ON Regional Economic Development

Everything You Need to Know About Leasing Greenhouses

ON Regional Economic Development

 

greenhouse with peopleFarm business and greenhouse owners are presented with all sorts of opportunities. You might be looking at expanding your operation and need another greenhouse, or you may be thinking of slowing down and reducing production. Either way, it is always a good idea to weigh the options available to you. This article focuses on leasing greenhouses, and what greenhouse owners (landlord) and farmers (tenant) need to consider before signing on the dotted line.

The Good, The Bad, and The Ugly of Leases

Leases can be beneficial to both the landlords and tenants. Below you will see what the pros and cons are for a lease from a landlord’s standpoint and a tenant’s standpoint.

Landlord Standpoint

                             Pro                               Con
  • The greenhouse would still be producing revenue even though you would not be growing a crop.
  • How do I get paid if the tenant becomes insolvent or walks away from the operation?
  • The greenhouse would be kept repaired and in good order, which could lead to a higher sale price in the future, if you decided to sell.
  • Your revenue and expenses from leasing the greenhouse could be taxed differently, which could lead to a higher tax bill.
  • If you are retiring from farming, leasing your greenhouse can help ease you in this transition.
  • If the lease is short term (1 year), there is a risk that the tenant is not able or willing to make improvements to the greenhouse.

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Tenant Standpoint

                              Pro                                      Con
  • You can manage your cash flow requirements (i.e. have lower monthly payments compared to financing the construction of a new greenhouse).
  • If a change is needed for whatever reason, it can be expensive to terminate the lease before the end of the term
  • Monthly lease payments are fully deductible for tax purposes.
  • You do not own the greenhouse at the end of the lease term, and therefore may not be able to grow the crops that you wish to.
  • You can share the risk of the greenhouse operation with the landlord.
  • Credit could be more difficult to obtain as the tenant would not have access to the equity of the greenhouse.

 

As you can tell, there are both advantages and disadvantages to entering a lease. Before entering into a lease, you need to weigh the pros and cons to see if it makes sense to do so.

If you would like more information on the components of a lease agreement, please see OMAFRA’s Factsheet on “Lease Agreements, Farm Buildings,” which can be found at the following web address: http://www.omafra.gov.on.ca/english/busdev/facts/13-055.htm

This article is written by Erich Weber – Business Financial Specialist with the Ontario Ministry of Agriculture, Food and Rural Affairs, and was originally posted in Greenhouse Canada.

 

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