out that you still treat that tenant fairly. Maybe they they get a cash payment or they get rent free that year.

Speaker 3 15:09

Right.

Roy Carter 15:10

But it allows them to sort of plan for unknowns uh once they get out into that five-year period, yeah. Where often you'll see there's two years for sure. And if I give you notice in say year three, um, then the break fees that be I can sell in year three and the lease terminates, but you get free rent or whatever.

Devon Davidson 15:28

Yeah, lots of options.

Offer Terms That Protect Renters

Devon Davidson 15:30

How do you handle things like anything that the the renter may own, whether it's fence panels or grain bins, um any sort of maybe tenant improvements? How is that managed?

Speaker 15:39

Yeah, I'll take that one. Sure. So yeah, I mean with Chattels, things like that. Um, we we do talk um with with the landowner and we ask them to engage their tenant saying, you know, um if you want this left, this can be left with with the land. Uh, as far as improvements go, um, usually there's uh some sort of cash nomination that can be agreed upon between the landowner and the renter to compensate them for any improvements, say if it's drainage or things like that that have been done done to the property.

Devon Davidson 16:10

Um is that something CLH would help negotiate, or is that just left between the the owner and the renter? We we bring it up, but like Ryan says, they usually just work it out between themselves. Yeah, I I would assume that too, but I just there may be a case where they're not comfortable doing that.

Roy Carter 16:23

Yeah, and there might be sometimes we just had one where the uh high bidder had an option to take the panels that were the tenants, but if they didn't take them, then the tenant um could remove them. But if the payment was there for the panels, it went to the tenant, not the owner, and that type of deal. We sort of let them work that out and then we put it on the website.

Devon Davidson 16:45

Okay. Uh what about in a situation where the renters put in fall inputs and now the seller is looking to sell? And how do you handle a situation like that?

Roy Carter 16:54

They um they're entitled to be compensated. Um because you're gonna

Leases Break Fees And Renewal Norms

Roy Carter 17:00

get more for the land if the inputs are there. Uh so it's not like the uh the sellers you know coming up with extra money or it's a cost. Right. A buyer's gonna pay more if there's inputs on there in the fall. Uh so the general deal is if you're not the buyer, uh you'll get paid X for your based upon usually they show receipts for fertilizer or what they've done. Yeah, and again, often the relationship is good between tenant and owner. And uh so yeah, it's usually they know in advance of the fall, so they don't put on inputs, but sometimes sometimes they don't. Yeah. And uh go ahead, Ryan.

Speaker 17:39

I was just saying that kind of goes back to giving notice too, right? Yeah, yeah, yeah.

Devon Davidson 17:42

As early as possible.

Roy Carter 17:43

Yeah, totally. Okay.

Devon Davidson 17:45

Uh what about um is there ever situations where renters are making long-term plans, whether it's underseeding to grass, and then the owner decides to sell? You know, how do you manage a situation like that?

Speaker 17:55

Yeah, again, that that I mean that's that goes back to agreeing on a um a cash value that can be uh, you know, um decided upon between owner and renter. Um yeah, I don't know if I have much more to add on that.

Roy Carter 18:12

Yeah, no, and that's a that's a tough one. We just had one of those. Uh you know, inputs are one thing if it's like N or you know, phosphorus or whatever, but there's buyers maybe don't like it under seeded to grass. Um, so it it it's not necessarily a plus in either. Maybe that buyer's not into grass seed or grass seed production.

Speaker 3 18:33

Right.

Roy Carter 18:34

Uh but um generally they work it out, you know. Um we'll end up in a situation sometimes where maybe it's um uh winter wheat, and the guy

Inputs Improvements Chattels And Timing

Roy Carter 18:45

calls us in November or or September or whatever, and I want to sell. And then we find out I think Ryan just had one. You were at to farm and it's uh seeding to winter wheat.

Speaker 18:55

Yeah.

Roy Carter 18:56

So we're postponing, I think you're postponing that sale.

Speaker 18:59

Yeah, of course, we we kind of talk to to landowners and kind of try to understand their circumstances and you know, kind of what they need to do by and when, and we try to work around that. And of course, in in this uh reference that Roy's talking about, yeah, we we recommended to push the sale to uh a later date just to allow that uh that renter, you know, time to get the crop off.

Devon Davidson 19:19

Yeah, yeah. Yeah, it's good to have that flexibility for sure. Yeah.

Roy Carter 19:23

And I think Ryan said it all there that it's two ways the respect. You know, the the vendor, the seller's got they're entitled to fair market value too.

Speaker 3 19:33

Yeah.

Roy Carter 19:33

Um, you know, you will in an unusual case, it's not common, but some tenants kind of treat it as their land already.

Speaker 3 19:40

Yeah.

Roy Carter 19:40

And uh it shouldn't go out there. But um, you know, the in the owners are entitled to fair market value, they're not asking any more than that. Yeah, they're not asking for a premium. Um, and sometimes the rent has already been more than reasonable. Uh so yeah, we find our our sellers are uh generally in a good relationship, want to be fair with the tenants, but having said that, want to it's their money, they're entitled to it, right? Yeah, absolutely.

Speaker 20:07

Yeah, I think uh Roy hit the nail nail on the head

Final Takeaways And How To Reach Us

Speaker 20:10

there with that one. Yeah.

Devon Davidson 20:11

Okay, well, Ryan, Roy, thank you both for being here today. Really appreciate it. Um to our listeners, thanks again for tuning in. Really appreciate the support. Uh, if you haven't already, please again like, rate, and review the show. Leave us a five star review, that would be appreciated. Uh, if you have any questions, if there's topics you want us to discuss, or if you're interested in selling farmland, please reach out to us. Info at clhbid.com or give us a call at 866 263 7480. Uh that's it for now. Thanks for tuning in. I hope this was a positive exchange for you.