John T, a question for you

My son has a hay shed and a farm shop on my place. He is about to get farm insurance on his entire operation. In order to insure his equipment and buildings on my place, he needs to lease the buildings and a couple of the acres around it.
My question. Can we just draw up a lease for $1 dollar a year and sign and have it notarized or do we need to get more involved.
Thanks, I respect you opinion very much.
Richard in NW SC

Not John T but I would draw up a lease for the going rate. Your son doesn't actually have to pay you. I do that on some land the family owns right now.

slim

Only problem is if there's a lease floating around at the going rate and Uncle Sam finds out about it he will assume there is actually money changing hands and want his cut.

Id say the lease doesnt have to be a whole lot "more involved" as you ask, the insurance company is concerned that your son (and/or you) has a legimitate "insurable interest". (Price, terms, duration, legal description, liability, which party is responsible for what, signatures are the very basics of a lease) Since the lease is to be for a one year term(s), I'd want it written and signed by all parties (owners of record and Tenant). Generally theres no requirement that a lease needs Notarized to be valid UNLESS the instrument is to be recorded (or your state has a statute that requires it), but it dosent hurt if your signatures are indeed Notarized and that way recordation is possible. Besides, recordation serves as actual (and constructive) notice to the general public of "interests" in real estate, so Id probalby have it Notarized and Recorded just to be safe. I SUGGEST AN ACCURATE LEGAL DESCRIPTION OF THE ACREAGE TO BE LEASED not just the barns on the SE corner of my farm, I'm sure you get the point. ALSO the lease will cover who is liable for accident or injury on or about the propery (generally the Tenant) and who bears the risk of loss and/or who insures against such loss (usually the landlord if he owns the real estste on which the buildings set).

You say its "your sons" sheds and barn BUT YOU SAY ITS ON YOUR PROPERTY hmmmmmmmm Generally real estate is the land and all structures permanemtly attached thereon, which means those are your barns and sheds I GUESS THATS WHAT THIS IS ALL ABOUT AND WHY EVEN IF THERES NO INSURANCE ISSUES THERE NEEDS TO BE A WRITTEN LEASE (same quality as if tenant were a total stranger) REGARDLESS!!!!!!!!!!!

HERES SOME PRACTICAL CONSIDERATIONS: Even though its "family" I recommend it still be formally conducted just as if a total stranger were the tenant. Such can protect BOTH parties down the road in case of accidents or injury or changed family circumstances or damage to the real estate. As far as the cost, its a deductible business expense to your sons operation and income to the landlord, your son might wanna ask your accountant about that.

ONE LAST THING Insurance Law is a strict matter of contract and if there was a catastrophic loss the insurance company will look for any possible loopholes, so Id still want a decent written lease that complies with the insurance contract requirements that you mentioned above.

WARNING AND DISCLAIMER As I said above, insurance law is a strict matter of contract interpretation and what it says matters NOTTTTTTTTT what myself or any other lawyer or any lay person here thinks or what THEIR insurance contract says or what some other persons particular states laws say, SO CONSULT YOUR INSURANCE CARRIER AND GET A DECENT LEASE (dont have to be all that complicated, so long as the basics are there) and dont hang your hat or rely on any professional (mines sure included) or lay advice offered here THERES TOO MUCH AT RISK which the small trouble and expense of a lease that complies with the insurance contract is sure a wise investment.......

REMEMBER if its your land those are your buildings so actually BOTH you and your son have an insurable interest (perhaps you the buildings and him the contents) so make sure the insurance provider is well aware of the situation and whatever they say about the lease requirements are complied with.

SORRY I cant give you any short straight answer, but a "lawyers" answer, but these issues can be a bit more complicated then a person might think......If it costs you a hundred dollars for a lease and an attorneys professional opinion such complies with an insurance requirement THAT OUGHT TO BE WORTH SOMETHING even for the peace of minds it brings

Ol John T Semi retired "Country" lawyer so if any of my co counsel more current practicing "City" lawyers disagree, you might wanna listen more to them lol

John T. Thanks, he built the buildings on my property with my permission and it just so happens there are some survey pins which will cut off the property included with the buildings. It happens to be located on a corner of my property. He pays me the property taxes that it adds to my bill. I will tell him to ask his insurance agent who we have known for years if there is anything special we need to do. Thanks again.
Richard

Youre welcome, sounds like youre already on top of this, a good but still fairly simple written lease ought to do the trick, I tend to be over cautious when asked these questions, its the way were trained grrrrrr

John T

I can see an insurance co being skittish of this deal, as you mentioned buildings owned by someone but on a different person's property are a bit of a red flag, it doesn't fit well with the conventions of ownership.

I'd think a simple written lease for a nominal amount would be fine, the insurance co just wants 'true ownership' cleared up for themselves. A place to hang their hat.

I wonder if, with real estate involved, if a longer lease would work out easier, 5 year deal or something, so son can work year to year with this a little easier? But whatever works, I'm sure the insurance agent can spell it out quite simpily what they require.

--->Paul

Under some conditions, if there is a lease between family our Uncle will re-rate it at normal value and charge taxes accordingly, they veiw some such leases as a sweetheart deal between family as an effort to escape taxes.....

Not saying thast is the case here or that it would be viewed as such, but another thing to be mindful of.

Permanent buildings on someone else's land are a bit of a paperwork hassle. Many's the time I've heard of dad passes away unexpectedly, the siblings & inlaws get into a brawl over who owns what, how the one kid gets his builds but the land is divided equally.... Just for example. Sad how family gets towards each other, but human nature I guess.

--->Paul

Good point, Often, if one person leases a large commercial/farm building on land owned by another, they want a longggggggggggg term lease.... There are cases where you might build a structure on land owned by another, where you might want say a 50 year lease. Another approach is a years lease which automatically renews absent other provisions.

Insurance companies would hesitate to sell me a policy on my neighbors life or house, theyre kinda funny that way lol Spell "Insurable Interest"

John T

I hope you guys know what you are doing.

I would sugest that as buildings are a long term investment either sell him the land or sign a long term lease. Another option is to also give each other an easement for entry to the sheds and record it.

As others have stated, when you pass away who knows what will happen and it is not hard to find stories of kids that lose the shed they paid for when the parent dies and the siblings get involved. The siblings will not believe that the kid payed for it, even with checks showing that the money came from his account!

GET IT IN WRITING SOON!!!