Succession, Transition and Landowner Relations

• January 30, 2023
• Kelly Jackson Hardy

Thanks to Blake Pollard, Agribusiness Manager in our St. Louis, MO office, who raised this issue and provided content for this post.

We are fresh off a week at the Top Producer Summit where the rooms were full at all topics related to estate and succession planning. It was evident that the financial and tax aspects of succession are top of mind for producers. However, as advisors across the country sit down with producers to help them plan the best approach to transition their operations to the next generation (or in some cases an unrelated individual), one issue that does not always come up is the transition of landowner relationships.

The successful transfer of these relationships is important from both sides of the transaction. Obviously, it will have a major impact on the success of the next generation. If installment obligations with the prior operator have been used by the new producer to assist them with the investment required to take over a farm operation, it will ensure that the elder generation gets paid. Consider the following:

• Have you given the next generation the tools to maintain the current relationships with landowners? Does the landlord even really know your son/daughter or other individual that will take over your farming operation?
• Did the current producer do enough to build a relationship with the next generation of landowners? Do you know your landlord’s heirs? Have you gotten a feel for where they will land on the idea of keeping the farm or selling? (Of course, we know that this may not be how things actually go after an inheritance occurs)
• Is that landowner producer relationship strong enough to deter that landowner from taking an extra $50 an acre from the neighbor?
• Do you keep the landowner involved and informed and promote the actions you’re taking to maintain their land?
• Should a producer consider lease agreements with first right of refusal terms?

Make sure you are bringing your successor to the next meeting regarding the cash lease or crop share arrangement. Be social, get to know them and their family. A combine ride for the 80-year-old landowner that still loves his or her farm would probably be much appreciated. These things seem like common sense, as in the ag community we tend to treat others like family anyway, but as things become more competitive and cash rents continue to rise, producers and their successors will have to differentiate themselves on something other than rental rate to thrive.

In the past twelve months, I’ve had two producer clients that have transitioned to someone outside their family, and I believe this will become more common as kids choose not to come back to the farm. I also give these producers a great deal of credit, as they’ve provided two young men who may not have been able to farm on their own with the opportunity to do so. They have carefully worked alongside these individuals for a couple of years. They’ve made sure financing has been arranged and they’ve worked directly with the respective landlord or farm manager to introduce the successor and ensure the relationship is secured.

With the likelihood that future landowners will live further from the farm, both literally and figuratively, one of the keys to the next generation’s success is a great relationship with the next generation of landowners.

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