Lease Supplement for Investing Ag Decision Maker

extension.iastate.edu/agdm
in Improvements on a Rented Farm File C2-07

The purpose of this lease supplement is to Spreading Limestone

encourage cooperation between tenants The rate of depreciation and value of limestone
and landowners who wish to obtain needed varies with the type of soil, cropping system, the
improvements, facilities, and buildings on a amount of limestone applied, and other factors.
rented farm. Often rented farms are in need of Under average conditions, the value of limestone
additional buildings, facilities, major repairs, or may be assumed to last three to five years.
soil improvements. Many of the additions and
improvements that are needed on a rented farm Commercial Fertilizers
will not be made unless the tenant pays for part or The residual value beyond the year of application
all of the cost. But tenants are not likely to make of fertilizers depends on a number of factors,
important contributions toward farm improvements including nutrients applied, rate of application,
unless they are sure of repayment for any soil, crops to which applied, and seasonal weather
unexhausted value of their investments in case they conditions. The level of these nutrients in the soil at
have to discontinue farming the property. the time of the fertilizer application should also be
considered. On farms where the rate is designed to
Procedure maintain the present level of fertility, no allowance
First step: Agree on the improvements to be made: is usually made for fertilizer residual. On farms
what each party will furnish, rate of depreciation, where the fertility level is low and the application
and estimated value of tenant’s investment in each rates are high relative to anticipated annual use, it
major improvement or addition. may be desirable to specify a carry-over value of
fertilizers.
Second step: Record and sign the agreements on
the lease supplement. Fill out one copy each for
Farm Structures and Repairs
landowner and tenant.
A tenant on a cash or crop-share lease sometimes
wants special improvements beyond what the
Suggested Rates of Depreciation landowner will furnish for machinery storage, grain
The initial cost of each improvement should be
storage, or livestock production. The landowner
depreciated over a reasonable length of time.
may receive little, if any, direct return from such
Straight-line depreciation is suggested because it
an investment. If the landowner will not provide
is simple and it is commonly used for accounting
such a structure, then the tenant may offer to
purposes. For major improvements such as a
make the improvement provided the landowner
livestock building, machine shed, or livestock
will guarantee payment for any unused value in
production facility, a depreciation period of 15 to
case the tenant moves on before fully realizing the
25 years is suggested. For minor improvements
value of the investment. If it is a structure that fits
such as fences or corrals, a shorter depreciation
in with the landowner’s improvement plan, the
period may be used. However, the two parties may
landowner may provide a portion of the investment
use any rate of depreciation they can agree upon.
and safeguard the tenant for a period of years on the
Farm income tax depreciation schedules are not
part the tenant provides.
particularly useful, though, because they often
allow assets to be depreciated more rapidly than
their actual market value decreases.

FM 1780 Revised October 2023

Page 2 Lease Supplement for Investing in Improvements on a Rented Farm

Farm Drainage and Terraces Table 1. Suggested depreciation rates.

Farm drainage and terraces usually are the Years Annual Rate
entire responsibility of the landowner. If
Livestock production facilities 10-20 5-10%
the tenant bears all or part of the expense of
tiling or ditching for drainage or constructing Machinery storage, grain bins 15-20 5-7%
terraces, a suitable depreciation period for Tile lines 10-15 7-10%
the tenant’s investment should be used. Terraces 10-15 7-10%
In some cases, the tenant may provide Fences 15-20 5-7%
labor and/or machinery for making such
Lime 3-5 20-33%
improvements. Ag Decision Maker File
A3-10, Iowa Farm Custom Rate Survey,
https://go.iastate.edu/AGDMA310, can be
used to value the tenant’s contribution in
such a case. More information about tiling
can be found in AgDM Information File C2-
90, Understanding the Economics of Tile
Drainage, https://go.iastate.edu/AGDMC290.

Additional resources related to leasing in

Iowa may be found on the Ag Decision
Maker Leasing website, https://go.iastate.
edu/AGDMLEASING.

This institution is an equal opportunity Prepared by William Edwards,

provider. For the full non-discrimination retired extension economist
statement or accommodation inquiries, go to
www.extension.iastate.edu/diversity/ext. extension.iastate.edu/agdm
store.extension.iastate.edu
 NOTE: Form entries with calculations are included in this PDF as a courtesy. Errors in form calculations will result if costs, percentages, or dates are not entered correctly.
Confirm correct entries and all calculations before signing.
Lease Supplement for Investing in Improvements on a Rented Farm Page 3

Lease Supplement for Investing in Improvements on a Rented Farm

Description of Farm: County Township Section(s) Acres
1. In consideration of the agreements herein contained, the signers agree that the 5. If for any reason the tenant leaves the farm before the tenant’s
improvements listed in column A (below) have been completed on the above- estimated value or cost (column C) is fully recovered through annual
described farm. use and deprecation (column E), then the landowner will pay the
2. It is agreed that the signers will share contributions and costs necessary to the tenant for the remaining undepreciated value of the tenant’s investment
completion of these improvements as set forth in column B. (column K).
3. It is agreed that the estimated value or cost of the tenant’s contributions will be 6. It is agreed that each item as set forth opposite the signatures of
listed in column C. the landowner and tenant will be viewed as a separate contract
supplemental to the lease. New items may be agreed upon at any time
4. It is further agreed that the estimated value or cost of the tenant’s contributions during the term of the lease and recorded in the table below.
will be depreciated at the uniform annual rate listed in column E. The year of
first depreciation is to be listed in column F.

B. Cost of contributions by landowner (L) or by tenant (T) C. Total cost D. Years

of tenant’s over which
Materials Machine work Labor contribution improvement
A. Type and location of (total from will be
improvement Landowner Tenant Landowner Tenant Landowner Tenant column B) depreciated

$0

$0

$0

$0

$0

$0

$0

$0
Lease Supplement for Investing in Improvements on a Rented Farm Page 4

Use to calculate remainder

after lease has ended.
H. Signatures
I hereby accept my indicated share of the responsibility for the
improvements recorded in column A, which I have approved. K. Remaining
E. Annual F. Year I. Year J. Total value to be
depreciation depreciation G. Date lease cost to deduct repaid to tenant
(C / D) begins signed Landowner Tenant ends E × (I – F + 1) (C – J)

CLEAR ALL FORM INPUTS