With the development of renewable energy sources from agricultural feedstocks, farm contracts have become an essential part of the production and supply chain of biomass.  In general terms, a contract is an oral or written agreement between two or more parties.  For the most part, state laws regulate contracts and the requirements needed to make agreements effective.  States will vary on the requirements for contracts.  Written agreements will provide the parties with a clear understanding of each party’s commitments.  In the case of biomass production and supply, many types of agreements may be used depending on the particular situation.  Because biomass production may involve long-term commitments in variety of situations throughout the supply chain, contracts in writing are advisable.  For example, written agreements encourage certainty and consistency that is needed for a successful establishment and supply of the perennial crop of switchgrass, with a lifespan of 10 or more years.  At Genera Energy Inc. we understand the needs of the various parties in the contractual relationships that make up the complete supply chain of biomass feedstock.  Land leases, production agreements and land management agreements or combinations of the three are essential elements for biomass feedstock production.

Land lease agreements between a producer and the landowner offer several benefits for both parties.  Good communication between the tenant and landowner is necessary to ensure that both parties are aware of the lease arrangement.  The lease will only be beneficial if it meets the needs of both parties.  Land leases can be designed to extend over many years allowing the producer to establish the biomass and to offer a continuous supply.  Basically, a land lease is an interest in land to use real property for an extended period of time.  Farmland leases have been used for many years.  Even if not required by state law, it is important to have interests in land in writing.

The following items will help to ensure the landlord-tenant relationship.

  1. At minimum the terms of the lease should specify the names of the parties, identification of the property, the duration or term of the lease, the rent, and the signatures of the parties.  The rent can be a cash rent lease, crop-share lease, or a variation depending on the desires of the parties.  When a crop-share lease is involved the lease may need to address the management of the land and the production of the crop in great detail.
  2. The lease may need to allow for modifications or amendments to allow the parties to address matters that arise from a change in circumstances during the term of the agreement.  This is especially true in the long-term leases that range from three to ten years.
  3. Because a lease is an interest in land, it is important to discuss terms that will ensure that the lease will be binding and continue in the event the landowner sales the property.  Basically, this will allow the lease to survive a sale of the property allowing a consistent and continuous flow of supply.  In addition, it is recommended and in some instances required by law that the lease be recorded to serve as notice to potential buyers of the property.
  4. Management of the land and production of the crops generally will be handled outside the lease terms.  However the landowner may require good husbandry or other land management practices as part of the lease.

Leases will give a tenant the right to use the land whereas the agriculture production agreement will detail the arrangements for producing the biomass feedstock.  These agreements will define the production practices used, the resources to be provided, and method of payment for the product.   Depending on the way the production agreement is structured, many areas of law can have an impact on the relationship.  Federal regulation as well as state regulation should be considered when structuring the agreement.

Genera Energy is dedicated to the production of biomass feedstock.  Our management and production services not only benefit the land and the landowner, we insure the quality and dependability of the biomass feedstock supply.  Genera has developed a reputation with landowners and farmers using various agreements for production and supply of biomass feedstock.

By Julie Anderson, Legal Business Analyst