Farm lease with purchase option agreement: balancing tenant rights and future ownership

Farm leases that include a purchase option combine two different legal regimes: landlord–tenant law and real estate conveyancing. In practice, a tenant-farmer gains the right to cultivate land under typical agricultural lease terms while preserving a contractual right to purchase the same parcel later at a pre-set price or according to a defined valuation method. Courts in many states treat the option as a binding unilateral contract, enforceable once exercised.

Critical issues include the clarity of the purchase price formula, treatment of rent credits, and whether improvements made by the tenant count toward equity. Parties should also determine how default under the lease affects the purchase option. Case law in Midwestern states illustrates disputes where landowners attempted to terminate leases prematurely to void the option. To mitigate risks, agreements often include severability clauses and escrow arrangements to secure good faith performance. Properly drafted, this instrument can be a path to ownership for farmers with limited upfront capital.