Custom farming agreements seem pretty straightforward and simple. Landowner asks Custom Operator to till the field, apply the inputs, plant and harvest the crop or cut and bale the hay. Custom Operator sets a price. Landowner and Custom Operator shake hands. Deal is done, right? Yes, if everything goes right. No, if the parties run into Murphy’s Law of “if anything can go wrong, it will”. A written agreement instead of a handshake can avert some of the legal issues if or when the Landowner and Custom Operator encounter Murphy’s Law.
The following are the top 5 reasons for insisting on a written custom farming contract:
- Scope of work: The location and number of acres and field management practices can be easily miscommunicated unless the Custom Operator is intimately familiar with the Landowner’s farm and past farming practices. A written agreement can specify the locations and scope of the work to be done. Detailing the scope of work is especially important where the farm is not contiguous or includes a mix of tillage practices and crop varieties.
- Timing of the work: It goes without saying, the productivity of any given crop can be severely impacted by when it is planted, managed and harvested. The availability of federal programs also may depend on the timing of the planting and harvesting of the crop. An informal handshake deal may neglect to outline timing details leading to an unproductive crop or disqualification from federal programs. Therefore, the parties should establish in writing the time periods for when each aspect of the work is expected to be conducted. The agreement should also allow for delays in the event of adverse weather or equipment failures which may prevent the work from being done as originally agreed.
- Payment: In an informal handshake agreement, the Landowner and Custom Operator may fail to discuss the payment details. Consequently, when the work is invoiced disputes arise over the value of the work performed and it becomes difficult to sort out what each party agreed upon. On the other hand, a written agreement should firmly establish how the work is invoiced, whether by acre, bushel, bale, equipment hours or a combination of acres, production and equipment use.
- Insurance: Sometimes, when things go wrong people can get physically injured and property can be damaged. It is very unlikely a handshake agreement will include a discussion as to whether the Landowner or Custom Operator carries the proper insurance in the event of an accident. A written contract should include provisions requiring the Landowner and Custom Operator to provide proof of insurance which may protect the other from claims for injuries or property damage which may be caused by either.
- Independent Contractor: Finally, a handshake agreement will not formally establish the fact that the Custom Operator is an independent contractor rather than an employee or agentof the Landowner. Such a distinction may be especially important if the parties need to invoke an insurance policy or a dispute arises over who is responsible to a subcontractor. A written contract will provide that the Custom Operator is an independent contractor and not an employee or agent of the Landowner.
Simple miscommunications between the Landowner and the Custom Operator, adverse weather, equipment failures, and other accidents can turn a simple handshake custom farming agreement into a he said/she said fight that can only be resolved with extensive time and legal fees. Although not guaranteed to keep a dispute out of court, a straight forward written agreement can head off many of the potential problems caused by Murphy’s Law.