Article Detail

News & Knowledge

Cattle Grazing Leases: Key Considerations for Real Estate Developers

Lowndes Leasing Lawyers

September 13, 2021

Real estate developers in Florida are buying and improving rural land at a record pace. In many cases, this land has been devoted to purposes which resulted in the land being categorized as agricultural for real estate tax assessment purposes. Florida Statutes, Section 193.461, requires county property appraisers to categorize land as agricultural upon request by the owner if it is demonstrated that the land is being used for a bona fide agricultural purpose. Such purposes under the relevant statute can include a variety of uses, such as horticulture, floriculture, forestry, dairy, livestock, poultry, beekeeping and fish farming, to name a few.

Whether land qualifies to be categorized as agricultural under this statute depends on a number of factors, including the quantity and size of the land, its condition, its market value as agricultural land, its income, its productivity, the economic viability of its use, and other factors reflective of standard present practices of agricultural use and production.

Sometimes called an “agricultural exemption,” the classification is not really an exemption from real estate taxes, but rather a means of reducing the appraised value of the land on the county’s tax rolls, resulting in lower taxes being assessed in order to preserve and encourage the agricultural use of land in the state.

It can sometimes take a year or two (or even longer) for developers to obtain governmental entitlements needed to start their proposed developments on land they acquired that was previously used for agricultural purposes. There can be a significant real estate tax savings if a developer continues the agricultural use of the land, so as to maintain the lower appraised value until development actually occurs.

While it may not be feasible for many types of agricultural uses to continue during this pre-development period, cattle grazing is a common and recognized agricultural purpose that is easily accommodated on land that is pending development. Typically, all that is needed is fencing, water and grazing land, plus a rancher with cattle.

If a developer buys land that is already used by the seller for cattle grazing, it is relatively easy for the developer to lease the land back to the seller upon closing in order to allow the seller to continue its agricultural use. This gives the seller additional time to move its livestock elsewhere, and it also gives the developer the tax savings associated with the agricultural use in addition to the income from the lease.

If the land is not being used for cattle grazing when the developer acquires it, the developer may be able to find a rancher who needs grazing land and enter into a lease with them, as long as the land is suitable.

Cattle grazing leases are relatively simple and contain some basic terms. These include the duration of the lease, the amount of income the rancher will pay the developer, and the caretaking duties the rancher will perform (such as maintenance of pastureland, buildings, water sources, fencing and the like).

If the rancher hires contractors to perform improvements, they should not be permitted to lien the developer’s interest in the land (only the rancher’s leasehold interest), and the developer should record a notice to that effect. The developer should have the right to enter onto the land in order to verify the rancher’s compliance with its obligations, as well as conduct pre-development activities that do not interfere with the rancher’s use.

It is probably a good idea for the developer to preclude the rancher from assigning or subletting the lease without the developer’s prior approval. It is also important for the developer to be able to terminate the lease when it is ready to develop, by giving the rancher sufficient notice to enable the cattle to be moved elsewhere. If the land is large enough to be developed in phases, the parties may wish to provide for the partial release of land from the lease as development on each phase begins.

The lease should require the rancher to (i) comply with all laws applicable to its operations, (ii) indemnify the developer against liability associated with its ranching operations, and (iii) maintain adequate liability insurance naming the developer as additional insured. Of course, a default by either party that is not cured within any specified grace period should entitle the other party to terminate the lease.

If the agricultural use of the land is for purposes other than cattle grazing, the lease will usually be more complex and be tailored for the particular use involved, but similar principles will apply. For example, a lease that allows the tenant to maintain a citrus grove will contain provisions addressing the use of fertilizers and pesticides, with attendant liability on the operator for environmental contamination. Citrus requires harvesting at certain times, so the ability of the developer to terminate the lease will be subject to constraints on that account.

Each county is likely to have different standards it applies to parties who wish to establish and maintain an agricultural classification of land. This is common, as long as they do not conflict with the applicable Florida statute reference above.

When considering whether to enter into a lease of land for agricultural purposes, it is important for a developer to consult in advance with attorneys who practice in the fields of real property tax law and leasing law to ensure that the goals desired by the developer can be achieved.

This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.

With more than 30 years of experience in real estate law, including over 20 years as a Board-certified expert in the field, Gary Kaleita has acquired the ability to navigate the complexities of sophisticated real estate deals with relative ease.

Gary has a wide variety of experience in real estate development, finance and transactions, condominiums, property owners’ associations, commercial leasing, commercial lending, and title insurance.

Gary enjoys a reputation for anticipating and avoiding problems, rather than merely reacting to them. He has years of experience handling purchases, sales and financings of commercial and residential projects, including office, industrial, retail, multi-family, single-family, condominium, resort, hotel and golf course properties. Gary has prepared and negotiated contracts for sale and purchase, performed due diligence investigations, and handled all aspects of closings, including issuance of title insurance and legal opinions. He has also performed tax free exchanges (both forward and reverse) under Section 1031 of the Internal Revenue Code, and has handled closings for housing revenue bond financing transactions with the Florida Housing Finance Corporation and various local housing finance authorities.

In the area of real estate development, Gary has assisted developers in obtaining land use approvals, plat approvals and permits for various developments from a number of jurisdictions in Central Florida, including planned developments (PD’s) and Developments of Regional Impact (DRI’s). He has drafted and negotiated complex land use documents, including development agreements, cost-sharing agreements, declarations of covenants, conditions, restrictions and easements. He also has experience in mall and shopping center developments, including outparcels, and has assisted developers with the selection, formation and operation of business entities, including commercial and residential property owners associations. He has extensive experience with the formation and operation of both commercial and residential condominiums as well.

In addition, Gary has established somewhat of a boutique practice by acting as local counsel to help out-of-state lenders, investors and law firms navigate the complexities of Florida real estate law. He is frequently engaged by large national and international law firms needing assistance on a variety of issues for their clients doing business in Florida. Gary regularly provides advice on Florida law and custom pertaining to purchase and sale contracts as well as loan documents, addresses local due diligence issues, answers questions involving titles, surveys and title insurance, and provides Florida legal opinions.

Not just another real estate lawyer, before pursuing his career in law Gary served as a U.S. Naval officer on active duty for 4 years in the Mediterranean Sea, first with a patrol gunboat squadron in Italy and then at a communications station in Greece. During this period he traveled extensively throughout Europe, the Middle East and North Africa. He believes his military experience is the source of the practical approach he has developed to problem solving.

Gary also took the initiative, after a homeowner in his own neighborhood was mauled by a Florida black bear in 2013, of researching what his homeowners’ association could do to limit the likelihood of future attacks. In the process, he became an expert in the subject of “bear-wise” communities and drafted a policy that his own homeowners’ association adopted, thereby becoming the first residential community to be officially recognized as bear-wise by the Florida Fish and Wildlife Conservation Commission (FWC). He has since written and spoken extensively on this subject, serves on the FWC’s Central Bear Management Unit Stakeholder Group, and has become a resource for FWC to educate other communities on the importance of bear-wise practices in areas of Florida containing black bear habitat.

Gary focuses on finding pragmatic solutions to complex problems, recognizing that clients want sensible and realistic advice in a timely manner so they can go about their business.

Chambers USA (2015)* reports that Gary has substantial experience acting as lender’s counsel and is acclaimed by market sources as an “extremely responsive, very practical and reasonable” practitioner.

*We make no guarantees or promises that the reader will realize the same or similar results

Meritas Law Firms Worldwide logo