§ 4.14 p.m.
§ House again in Committee on Amendment No. 1.
§ Lord Campbell of Alloway
I am advised that the machinery of Clause 1 as drafted could well afford a disincentive to letting. No doubt many of your Lordships have received the same advice. Your Lordships have no doubt seen the letter in The Times signed on behalf of Cluttons and five others where it said that the declared intention of the Bill is to encourage landowners to let more farms. In our opinion, it will have precisely the opposite effect. Is not this a serious cause for concern, coming as it does from such an eminent source?
The fear of this appears to be reflected not only in Amendments Nos. 1 and 16 but also (although one must not anticipate) in Amendment No. 3 which stands in the name of my noble friend Lord Renton. I am wondering whether my noble friend the Minister can give some form of categoric assurance in his reply to allay these manifest fears? The landowning charities regard Amendments Nos. 1 and 16 as vital to their continued involvement in agriculture. Ought not further consideration to be given to this matter before any Division is taken'? I respectfully support what my noble friends Lord Kinnoull and Lord Renton have said in this regard.
§ Lord Stanley of Alderley
I should like to support my noble friend Lord Renton who said that this Committee stage should be a valuable exchange of views. I hope to put before your Lordships what I believe to be the tenants' views, although I would not for one minute say that every tenant, like every land agent, would agree with my views. The problem is that there is no such thing as an open market. I believe therefore that the amendment which is before us is based on a mythical hypothesis.
May I pick up one or two points made by my noble friend Lord Kinnoull. He stated that the old rent formula caused no great friction. That is not so. I speak with feeling, as a tenant. It may not have caused friction with the land agents but it was a worry to us every three years. So do not let us try to pretend there was not friction; there was. And there were great, great worries.
§ The Earl of Kinnoull
May I say to my noble friend that I was basing that supposition on the fact that there were very few arbitrations.
§ Lord Stanley of Alderley
Of course there were very few arbitrations. We were too frightened to go to arbitration. This is what we are trying to grasp in Clause 1. My noble friend says that the new formula is too long and complicated and too difficult to interpret. I am surprised that he says this. Chartered surveyors are highly intelligent and well-trained people. I ask my noble friend: why make it more complicated by his amendment'? The noble Lord, Lord Nonhfield, did not think that Clause 1 (3)— "take into account all relevant factors"—made good the loss of the open market. I ask him, and I am sure he will tell me the answer when he has given it some thought, to look at subsection (3) (d) which states, "the current level of rents for comparable lettings".
We then turn to what is a willing and prudent tenant and what he will offer. It is a point to which I shall return and upon which I hope I shall get the support of the whole of your Lordships' Committee when I come to my Amendment No. 19. The tenant could be prudent and the bid he puts forward could be sustainable in a number of instances. He could gamble on inflation. Who in your Lordships' House has not gambled on inflation in the past 10 years? He may need to expand his holding. He may only just be able to keep 40 cows, yet he knows that he has to keep 100. Agistment rents—of which I have some experience on both sides of the fence—are a perfect example of people offering uneconomic rents. Finally—and there are many other factors—he might have a son whom he wants to assist. With all these factors, he could still be prudent and he could still be willing—and so could the landlord be prudent and willing. And so, perhaps, could he sustain—but it would not be fair to compare the rent that he is offering with others.
I believe therefore that the words "open market" are dangerous. In fact, I would say that they are unacceptable to me as a tenant. You may say that I am being frightened and that the clause will make no difference—and I am sure my noble friend will say that. If it makes no difference to include the words "open market" then let us, for the sake of peace, have them out.
137 The noble Earl, Lord Kinnoull, also made the point that the Oxford and Cambridge colleges support him. Before your Lordships speak on behalf of everybody, I ask you all to try to do that which I hope I did at the start of my speech, when I said that I speak on behalf of myself; and I believe that I speak on behalf of most of the tenants. But I can assure your Lordships that you will not get every Oxford and Cambridge college bursar agreeing with one another. If you do, it will be the first time and the last time in history that they ever agree on anything at any time.
Those who support the package as it stands are the Central Association of Agricultural Valuers and also the Incorporated Society of Valuers and Auctioneers. So do the Tenant Farmers' Association. That is an organisation with which I have some contact as they are my neighbours but of which I am not a member. I believe—and I suspect that the opposition will raise this point—that the Farmers' Union of Wales also support it. Certainly in my own county they support this package.
Parliament has an absolute right of course to decide what it wants to do over this clause. I am not objecting to that. I entirely take the point made at the beginning of this debate by the noble Lord, Lord Bishopston. But I want the Committee to be aware that if the words "open market" at the beginning of this amendment go in, you will not in my opinion have the support of the tenants. All right, you need not have their support—that is your right and it is Parliament's right. But do not be misguided for one minute that you can include that phrase and get the good will of the tenants.
§ Lord Mackie of Benshie
I am very glad that I gave way to the noble Lord, Lord Stanley of Alderley, because he has said most of the things that I was going to say and has said them extremely well. Any formula one may produce will be difficult. If one talks about prudent landlords, then a prudent landlord might be a fellow who takes all that he can jolly well get—that might be considered extremely prudent. A prudent tenant might have any view under the sun. He might say, "I can afford this for three years and I am going to get a jolly good farm". Whatever the formula, it has to be interpreted in a sensible way by the arbiter.
I much prefer the words in the Bill because they give more guidance. The noble Lord, Lord Middleton, said that in the past the arbiters had discounted to a large extent the extreme open market formula simply because there was no open market; that it was in fact an extremely closed market and key money was common. It is also a fact that if one looks at the rise in rents over the past few years, it bears no relation whatever to the profitability of farming. In fact, profitability has been going down while rents over the past five years have risen by about 85 per cent. I would not guarantee that figure but rents have risen very largely and the profitability of farming has been going down. So I prefer the formula in the Bill, although I know it is difficult.
I was astonished that the noble Lord, Lord Middleton—whom I have come to regard as enormously sensible—suggested that if the Government can find a formula to suit every single influential body in the country, they might take it. I implore the 138 Government not to try, otherwise we will be here for a month of Sundays. There are some very sensible amendments towards the end of the Marshalled List—particularly those which have the entire agreement of the CLA and the NFU, which are to be moved by my noble friend and myself, which the Government might well take.
The Earl of Caithness
I should like to support this amendment. I turn to two particular points—one of them raised by my noble friend Lord Stanley of Alderley who said—as usual—that there is no open market. I believe that there is an open market. It might be restricted, but whatever one values or sells, one goes to the open market. If one were to value your Lordships' House, one would start off with the open market and then take into account all the other relevant factors. Then one would come back to the open market. That is the way one values. If there is a restricted market, do not let us forget that it was the NFU in 1976 who further restricted the market by asking us to support succession of tenancies—which some of us did not do. If the tenants wish to be further mollycoddled, let them be so at their own risk because they will lose the goodwill of the landlords.
The noble Lord, Lord Mackie of Benshie, said that rents had increased at a quicker pace than net farm income over the past few years.
§ Lord Mackie of Benshie
With respect, I said that rents had increased while net farm income had decreased.
The Earl of Caithness
Yes, that rents had increased faster than net farm income, but at the same time net farm income had reduced.
§ Lord Mackie of Benshie
My point was that rents had increased by 85 per cent. and farm income had decreased.
The Earl of Caithness
So that the gap had widened. The noble Lord may recall—as I am sure he will—that in 1965 rent as a proportion of net farm income was about 40 per cent.; but in 1973 it was about 30 per cent. We did not hear much from the tenants during those years.
Every arbiter to whom I have spoken has said that the proposed Bill will make it more difficult to determine the rental value of a holding. I will quote an eminent arbiter, who wrote:Two things are clear. Awards will be no more predictable, and the arbitrator's job will be no easier".My Amendment No. 23 is designed to help the arbitrator, but the amendment we are now discussing is more satisfactory. When I come to Amendment No. 23, I shall also talk about comparable holdings because I do not believe that covers the open market. It keeps the basis of assessment much the same as it has been since 1948 but with the aim of excluding from consideration what one might call "the froth on the top" of the tender rents.
My noble friend the Minister has kindly made available Notes on Clauses. I may refer the Committee to page CL1/3 and, in particular, to paragraph 3, 139 where your Lordships will find these words relating to the 1948 Act:However, it gave the arbitrator no guidance on the level of the rent properly payable which he was required to determine in respect of that holding. This submission created difficulties and was rectified".And so it goes on. It was rectified in 1958. This Bill gives the arbitrator no guidance on how to determine rentals. It only tells him the factors he should take into account. We must not fall into the same trap as we did in 1948. for what is left of the landlord/tenant system will not wait another 10 years for another Act to rectify our errors.
I believe it is important that we should obtain maximum agreement, if it is possible, for any amendment. My noble friend Lord Middleton challenged those who criticised the CLA/NFU agreement to find a better rent formula. I believe that we have done so, and I believe it is supported by the bulk of institutional landlords, and by a lot of private landlords. I know it is supported by members of the NFU and by tenants because I have talked to them—maybe not to all, but certainly to some.
I suggest to my noble friend Lord Kinnoull that we do not press this amendment today but give my noble friend the Minister a little more time to call in all the sides with an interest in this matter for further discussion. When we return to this at a later stage, any party who has not come back to the table to discuss Clause 1constructively in order to improve it (and it does need improving) can be fairly criticised for putting the preservation of a small number of its membership in front of the good of agriculture.
§ Baroness Airey of Abingdon
I support my noble friend Lord Caithness and I ask my noble friend Lord Kinnoull not to press the amendment to a Division. We have heard many views, and if the Minister feels that he can leave the door open with all the negotiating parties perhaps my noble friend Lord Kinnoull will not press his amendment to a Division.
§ Viscount Mountgarret
May I follow my noble friend Lord Caithness and ask: what is the purpose of the Bill? My understanding is that the main purpose is to endeavour to get more tenanted land on the market. Therefore, I feel it is essential, and a prerequisite, that the term "open market" and the open market rent should be retained and put into the Bill, so that when in the future there are more agricultural lettings available on the market the term "open market" will have more meaning than it appears to have at the moment.
The other question I have is: Just how does the Committee wish us to proceed? I wonder whether we are at times going off on a tangent on this admirable amendment, which I entirely support. Are we to refer to other amendments which are to be moved later by several noble Lords? Are we in danger of repeating ourselves ad nauseam? Are we to discuss the whole business of trying to find a better rent formula, as suggested by my noble friend Lord Middleton, at this stage, or as and when individual amendments are reached? We ought to be told how we are to proceed. We need guidance. For example, I could make some remarks now to my Amendment No. 15, but I am not sure whether this is the right moment.
§ 4.33 p.m.
§ Lord Belstead
Perhaps it would be to the convenience of your Lordships if I intervened briefly now. The Government find themselves in a difficulty in answering the amendment of my noble friend Lord Kinnoull and the noble Lord, Lord Howard of Henderskelfe. There are several different formulae for rent that have been placed before the Committee on the Marshalled List. The noble Lord, Lord Middleton, who I normally believe implicitly in all that he says, says that there are three different formulae, but for once I take issue with him; I believe there are five. First there is the formula currently in force. There is the formula which we have in Clause 1 of the Bill. There is the formula of my noble friend Lord Kinnoull, together with the noble Lord, Lord Howard of Henderskelfe. There is also the amendment of my noble friend Lord Renton. That is four. Then there is the amendment of the noble Viscount, Lord Dilhorne. Indeed, there is also a sixth; namely, the Scottish rent formula which, with admirable insularity, your Lordships have not turned towards in these debates.
Very briefly, because this is only meant to be an intervention, of these I think it is fair to say that the formula in force at the moment is inadequate in the Government's view because it does not coincide with the current practice of arbitrators. That is why the formula in the Bill has been proposed. It will ensure that current practice is given the required statutory cover. Both the amendment of my noble friend Lord Kinnoull and that of my noble friend Lord Renton would retain some of what is already in Clause 1 but would introduce new provisions which depart significantly from the agreement reached between the National Farmers' Union and the Country Landowners' Association.
My noble friend Lord Dilhorne will, I hope, forgive me for mentioning his amendment, as he has not yet spoken to it, but it provides a most interesting and different approach. It would replace the present rent formula and the present arbitration procedure as well. Some people would say that that was throwing the baby out with the bath water, but I am sure that with his customary persuasion my noble friend will convince us that that is not the case and that there is much to be said for his formula. As I said, there is also the Scottish rent formula which we must keep in mind.
There is, therefore, a wide range of different options for your Lordships to consider. However, I am sorry to say that from the speeches I have heard so far there is no agreement on any satisfactory alternative to the formula currently in the Bill. The formula in the Bill carries with it considerable support, and my conclusion is that we should not lightly cast it aside. I realise, of course, that concern has been expressed. Indeed, we heard it from my noble friend Lord Campbell of Alloway. All I would say at this stage is that if the Committee can create a greater measure of agreement, possibly by incorporating features from the two amendments now before your Lordships, well and good. If there is a prospect of that as a result of this debate the Government will naturally agree to go away and give further consideration before Report. However, I feel that in offering to look again at the detailed wording, if that is the conclusion we ought to come to at the end of the debate on this amendment, 141 the Government must make it clear to your Lordships that we cannot just cast aside the broad measure of agreement which was worked out after such lengthy negotiations and which commands a very considerable measure of support.
I shall end there. I shall go on listening very carefully to what is being said, and in a little while I shall certainly try to respond as helpfully as I can to the more detailed points. However, I thought it right to show your Lordships that the Government do not have a closed mind but are very mindful of the difficult agreement which was reached and which made possible the bringing forward of Clause 1.
§ Lord Renton
Has my noble friend seen the letter in The Timestoday from the president of the Country Landowners' Association, which indicates quite clearly that she has an open mind?
§ Lord John-Mackie
What the noble Lord, Lord Belstead, has just said bears out what my noble friend Lord Northfield said earlier; that the Government have created for themselves considerable difficulties not unconnected—in spite of what the noble Viscount the Leader of the House said—with slavishly following the NFU/CLA package. I also have considerable sympathy with the point raised by the noble Viscount, Lord Mountgarret. What are we discussing now? Are we discussing the amendment of the noble Earl, Lord Kinnoull, or the whole of Clause 1? I understood that we were discussing Amendment No. 1, but I admit the debate has gone very wide.
I also have considerable sympathy for the noble Lord, Lord Renton—the noble Earl, Lord Caithness, made the same point—about not deciding today or next week, but to collect all what is said today—and it will be a long session—and come back, presumably on Report or Third reading, with something that would be acceptable. But there will need to be considerable collusion—I use the word in the best sense—in the House before that could take place. It would be very difficult. However, I can see the noble Earl's point very well indeed from what has been said up to now.
Referring to Amendment No. 1, and Amendment No. 16 which the noble Earl, Lord Kinnoull, is to move later, without going into detail—the noble Earl went into considerable detail—I feel that his main point concerns the market value. He says that there must be a starting point and that the market value must be the starting point in any discussion. It is very difficult to get the open market value. One can think of difficult areas of the country. In some areas I doubt whether a farm has been let for years. As many noble Lords have stressed, it would be very difficult to get a market value to lay down for an arbitrator to deal with. I am not convinced that that is the best starting point.
After all, we have the starting point of the rent that is there now. I think that my noble kinsman got mixed up with fixing a rent at the beginning of a tenancy and reviewing one. All the time we are talking about reviewing rents and not fixing them at the beginning of a tenancy. I should have thought that the rent being paid was as good a starting point as any. We should look at that. As has been said, it is easy to work out inflation over a period. The period is about four years 142 between when the notice to quit is given and the rent is decided on. I should have thought that that is a better starting point than the market value.
Having listened to what was said, the noble Lord, Lord Middleton, made a plea that a compromise should be reached, if the noble Earl, Lord Kinnoull, did not press the amendment to a Division. I presume that what he means by a compromise is to give the NFU time to get agreement between the two parties on a compromise. The noble Lord and everyone else in the CLA and the NFU lay great stress on the fact that there must be this agreement. Again, if the noble Lord, Lord Renton, wants to wait, he will have to wait for the CLA and NFU to agree.
We cannot agree to the phrase "open market" in the amendment but we could support Amendment No. 16. That is our position from this side of the Committee—
§ The Earl of Kinnoull
Before the noble Lord completes his final sentence, could he indicate whether in his view the new proposition of the market rent being the rent which is four years old is likely to hold back, decrease, increase or keep current rental values the same? It is an important point.
§ Lord John-Mackie
I think that it is an important point. I shall expand on it at some length later, if I may. If the noble Earl does not mind, therefore, I shall not expand on it at the present moment.
§ 4.43 p.m.
§ Lord Northbourne
The noble Lord, Lord Stanley of Alderley, declared his interest as a tenant. If I were to declare my interests they would be rather better balanced. I am a landlord, a tenant, a farmer, a chartered surveyor, a member of the CLA and a member of the NFU. I hope that I can speak impartially.
The noble Lord, Lord Belstead, said that the object of the clause was to give statutory backing to the current practice of agricultural valuers. I would suggest that in its present form it does not do that and that it is extremely unclear. The purpose of the amendments is precisely to give that effect to the clause. I should not for a moment suggest that the amendments are a perfect piece of drafting. It would doubtless have been better to go right back to the beginning and draft the clause all over again. Having said that, however, it seems to me that the amendments make a significant improvement to the clause.
I should not myself emphasise, as has the noble Lord, Lord John-Mackie, from his side of the Committee, the phrase "market rent", but rather the words "prudent" and "sustain". If one considers the implication of those words in the context of market rent, one sees that they cut out a great many of the dangers which are feared by the tenants' side. In the first place they exclude the lunatic fringe—the people who offer excessive key money simply to obtain a holding. The words imply that the profitability of the holding will have been taken into account and that the fixed equipment and all the other relevant factors will also have been taken into account. On the other side of the equation, they ensure that only a fair rent will be 143 accepted. The concept has the great advantage that it is familiar to all the parties—landlords, tenants, valuers and arbitrators.
It is perhaps worth considering what an arbitrator does. First, he will consider the productive capacity of the holding. Let us take a simple example. Suppose that he comes to the conclusion that the productive capacity of the holding is £100 an acre. Then he has to take into account the essential expenditure of the landlord in order to put that holding in a condition to let or in a condition to let to make it that productive. Let us say that is £20 an acre. Then he has to consider the essential expenditure of the tenant: let us say that is £30 an acre. That means that the landlord cannot really charge less rent than £20 an acre or reasonably charge more than £70 an acre. It is on the £50 in between that the market value comes in. There is only one other way to decide how that £50 should be divided between landlord and tenant. That is the way which I think that the noble Earl, Lord Caithness, is to suggest in an amendment, which is that of that £50 a fixed proportion would go to the landlord and a fixed proportion to the tenant. The view of those of us putting forward this amendment is that market value, subject to safeguards against distortion, is a very much better yardstick than any other for the apportionment of that available surplus.
Most noble Lords who have spoken have asked to be excused from having an interest. I do not have quite the same interests as the noble Lord, Lord Northbourne, although I am a member of the CLA and of the NFU; I used to be a landlord and am now a tenant. I have another and perhaps unique interest to declare. I had the duty to introduce from the Front Bench of this House in 1958—some 25 years ago—the tiresome words "open market" about which we are now all arguing, for precisely the same reasons that this Bill is now before your Lordships: that the arbitration procedure laid down by the 1948 Act was not working in the way laid down in the Act, although for entirely different reasons. We were not then able to blame a Labour Government's introduction of too secure a tenancy: the 1976 Act. But, if I can remember back 25 years, we were frightened about the tenant occupier's rent being distorted if the arbitrator had to rely entirely on the prudent landlord and the willing tenant. We were bothered whether that was quite sufficient.
I remind your Lordships that in 1958 we had never heard of the word "inflation". In those days most of our estates were let. Certainly most of my small estate was let. We were proud to have the sons and nephews of previous tenants as tenants. As the noble Earl, Lord Swinton, who replied for the Government at the end of the Second Reading debate, told us, right into the 1970s he was farming only 8 per cent. of the Swinton estates and is now farming 25 per cent. I think that that is right; the noble Earl will correct me if I am wrong. I understood him to say that he did not want that to continue and would like to see ways to bring it to an end. On my own much smaller estate I certainly should. We once had sons and nephews succeeding as tenants.
144 In the 1958 Act, innocently I suppose, we introduced the words "open market" in Clause 2 into the middle of, I think, Clause 8 of the 1948 Act. There it stayed. There have been very few arbitrations and even fewer challenged in the courts. But if more arbitrations began to take place and they were challenged in the courts, if we stick to the 1958 amendment of the 1948 Act, we should now find that the arbitrators were not acting within the law. That is why I think it so right that the Government should have introduced this Bill.
I believe that we have learned here one lesson; namely, do not let us every 25 years first put in and then take out the words "market value". It seems to me that this is rather a barren exercise. The words are now out, so far as this Bill before us is concerned; let us leave them out. They have, informally, come to be understood as being present by arbitrators. I am not a chartered surveyor, but I followed with great interest what was said by the noble Lord, Lord Northbourne, who I think really got to the nub of the matter. We must try to get back to a definition of a prudent and willing landlord—though what landlord now can be willing?—and a prudent and willing tenant.
Therefore I believe that we should support the Government in this matter and try to adjust the clause a little, if we can; but do not let us try to force in the words "open market". I believe that if they were now introduced, they would have a very bad effect on good relations in the agricultural industry. After all—if I may add just one more point—though I am not myself a trained valuer, I believe that with the best will in the world, in a very small market it is terribly difficult for any valuer to state a value about which he can go to law. How many times do we see in the fine art world that at Christie's or Sotheby's an estimate of what a work of art will fetch is given in good faith by the auctioneers. Then, if the object is put on the market, and it is very rare, and there are very rich people about, it will attract an astonishingly different price. That kind of value must not be used to force rent rises on sitting tenants once every three years. That is what the tenants fear might happen.
So I feel that we must go a little wider than we have been asked to go, and I hope that tonight we shall come to a conclusion about this question and take a vote. I think it would be rather a pity to put it all back and hope that before the Committee stage is resumed the CLA, the NFU, the surveyors, Uncle Tom Cobbleigh and all will have found a better formula.
§ 4.53 p.m.
§ Lord Walston
We have had a fascinating discussion, since I believe that all noble Lords who have spoken are agreed in their objectives, and all noble Lords who have put down amendments want to achieve the same result. So we are discussing not what should be achieved, but how it should be achieved. I would suggest that there are a certain number of factors which we ought to keep in the forefront of our minds. First, we must realise that there are very few arbitrations. Virtually every rent review is arrived at by mutual agreement between landlord and tenant, or the agents, without recourse to arbitration. Therefore we are talking about a very small number of cases occurring every year.
145 Secondly, noble Lords have, quite rightly, mentioned the existence of the premium paid by new entrants into the industry in order to obtain a tenancy; what can loosely be called "key money". We all know that it exists. But this, too, is not common, because there are very few new lettings every year, and there are even fewer new lettings in those areas where rent reviews are due, and still fewer where there are to be arbitrations. Therefore the actual number of cases affected by this question is minimal. That does not mean to say that the matter is unimportant. We must of course deal with it, but it should not be exalted into something which will affect the entire level of rents throughout the whole countryside.
I believe, too, that we are all agreed that in arriving at rents after arbitration, discussion, and rent review, or at any time, other than when there are new lettings, it would be wrong to take into account the key money. It is something that we cannot legislate against. We may deprecate it, but it is there. But it is wrong to take it into account and have it affect other lettings.
I would also suggest to your Lordships, as certain other noble Lords have already done, that it is quite impossible to place a value on anything without taking into account scarcity. If there is no scarcity, one can almost say there is no value. If there is a vast surplus of any given commodity, be it land or lollipops, and if nobody wants it, the land or the lollipops have no value whatsoever. It is only when they become scarce that they begin to have some value, and the more scarce they are, the greater is their value. So it is impossible to ask an arbitrator to arrive at a value without taking into account scarcity.
I further believe—and the noble Earl, Lord Waldegrave, has, quite rightly, pointed this out—that hitherto arbitrators, being sensible men, have ignored the key money factor, but they have paid due regard to scarcity and to many other factors: the profitability of the farm, the long-term desirability from a landlord's point of view of having one tenant or another, and so on. It may well be that in so doing they have acted illegally. Fortunately for them, and fortunately for all of us who are tenants, landlords, or whatever it may be, so far nobody has taken an arbitrator to court in order to test whether he has acted illegally. But I think that it is quite reasonable that in a Bill of this kind provision should be made to make it absolutely certain that if the arbitrator continues to act as he has done in the past, paying due regard to all the relevant factors, including scarcity, but excluding key money, he should not render himself liable under any legal provisions.
A whole series of amendments has been put down to remedy this situation. We have read them all, we have thought about them, we have studied the documents that we have received, but, other than in regard to Amendment No. 1, we have not as yet had the opportunity of listening to the persuasive arguments of those noble Lords who are putting forward the amendments. So I would suggest to your Lordships' Committee that our best course here is to listen to all the arguments which are to be put forward, as well as consider those which have been put forward, for all the different amendments, without having a vote on any of them. Having heard the arguments about them all, we 146 should then make up our minds about which amendments we individually consider to be the best way of achieving our agreed aims, and at Report stage, if we cannot reach a consensus, we can, if necessary, have a Division. I think that it would be unfortunate and would place us all in a very difficult position if at this stage we have to decide on any one or other of the amendments without having heard the arguments for all of them.
§ Viscount Mountgarret
I should like to take up one point that the noble Lord, Lord Walston, made and ask members of your Lordships' Committee not to be too misled—and I do not at all mean that in any derogatory way. The noble Lord yet again made reference to the fact that there are very few arbitrations and that therefore we are appearing to talk about a very small number of eventualities. I would suggest very strongly that if the Bill goes through in the manner in which it is drafted, in particular in regard to Clause 1 and the rent formula, the number of arbitrations will be far greater. I say that because I do not see how any tenant could possibly willingly agree with a landlord across the table on the basis of the reference and the power being given to the arbitrators. I feel that that would be a minefield and would mean a joyride for barristers, attorneys, and so on. Please do not be misled into thinking that arbitration is something that is of very minor consequence!
Earl De La Warr
I am sorry to continue this. I should perhaps declare my interest. It may be thought that I am a landlord. In fact, I am a tenant, and a tenant of my two-year old grandson. His trustees, in reverse order, are his father and, as senior trustee, his grandfather. They are very tough. You can therefore work out precisely what my interest is.
I am extremely glad that my noble friend Lord Belsteadblew a breath of fresh air into this matter by reminding us that the 1958 method of arriving at rents is widely disregarded. In fact, I would go further and say that it is almost totally disregarded by both arbitrators and valuers when they get together. They take into account many factors which this Bill, as it is at present drafted, brings to our attention, complicated as this may be. I believe it to be a reality that valuers, when they are discussing rent, tend to do so either leaning over a gate or in a pub with glasses of beer in their hands. It is important that we should take account of this, because, when we finally decide which way we are going, we must be sure that the solution arrived at is one that valuers are seen to use instead of taking no notice of the criteria as they now stand.
§ Lord Mackie of Benshie
I will not take up the time of the Committee but the points that have just been made are quite important. My noble kinsman seemed to correct me on one point. The point that I was making is that made by the noble Viscount, Lord Mountgarrett, and others. It is that tenants are much more willing to settle under the system now for a rent which they may think is out of the way or too much because the open market rent is held open. It can be interpreted as the rent that has just been paid for the only farm to come into the market for the past 10 years. That is why so many rent reviews are settled 147 without arbitration. It is because of the open market formula that can be used in a wholly uneconomic way against the tenant.
§ 5.3 p.m.
§ Lord Belstead
I do not think that I can add to the expertise and experience which have been voiced in the last 1½ to 2 hours on these two amendments. However, I can perhaps add one further word and first stake out what I believe to be the common ground. This is that a new rent formula should provide a sound and comprehensible statutory basis for the current practice of arbitrators. One may ask why, if this is the objective, we need to do anything at all. Of course, the answer is, as my noble friend Lord Middleton put it so clearly during Second Reading, that current arbitration practice would be in danger of breaking down if an arbitrator were to be challenged in the courts. My noble friend Lord Waldegrave has underlined that danger in the speech that he made on the amendments today, while the noble Earl, Lord De La Warr, said very much the same thing.
I should like to further underline what has been stated. The committee of the noble Lord, Lord Northfield, predicted that by the year 2020 the let sector would, so it computed, if things went on as they were, probably fall to about half the size that it had been shortly before the Northfield Committee reported in 1979. So something had to be done. In line with the Northfield Committee recommendation, the CLA and the NFU, with the encouragement of the Minister at the time, my right honourable friend Peter Walker, met to try to hammer out amendments to tenure legislation. As your Lordships know, that went on for two years, but, in the end, they reached an agreement. Part of the agreement is to repeal the 1976 Act, which we shall come to on Clause 2.
On the clause with which we are now dealing, the intention is to introduce a new rent formula to make it legally possible for arbitrators to disregard the distortion of key money from the evidence of the open market and to be able to fix realistic rents for sitting tenants based on a statutory formula which would not make arbitrators liable to legal challenge. In truth, the elimination of the effect of key money and the legal basis for the fixing of realistic rents is surely arbitrators' current practice. They are to be applauded for it. If I am right that we all share that objective, I feel that it is not beyond the wit of man to try to find a solution which achieves as great a measure of agreement as possible.
I make no secret of the fact that the Government were hoping that the formula contained in Clause 1 achieved that objective. Worked out by the CLA and the NFU, accepted by the Incorporated Society of Valuers and Agents and the CAAV, and confirmed by the RICS over two years ago as being workable, the formula represents a key element in the Bill. It would be wrong and, indeed, it would mislead your Lordships if I did not say that. Nevertheless, your Lordships will forgive me for repeating that I accept, having listened to the debate, that there are a number of interests which have strong reservations about the new formula. I realise that in particular they would like to see a specific reference to the open market and 148 that they are concerned about the wording of the provision relating to the adjustment of comparable rent on account of scarcity.
Perhaps I may submit something to your Lordships which I think has not so far been stated. I do not believe that the Bill and the point of view put forward so persuasively in these amendments are so far apart in their objectives as this debate may have suggested. The reason I say this is that the Bill would in practice require arbitrators initially to take account of the open market. The noble Lord, Lord Walston, in his speech on Second Reading, asked about a farm in very good hunting country that has a scarcity value because a lot of people want it for that reason, or a farm in the noble Lord's own home area and mine, perhaps in very fine shooting country, which, again, people would want. The noble Lord gave a third example of a farm within easy travelling distance of one of the great metropolitan areas or of London which was again desirable for that reason. Of course, we see in the rent formula that the arbitrator shall take into particular account,the character and situation of the holding".Indeed, noble Lords opposite will be attempting in a little while to improve that paragraph by saying that it should refer to "the locality" to spell out exactly what the noble Lord, Lord Walston, was after in Second Reading, in showing that open market ought to be taken into account as a start in a formula that is put in the Bill. When one looks at paragraph (d), one sees that,the current level of rents for comparable lettings"—that is comparable lettings anywhere—as determined in accordance with subsection (4) of this section",shall be taken into account.
However, I must not mislead the Committee. It is true that when we get to subsection (4)—and I admit it absolutely freely—the Bill says that there must be a reduction, in looking at the comparable holdings, for appreciable scarcity—not "scarcity", but "appreciable scarcity". That is a matter which I feel I must mention to your Lordships.
Let us look at Amendment No. 16, which appears in the name of my noble friend. It is proposed by my noble friend Lord Kinnoull and by the noble Lord, Lord Howard, that there should be an element of tempering of rents of comparable holdings to the extent that they may exceed a rent which:a prudent tenant could reasonably be expected to sustain".So, without trying in any way to pull the wool over anybody's eyes, I really do not think that the Government's position and the position which is put forward in the amendments are so far apart that the two points of view cannot be bridged with goodwill and with trial.
There is one difficult point which I must answer and which was raised by my noble friend Lord Campbell of Alloway. My noble friend Lord Campbell and my noble friend Lord Kinnoull in opening raised the question of the possibility of the Bill having an immediate effect on rents. With respect, I would question that assumption. Indeed, from listening to the noble Lord, Lord Mackie of Benshie, perhaps I ought to make the point that I recently received a very long and closely argued letter from one of the great 149 universities of this country, which made the point that rents were too low and historically had for some time been too low. I know that the noble Lord and other noble Lords may have argued that they have been too high. If my correspondent on that occasion was right, then Clause 1(3)(c), which refers to the "productive capacity of the holding", will take care of that for the first time by putting into law the requirement that the productive capacity of the holding must be taken into account.
I must say that I am rather concerned that the amendments which we are considering at the moment would define the rent properly payable by reference to the open market in a way which would seem to relegate to a secondary position the productivity and earning capacity of the holding. I say that because I believe that this is a point which will cause quite a lot of trouble with substantial sections of the farming community in this country. Incidentally, Amendment No. 16, which deals with an alternative method of adjusting for appreciable scarcity, is something which need not perhaps present quite the same problems—certainly it is something which we should consider very carefully.
Where does that leave me? It leaves me with the six formulae which I ventured to read out to your Lordships' Committee when I intervened a little while ago. In fact, I got that wrong. There is a seventh formula, because the later amendment of my noble friend Lord Caithness seeks to have the rent formula based on a proportionate 60:40 basis. Seven formulae take a certain amount of putting together.
I would, therefore, ask your Lordships not to press these amendments at this stage, in order to give us a little time to see whether it is possible to incorporate the sense of some of what your Lordships have proposed, without at the same time destroying the work which has been done to make it possible for the Government to bring the Bill before your Lordships at this time. I hope that perhaps my noble friend and the noble Lord, Lord Howard, might consider withdrawing the amendments now and letting us see whether we can gain any greater measure of agreement before the next stage of the Bill. But I must be honest with your Lordships: I cannot and I will not promise that we can do this; but I do promise that we will try.
§ Lord Northfield
Before the noble Lord sits down, will he say that in those discussions he will take into account the Scottish legislation which, after all, has been urged on many of us as a model which might be followed?
§ Lord Howard of Henderskelfe
I think it is generally recognised that the amendments which stand in the names of other noble Lords and myself—Amendments Nos. 1 and 16—are neither probing nor wrecking amendments: they are genuine attempts to improve the Bill which is before us today. They apply, of course, primarily to settlements which are proposed and reached by valuers with tenants because, as the noble Lord, Lord Walston, has reminded us, there are very few arbitrations indeed in the agricultural field. 150 One particular professional told me the other day that in the last 6,000 settlements which he had made with tenants, he had six arbitrations. On my estate we have had one arbitration in the last 30 years, not because the tenants are afraid of the arbitrators but because the valuers tend to get it right. That means that in practice these instructions, these parameters, are addressed to valuers and will be the basis of the settlements which are reached for rents in the future.
In our view, while not seeking to disturb in general terms the package which has been reached, we believe that there is one absolutely central flaw in it—namely, that it does not have an objective. In days long ago when one was required to produce an appreciation of military matters, the objective was the most important factor which one had to consider. It is a question of the cart without the horse, or however you wish to describe it. What we are doing here is trying to tell people how to do something without telling them what they are trying to achieve. In seeking to insert the words which are in our amendment, we are trying to say what they are trying to achieve, which is an open market rent agreed between a willing tenant and a willing landlord. The terms in the amendment—which I have not repeated accurately—are terms of art well understood by all valuers. They are not new; they have worked for 25 years, pace the noble Earl, Lord Waldegrave. They have worked perfectly well. They are terms of art. "Prudent" and "willing" are terms which are capable of no misinterpretation.
It should be even less agreeable to the present Government to remove from the Bill the words "open market", which have been employed for the last 25 years, in view of their approach to the market in general. We understand that they believe in the free market, in the market pressures. Why should these not operate just as much in agriculture as they do in any other field? I have not noticed tenants complaining about the open market in cattle when they send their cattle to market. Oh no! It is perfectly all right then. It is only when it is introduced into the definition of "a rent properly payable" that it becomes something which is anathema to all. We are told that this cannot really continue. The noble Lord, Lord Middleton, described it as "hypothetical"; and it was described as a "mythical hypothesis"—I am not quite sure what that is—by the noble Lord, Lord Stanley of Alderley.
Valuers, above all people, are capable of valuing the unique. They do it all the time. They are always being faced with cases where there is nothing comparable and they have to pluck out of the air a value which will be acceptable to both sides. They have done it for years and I am sure that they will go on doing it for years into the future. So what the present terms of the Bill tell us are the parameters—the matters which are to be taken into account in assessing the rent properly payable—are, in fact, the glosses which help the experienced valuer to arrive at the figure.
All the things that have been mentioned this afternoon have to be taken into account. Whether it be the profitability of the farm, the apportionment of that profitability between one party and the other, or whatever it may be, all are taken into account. All we have tried to do is to insert a single objective so that the valuer can be sure about what he is trying to achieve and can then apply all these other matters to it.
151 If, in fact, the Government, with their belief in the open market as a proper source of pressure, can be persuaded to introduce a formula which is suitable and can come back to us with it—a formula which the Government must decide, not some conference or pressures between one body and another (for, after all, it is a public Bill which is before us and not a private Bill)—I am sure that all noble Lords on all sides of this Committee who have expressed anxiety about the legislation as it now stands, will happily accept such a formula. It may not be completely and generally acceptable to everyone, but if it is expressed clearly and without any shadow of doubt, and does not involve the need for a great many visits to courts at great expense, then I am sure we shall all welcome it.
In the hope that the noble Lord, Lord Belstead, will be able to do this—in fact, in the firm assurance that he will do so—and not merely convene a further meeting of the parties concerned, I beg leave to withdraw the amendment which stands in my name and the names of my noble friends.
§ Amendment, by leave, withdrawn.
§ 5.22 p.m.
Lord John-Mackie moved Amendment No. 2:
Page 1, leave out line 22.
§ The noble Lord said: I must apologise to your Lordships for not declaring my interest as every other noble Lord has done. I am a tenant farmer. I am actually eighth in a long line of John Mackies, dating from about 1660, who were tenant farmers in the North-East of Scotland. However, I have broken that tradition and am now a tenant farmer in Essex.
I move Amendment No. 2, which is, of course, a paving amendment for Amendment No. 4.
Amendment No 4: Page 2, line 2, leave out from ("factors") to end of subsection (6) on page 3 and insert ("provided by the landlord and the tenant.").
§ I should like to raise a point that was raised on Second Reading by the noble Earl, Lord Onslow—who is not in his place at the moment—when he twitted his colleagues for changing their minds since they spoke on the 1976 Act. I think that he was being unfair. The noble Earl, Lord Swinton, put him in his place very sharply by saying, "No". But I think it should be made plain that today we are discussing a Government Bill and if possible the Opposition want to improve the Bill, but that in no way commits them to anything that may happen nearly 10 years hence. It is unlikely that, if the next Bill is in 10 years' time, I shall be saying anything about it. So whatever I say, I do not want to commit my party in any way in our efforts to improve the Bill. Before I came to this House I had listened to several debates and was always impressed by the tremendous knowledge and the way in which it was put across in this House. In my two-and-half years here I have been considerably more impressed by how that knowledge is used to improve Bills and to help in every way, and it is done with much less noise and fuss than is the case next door.
§ I see that the noble Baroness, Lady Elles, is in her place today. Perhaps I could give an illustration of what I have just said. A report was produced on olive oil. When speaking on this report, most noble Lords 152 admitted that there was very little knowledge of olive oil in this House. Then up stood the noble Baroness, Lady Elles, who announced that she has an olive grove in Tuscany, grows olives, and produces oil. That is an illustration of the knowledge available here and how nicely it can be put across. As a result of that, I thought it was my duty to pay close attention to all that was said during the Second Reading debate on this Bill and to take due account of what noble Lords said in making up my mind and the minds of my colleagues as to what attitude we should adopt to the Bill. Although I have this noted down, I do not want to go into the detail of what every noble Lord said on Second Reading.
At col. 714 the noble Lord, Lord Belstead, said:
They reported in May of this year. I repeat that the purpose of the new rent formula is to give arbitrators a realistic basis for assessments, which the present formula cannot do, and to instil confidence again in the basis of the rental system.
I believe that the noble Earl, Lord Kinnoull. has pointed out that there are 29 amendments to this clause, so that pretty obviously suggests that it does not do that. At col. 721 the noble Lord, Lord Walston, makes the very real point about the isolation of scarcity values. The noble Lord, Lord Howard, who has just spoken, makes a point at col. 725 about the defects in the clause. A few minutes ago he referred to arbitrators plucking ideas out of the air to help them reach a decision.
At col. 727 the noble Lord, Lord Nugent, suggests that the Scottish formula would be better than the English one, and I believe that the noble Marquess, Lord Salisbury, made the same point. The noble Lord, Lord Stodart at col. 729 made the point that it is a pretty loose formula and it would be very difficult for an arbitrator to do anything about it. My noble friend Lord Northfield referred, in his report, which he quoted on Second Reading, to the wide interpretation that there can be of any of these things. He said:
….and a prudent tenant, and we should like to see arbitrators given fairly wide discretion in their interpretation.
I could not agree more.
§ The noble Lord, Lord Stanley, made the point at col. 737 that reasonable landlords have carried out what we all want without any help from arbitrators and they should make that law. The noble Earl, Lord Caithness, in quite a long speech on Second Reading, pointed out how many imperfections there were in the Bill. At col. 742 the noble Lord, Lord Northbourne, made the point that the Bill is badly drafted, and I think that he has made an effort to improve the drafting.
At col. 745 the noble Lord, Lord Rugby, simply said that the whole thing is difficult to understand, and the noble Marquess, Lord Salisbury, (who does not want the clause at all), also made the point about the Scottish interpretation. At col. 752 the noble Lord, Lord Hylton, made the point that it was very obscure indeed. At col. 755 the noble Lord, Lord Gisborough, said:
Therefore, it must be wrong totally to disregard scarcity. At the same time, it is equally wrong to give it undue consideration. So there should eventually be some phrase in the Bill on the lines that scarcity should be considered, but not given undue consideration.
I just wonder how one interprets that. The noble Earl, Lord Radnor, was worried about the impreciseness of
the whole thing; and the noble Lord, Lord Burton, at cols. 759 and 760, suggests that we follow the Scottish Act. The noble Marquess, Lord Salisbury did the same.
§ I was discussing this over a cup of tea with the noble Viscount, Lord Dilhorne. I pointed out to him that we should like to simplify things as much as possible—and I hope he will not mind me misquoting him a little as he is not in his place—and he said that if we did that there would be little scope for legal argument, which I thought was a nice way of putting "looking for a job". I must admit that his Second Reading speech is difficult for a layman to follow. although the new clause that he wishes to put in has something to commend it.
The noble Earl, Lord Kinnoull, in his speech earlier today made the point of the good sense of arbitrators. That is something we have to look to. The noble Lord, Lord Middleton, at col. 771, said:
Arbitrators have acted in a commonsense way, although not lawfully; and the general level of rents has advanced in a way that has so far been fair both to landlord and to tenant. That says a lot for the good sense of owners and tenants and the professional men who perform the arbitrations, but it says nothing at all for the current state of the law in circumstances which are quite different from those obtaining 25 years ago.
He really wants something on the same lines giving the arbitrators the same freedom, which means that they are going to be unlawful again but in a different situation. If he reads carefully what he said, that is what he is suggesting.
§ I have put these points to the Committee because they give the picture of how mixed up this is and the great difficulties in it which my noble friend Lord Northfield and others have mentioned. The noble Earl, Lord Waldegrave, made the point that there was considerable confusion of thought on the subject. Therefore, in discussing this with my colleagues we decided that it would he better to simplify the whole thing by the amendment we have put down.
If noble Lords would care to look at the amendment, they will see that we start by missing out the first line in subsection (3) and start as follows,
In determining the rent"—
and so on—
of a holding on any such reference the arbitrator shall take into account all relevant factors"—
and this has been emphasised by many noble Lords—the factors provided by the landlord and the tenant, and then we miss out the whole of the instructions to the arbitrators.
§ As one noble Lord has said, if we have such faith—and we have faith in arbitrators; they have done a good job for us in the past—why should we take a page and a half to tell an arbitrator how to do his job? That is what we have done. So far as I can ascertain no noble Lord agreed with it at all—there are many amendments—and it would be better to leave the matter to the good sense of the landlord and the tenant.
§ Landlords are not going to kill the goose that lays the golden eggs, and the tenant is certainly not going to give up his farm. They will put their points. As landlords deal mostly through agents, I advise a tenant to have an agent to help him. I made a grave mistake 154 in thinking that I was as clever as the landlord's agent in fixing a rent a few years ago, and I advise a tenant to have an agent to put the points if he goes to arbitration. The arbitrator then decides and fixes the rent.
§ There have been considerable worries—and the noble Earl, Lord Kinnoull, quizzed me on this earlier—as to the effect that any package would have on rents. Several of the charities which own land have been worried that rents will fall. I personally do not think so. I do not think that there will be a surge either way, because it will be a small number of decisions that will be made. I cannot see that there will be any overall change quickly. Like my noble kinsman, I think that a lot of rents are too high and that the landlord is getting a bigger share of the production of the land than the man working it. I have seen some figures to suggest that he is getting more even than the farmer and his men. That may be, but what I feel is that there may be a rise in the better land prices. The prices in grade 2 or grade 3 land may be static, or perhaps they will fall. I think prices will be fairly static in hill and marginal land. I do not think there will he a surge either way, and I do not think that these bodies need have any great fear at all.
§ We have put down this amendment to try and simplify this Bill, and to get over the myriad of difficulties that noble Lords expressed at Second Reading and in a wide-ranging debate on the Earl of Kinnoull's amendment. Therefore, I beg to move.
§ The Earl of Kinnoull
I do not intend to go through all of the speeches which were made at Second Reading; but it was good of the noble Lord to remind us of what Members said. Unless I misunderstand this amendment, the noble Lord is plucking out all the relevant factors that he described should be considered by an arbitrator and taking us back to the 1948 Act, leaving it to the arbitrator to decide one way or the other. I have a feeling that we have gone a little beyond this at this stage, but I should like to ask the noble Lord—because it is relevant still to what we were discussing a few moments ago—what evidence he has, and why he feels, that the charitable bodies and the institutional investors fear the rents going down. What gives him the confidence to say that there will he no change?
One must appreciate that the charitable associations have advisers and take careful financial decisions. Will the noble Lord advise the Committee whether he has any evidence to support his general view, and whether he has any evidence to support the view, as his noble kinsman has said, that rents are too high? I am not sure that there is any evidence to support this. Are farmers going into bankruptcy? Where is this evidence? I think that the noble Lord should support these sweeping statements that he makes.
§ Lord John-Mackie
Regarding the size of rents, that is purely a personal opinion as to the share of the production of the land between landowner and tenant. I know what my profit per acre is or in some cases my losses per acre—and I know that I am still going to pay my rent irrespective. I feel that since 1976 anyway the tenant has had the great advantage over the succession, and the landlord has had an advantage 155 economically, and it has obviously to swing slightly the other way if the Bill is passed with the CLA-NFU package.
It is that package that the noble Earl's friends—if the charity people are his friends—are worried about. If noble Lords would accept our amendment where the arbitrator and the system at the present moment carry on with fixing rents, there would not be any great swing at all. That is my argument for that.
The Earl of Caithness
I should like to support the noble Lord, Lord John-Mackie. I know that I will irritate the NFU and the CLA by doing so, but that is too bad. The more I have considered this part of the Bill the more ludicrous it becomes, because it is impossible to legislate for all the circumstances and factors which an arbitrator must take into account. I just do not think it is possible.
Furthermore, we could be legislating today for what is important now, whereas in 10 years' time there might be something of critical importance which an arbitrator should consider but which is not mentioned in the Bill. Why do we not leave it so that an arbitrator has to take into account "all relevant factors"—full stop? Then we can allow the landlord and tenant to sort matters out at arbitration, if that is where they want to go.
Before the noble Lord decides what he will do with his amendment, whether to withdraw or to press it to a Division, may I press on him to withdraw it? Let us amend the Bill at this stage and at later stages, then, if it is the mood of the House, let us take out everything we have amended. If it is put back, as I am sure it will be in another place, at least it will be put back in an amended form and we shall have had the opportunity of discussing it. If he presses it and wins the vote now, we will not have had the opportunity of discussing quite a number of useful amendments.
§ Lord Mackie of Benshie
I rise to oppose the amendment. It is a little too simple to stand the test. One of the things that produced the open market formula was the fact that previously the plain instruction to an arbiter to arbitrate was not producing a fair result from the landlords' side. Inevitably if one gives no instructions what happens is that the arbiter simply says, as is so often done in wage negotiations to the great disadvantage of this country as a whole, that he will try to fix something in between. One is then running to and fro to reach a compromise, which may be entirely and completely wrong and will depend on the landlord going low and the tenant going high.
Furthermore, it is the job of this House, which, as my noble kinsman said, contains an incredible amount of expertise, not to shirk giving some guidelines for the arbiters to go on. The formula as it is laid down in the Bill is not perfect. Nothing is ever quite perfect in everybody's eyes, but it gives a basis to go on and it removes what several noble Lords have said is a source of grievance and worry; that is the interpretation of the open market formula as simply one of being the best rent that can be obtained. While I should love to support my noble kinsman, the amendment is a little too simplistic and I think the Committee should give advice to the arbiter from this enormous accumulated wealth of experience here.
§ Lord Belstead
I am grateful to the noble Lord, Lord Mackie of Benshie, because the proposed amendment of the noble Lord, Lord John-Mackie, would leave the arbitrator to determine what factors were relevant from among the statements of case. This would sweep away any basis for assessing rents. The noble Lord, Lord John-Mackie, said on the previous amendment that he would be against the open market formula and it would omit those factors which have been laid down ever since 1948 as not to be taken into account in rent assessment. Those would be swept away by the amendment as well. There would be no guidance for the arbitrator and there would be no guarantee of any consistency between one arbitration and another for landlord and tenant. For those reasons this is most unacceptable to the Government.
We on this side of the House welcome the movement away from the open market. I am not so sure that the criticism which has been levelled at Clause 1 is always right. I acknowledge that difficulties will always arise when one attempts to codify in too much detail the guidance to be given to the arbitrator. On the one hand, there is value in detail; it makes for certainty: but on the other hand it can make for inflexibility. As the noble Earl, Lord Caithness, said, one cannot always legislate in one's code for all positions.
Having listened to the debate, it appears to me that one can move in one of three ways. We could abandon the formula set out in Clause 1 and adhere to this narrow basis of the open market. Although that formula has some support in the House it appears that many noble Lords have deep reservations about it. The next formula is the one enshrined in Clause 1 and the option could be that we work to improve the formula in Clause 1, either by making it more precise—because it is thought to be too vague—or making it, at times, less precise because we think that would be of assistance to the arbitrator.
Notwithstanding what the noble Lord the Minister has said, there is the third option; the one advanced by my noble friend Lord John-Mackie. That is to leave it to the parties to submit to the arbitrator all the elements which they consider to be relevant in determining the rent of that particular holding, leaving it to him, the professional qualified arbitrator, to exercise a broad judgment as to the merits.
We have been told that that is over-simplification, but the 1948 basis was a fairly broad basis, leaving it very much to the arbitrator to attach what weight he considered proper to the elements or the arguments which had been advanced. The sense of our amendment is that we leave it to the arbitrator to exercise a broad judgment having regard to the arguments which have been advanced.
I accept the valid point made by the Minister that we should go further and stipulate that the arbitrator ought to disregard certain factors. That is the imperfection in our drafting. We have raised this third option; we have had regard to what the Minister has said, that the Government will reconsider Clause 1 in the light of the arguments which have been advanced. In those circumstances, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.157
§ The Deputy Chairman of Committees (Baroness Wootton of Abinger)
Before calling the next amendment, I have to point out that if Amendment No. 3 is agreed to I shall be unable to put Amendments Nos. 4 to 19 inclusive.
§ 5.48 p.m.
§ Lord Renton moved Amendment No. 3:
Page 1, line 22, leave out subsections (3) and (4) and insert—
(" ( ) For the purposes of the foregoing subsection the rent properly payable for the holding shall be the rent at which the holding might reasonably be expected to be let in the open market by a willing landlord to a willing tenant, the arbitrator—
§ The noble Lord said: I think I can ease your Lordships' minds because I shall in due course beg leave to withdraw the amendment, so the dire result which has been mentioned will not arise. This amendment has been conceived and drafted by members of the Agricultural Law Association, a group of people skilled and experienced in this branch of the law. I am not a member of the association and it is many years since I did some of this work. Although it is the longest amendment on the Order Paper, I hope that I can move it quite briefly and I do not think that it will lead to a long debate in view of the discussions that we have already had.158
§ May I remind your Lordships that under the present law in England and Wales the rent payable is to be the market rent. We know that because of the effect of the 1976 legislation the reference to market rents has become less realistic than it used to be, as has been made clear by several speeches in our earlier discussions. But surelyone of the objects of the Bill, the next provisions of the Bill especially, should be (and, as I understand it, is intended to be) to open up markets to some extent. They can never be opened up to the extent that used to exist; but it will have some effect.
§ The Agricultural Law Association feel that the new formula in Clause 1 is too tightly drawn. I must say that I agree with them. As has already been pointed out by my noble friend Lord Kinnoull, the provisions relating to comparable lettings will certainly give rise to difficulty. They will give rise to difficulty in finding the evidence and the wording of that part of Clause 1 will, as he has said, give rise to questions of interpretation. Therefore, I am putting forward what I hope your Lordships, and especially my noble friend Lord Belstead, may find is a more realistic, more flexible formula. It starts with a requirement to consider the open market rent and, to that extent, it achieves the purpose of Amendment No. 1. Although he is not in his place at the moment, I thought that the noble Lord, Lord Howard of Henderskelfe, touched on a very important point when he stated that, where necessary, we should state the objective—the objective of arbitrators in this case—and the purpose of our legislation.
Both Amendment No. 1 and the first five lines of this amendment do just that. They start:
For the purposes of the foregoing subsection …".
I would commend that method of drafting, as I have done before, to my noble friend. This, therefore, starts with a purpose, which is to consider the open market rent as between a willing landlord and a willing tenant. That perhaps is the most important part of this amendment.
§ May I now go to the very last part of it because that also is very important. That achieves the same purpose as the amendment of my noble friend Lord Stanley of Alderley. It says, in effect, that the arbitrator shall discount the scarcity factor. It is perfectly fair to say that Clause 1, as drafted, also does that; so that we are on common ground there.
Now, having stated the advantages of the start of the amendment and the advantages of its conclusion, and having pointed out the common ground that there is on both, I think I can deal fairly briefly with the other points mentioned in some detail in the amendment. In the first subsection—which would become subsection 3(a)—the arbitrator is required,
having regard to all the circumstances (other than personal circumstances) and in particular—
(i) the size, nature and situation of the holding and its productivity and earning capacity"—
and that short phrase covers a number of points already in subsection (1). It continues,
(ii) the terms of the tenancy (other than those relating to rent)
have then to be considered. I need not read out what arises under heading (b) of my first subsection because
your Lordships can see that. I should have thought that these are points which are beyond dispute and, again, are common ground. Then there are the various disregards which, as I understand it, do not introduce any controversial new element.
§ Although this is the longest amendment on the Marshalled List, I would hope very much that in further consideration of the matter it will be found to be sound in law, well drafted—and I can say that because I myself took no part in the drafting—and to contain matters which are common ground between so many of your Lordships. In those circumstances, I think that I need say no more than that I beg to move.
§ Lord Stanley of Alderley
I regret to tell my noble friend, after the help I received last week on another matter, that I am not very keen about this amendment. Needless to say, I am not keen about the words "open market" in the first five lines for all the reasons that I gave earlier. I shall not delay the Committee on anything else. But I shall be interested in an explanation of heading (b) (iii):that the tenant is reasonably skilled in husbandry".I think there is great scope there for quite a lot of argument.
§ Lord Northfield
I am glad that the noble Lord, Lord Renton, has moved this amendment rather than remaining silent and letting it be absorbed in the discussions which the noble Lord, Lord Belstead, has undertaken to have between now and Report stage. It enables us just to show to the Government at least one shot in combining the sort of things that many of us on both sides of the Committee would like to see. After all, this starts with the principle taken by the noble Earl, Lord Kinnoull, as a starter; namely, that the normal rent shall be that of the open market. Then it shows how, with clever drafting, one can provide modifications to that basis to take account of problems and distortions in the market. To that extent, I think that it is a good thing that the noble Lord, Lord Renton, has put this amendment on the Marshalled List. I hope that it will be actively taken into consideration by the noble Lord, Lord Belstead, between now and Report stage.
It also enables me to say one other thing: that if he will look at Scottish legislation (which I raised with the noble Lord, Lord Belstead, at the end of his remarks a few minutes ago) he will find that that too is very much on similar lines. That, too, takes account of the open market and then detracts from it according to the needs of the situation and the distortions in the market. I return to a point I made at the beginning; namely, that it is quite extraordinary that the Government produced this Bill without taking wider considerations into account.
During the preparation of this Bill the Government were actually putting through the Scottish legislation with the alternative formula in it. It is extraordinary that one hand did not seem to know what the other was doing. What happened was that the discussions between the NFU and the CLA were reaching their conclusion when the Scottish Bill was produced. Those discussions between the NFU and the CLA, as I understand it, simply failed to take account of the 160 alternative, compromise way of doing it which the Government were then proposing in the Scottish legislation.
We really must return to this. Why should there be all that difference, anyway, between the law on both sides of the Border? Yes, there will he some difference; and the noble Lord, Lord Mackie, will get up and point out the differences. But I am talking about differences of principle rather than of degree. Why is it the case? I hope that the noble Lord, Lord Belstead, will tell us that the Government apparently never took into account the Scottish legislation when they were drafting this particular Bill. I am hoping that, by the time we get to Report stage, it will be the Scottish legislation plus the amendment of the noble Lord, Lord Renton, plus that of the noble Earl, Lord Kinnoull (which is very similar to the opening part of Lord Renton's amendment), and that that will really make the running in the new re-draft. What a relief it will be to get away from the simple NFU-CLA package and begin to start from legislative principles all over again and try to get it right.
I have one other point to make. I read with great interest a report on tenant rent legislation by Messrs. Cluttons. They have enormous experience; as they say, they have conducted over 6,000 rent reviews on behalf of clients since 1958 and have had to go to arbitration on 15 occasions, They are some of the most experienced people in the business and, if I may say so, they were extremely helpful to the Northfield Committee and to other professional bodies of a similar sort. In the middle of their submission on this kind of legislation—this is headed "Agricultural holdings and opinions on the proposed legislation"—they said something which I find very interesting. May I just quote a couple of sentences?—If a landlord were to accept the highest tender regardless of the competence or the personality of the applicant and then apply that same level of rent to his sitting tenant, it would be manifestly unfair. But over the great majority of tenanted land the opposite practice has applied. Landowners have been careful to select good tenants, capable of paying the rent which they have tendered and still make a worthwhile profit. And in applying that level of rent"—and here is the crux of the matter—to their sitting tenants they have made allowance for the fact that any tenant, however competent, must be given time in which to change or improve his farming system so as to be able to afford to pay an open market rent".This is very true, and this is why it is important to keep the open market rent as the real basis. What tendered rents sometimes do is to enable landlords to realise a better rent than they have been getting so far which can be achieved by people who are particularly efficient, and then to take a steady view—and here I quote again—abouthow any sitting tenant, however competent, must be given time in which to change or improve his farming system so as to be able to afford to pay an open market rent".In my view, that is a perfectly proper way in which to proceed. It is the basis, in my view, or one of the bases, for the assessment of rent in the very difficult market situation we are in; and it underlines that we must never lose sight of the principle of the open market rent being the basis of it all.
§ Lord Forbes
I should like to support the noble Lord, Lord Northfield, in what he has said about the 161 Scottish formula that has recently been approved by Parliament. Why is it not good enough for England? There are, anyhow, difficulties over the Border. The United Kingdom is small enough as it is, and if we have different formulae North and South of the Border that will cause more complications. A further point is that this Bill represents an NFU and CLA package. Surely it would be far better if it were a pure Government Bill and the Government made up their minds what they want to do about it.
§ Lord Mackie of Benshie
I feel that a number of things have been said that I might comment on. One is that it is perfectly right and proper that there should be differences both in principle and practice between Scotland and England. We went to great trouble to put the Bill through for devolution in Scotland, and there is a great desire for the Scots to remain Scots and for many of their laws and practices to continue as they have been before; and they can do it without injuring the unity of the United Kingdom in any way. Indeed, diversity need not be a bad thing.
I must say also that the firm mentioned by the noble Lord, Lord Northfield, have been obviously immensely persuasive. They have persuaded him that they have a perfect system; that there is a perfect crowd of landlords whom they advise and they will have the happiest set of tenants anywhere if they follow the formula which they have put into practice obviously for their own reasonable benefit and for the benefit of the landlords they advise. But in fact we also have another side of the question which has been put by the NFU, and I do not think it is a bad thing for a Government to take cognisance of the wishes of the people who are involved in the two sides of the industry. I think it is an excellent thing on the part of this Government actually to consult the people who are affected by the legislation.—
§ Lord Mackie of Benshie
I think we are getting into another curious argument here, but I believe the Government have done the right thing in consulting and indeed in going to great lengths to make two parties agree. I think that is a proper function of Government, and they have done well in this case.
The whole point of the amendment of the noble Lord, Lord Renton, is that it puts the open market first. The instructions are quite straightforward: that it has to be the open market rent, first of all, between a willing landlord and a willing tenant. That is precisely what the NFU have been objecting to. In the case of an agreed package, it appears much more reasonable to put the same principle into Clause 4—not subsection (4) of the first clause—instead of at the head of the Bill in opposition to the agreement reached between the CLA and the NFU. So in this instance I must support the Government and say that the formula in the Bill is a much better one than the emphasis placed in the amendment of the noble Lord, Lord Renton.
§ Viscount Mountgarret
May I fully support my noble friend Lord Renton 100 per cent. in this amendment, and also the noble Lord, Lord Northfield, in his remarks about the Scottish formula. Previous speakers have declared an interest and I suppose I ought to follow their example by saying that I, too, like many others of your Lordships, am not only a landlord but also a tenant. I have one son and shall probably have a grandson like my noble friend Lord De La Warr—but I have not reached that stage yet, or rather my son has not. So I hope I can speak impartially and not from a standpoint of vested interest.
The amendment of my noble friend Lord Renton follows the strong suggestion put forward by the RICS, which I believe most of your Lordships who are taking part in this debate will have received. I do not think it will serve any great purpose if I read part of it because it may easily be obtained by anyone who wishes, if they have not read it already.
I believe I am right in saying—and I hope that my noble friend Lord Belstead will correct me if I am wrong—that in his earlier remarks he said that this package deal over the formula for rents had been broadly agreed by both parties, including (I think he said) the RICS. If that is what he said. I would with the greatest respect suggest that he may be incorrect here, although I have been advised privately that the RICS in their views and recommendations in the paper to which I have referred are very much divided in their feelings on this particular matter. All I can say to that is that the number of chartered surveyors to whom I have spoken in the comparatively short time between Second Reading and Committee stage have been in agreement with what has been put forward. So I am not quite sure where my adviser has got his information from, but I am sure he may well be correct. I feel that the RICS are not happy with the apparently agreed formula for rents and—I believe quite rightly—they wish to delete Clauses 3 and 4 of this Bill.
My noble friend Lord Renton has made suggestions and may I suggest that, gently, in his most persuasive way he asks the Government most seriously to accept his amendment. I believe that it will achieve the object which we ought to try to achieve, of keeping the open market letting clause in this Bill. I am afraid that I disagree here with my noble friend Lord Waldegrave. We should see that we get more lettings on the market where the open market rental value will come into play. I think it is recognised by everyone that there will be short-term teething problems with this Bill when it gets off the ground, which I seriously hope it will. But the measures suggested by my noble friend Lord Renton recognise and take care of the short-term problems which I hope will diminish as further lettings come on to the market.
Finally, I must take gentle issue with my noble friend Lord Stanley of Alderley. He has pushed fairly firmly, as have other noble Lords, the point about the position of the tenant in all these matters. It is entirely right to respect the tenant, to think of his wishes, and so on. However, at the end of the day we are trying to achieve a situation where more land will be available for letting on the open market, and it is the landlord who will make it available if he can and if it is financially attractive to him.
163 Therefore, I ask the Committee very seriously to consider the landlord a little more than we appear to be doing at the moment, because without the landlord's agreement to these packages and formulae there is no conceivable way in which landlords will put their heads on the chopping block and put more land on to the open market. I am sorry, but that is a fact. They will not do it and this must be very carefully considered. Having said that, may I support this amendment. I hope that my noble friend Lord Renton will use his ingenious persuasion to get the Government to go along with it.
§ 6.13 p.m.
§ Lord Stodart of Leaston
May I make one very short point about the Scottish situation which has been mentioned? The two pieces of legislation differ in one very substantial way, and my belief is that this Bill, which we are now discussing, will very largely succeed as a result of the implementation of Clause 2. Clause 2 does not feature in the Scottish legislation, and therefore it seems to me that there are likely to be more farms coming on the market in England and Wales than there will be in Scotland. More landlords in England and Wales will, as my noble friend has just said, be prepared to put their heads on the chopping block.
This being so, it seems to me highly desirable that the terms of the arbitration should be as precise as possible, and this is why I demurred on Second Reading at the wording proposed by the Government that consideration should be given to,a competent tenant practising a system of farming suitable to the holding".I think that it leaves one open to the most tremendous argument and discussion, just as do—I say this with the greatest respect to my noble friend Lord Renton—the words,—that the tenant is reasonably skilled in husbandry".I would not really begin to know how to go about defending or accusing someone of having that virtue or not.
I suppose that, having a farm in Scotland, I shall be accused of being biased; but, as in many other cases, I find the things which the Scottish lawyers say are, on the whole, pretty good and I commend to my noble friend the Minister that he should pay considerable attention—as he has promised to do already—to the drafting of the Scottish Bill.
I do not propose to follow the point on the Scottish law; but may I ask the Minister, when he replies on this amendment, to confirm that if it is passed or if it is withdrawn to be used as a basis of negotiation, it will leave intact something in the 1948 Act which is of extreme importance. I read from the Notes on Clauses:By virtue of Section 77 of the 1948 Act these arbitrators are not subject to the general law on arbitration but are governed by provisions of the Sixth Schedule to the Act. This is a simplified code specially drawn up to provide a very informal arbitration procedure for agricultural landlord and tenant matters"—
§ Lord Renton
Will my noble friend allow me to intervene? I think he will find that the point will arise on a later amendment.
I thank my noble friend very much. But even if the point does not arise on this amendment, I still think it is very important for it to be retained in any new legislation. It will defuse a lot of the fears and problems which will arise if we go into a more legalistic situation. It has been stressed this afternoon—and the noble Lord, Lord Walston, and my noble friend Lord Belstead mentioned it earlier—that there have been few arbitrations up to now; and few, if any, arbitration cases have been taken to the courts, but they may occur in future.
There are two things which will defuse an anxious situation more than anything else. First, those words in Section 77 of the 1948 Act should remain for the kind of arbitration that we shall have. Secondly—and surely we have a lot of ex-diplomats on the Cross-Benches who can help us here—we want to get round this very explosive term "open market". They are words which, as they skim through the clause, people on one side of the Committee and on one side of the landlord and tenant situation will see, and they will say "Open market! It will not do. No!" We have to get around those anxieties. That is why I think that the clause should be withdrawn now, but those two points should be taken into consideration.
§ Lord Prys-Davies
I very much agree with the last speaker that the words "open market" must find their way out of the clause. I should very much like to pay my respects to the wording offered by the noble Lord, Lord Renton, subject to the words "open market" being deleted from the clause. It could give us a formula which would be fair to landlord and tenant, and I agree very much with the noble Lord, Lord Stanley, that it must be seen to be fair to both parties.
There are just four comments which I should like to make on the formula. It appears to me that there are three possible omissions from the formula which one could look at at a later stage. It does not direct the arbitrator to have regard to the productive capacity of the holding, and one would have thought that the parties ought to be able to produce evidence as to the productive capacity of the land. Again, it does not direct the arbitrator to disregard any effect on rents which is due to any allowance or reduction in consideration of the charging of a premium, although I appreciate that in Clause 1 "premium" is not defined. Those are two omissions.
On the other hand, I very much prefer the reference to the tenant "reasonably skilled in husbandry". Like the noble Lord, Lord Stanley of Alderley, I find that to be a concept which I can understand. It is very much easier than that of a "competent tenant". We are all familiar with the concept of a reasonable man and of a reasonable tenant. I have also a preference for paragraph (c)(iv) of this amendment which echoes, I believe, a similar provision in one of the Rent Acts relating to residential properties where we speak of the number of tenants being substantially in excess of the number of the holdings. I should have thought that "substantial" is an expression which has been construed by the courts on many an occasion. Therefore I would much prefer Lord Renton's paragraph (c)(iv) to the suggested wording in Clause 1.
Having acknowledged the virtues of the clause, I still believe that as it stands it has the central weakness that 165 it is still fastened to the 1958 concept of the open market.
§ 6.22 p.m.
§ Lord Belstead
I am most grateful to my noble friend Lord Renton for putting down this amendment, because it has led to an extremely interesting debate. As one would expect from an amendment put down by my noble friend, it is drafted with great skill and is most attractive in that way. It represents a fundamental revision of the rent formula which is put forward in the Bill, although reproducing some of the existing features in a different order and in a different form. As my noble friend said, it is identical to a formula which I believe was proposed by the Agricultural Law Association in 1981.
As I said just now, there are some important differences between my noble friend's formula and the one contained in the Bill. The principal difference is that the rent properly payable would be defined, according to my noble friend's formula, in terms of the open market as between (my noble friend emphasised this) a willing landlord and a willing tenant. The productivity and earning capacity of the holding would be, so it would appear, relegated to secondary importance.
So far as the productivity and earning capacity of the holding is concerned, I was grateful to my noble friend Lord Stodart of Leaston for saying roundly—I think it needed saying—that this Bill will have the shining merit of repealing the relevant part of the 1976 Act, which I believe (and which I know the Northfield Committee believed and my noble friend Lord Swinton when he wound up the Second Reading debate believed) has not been to the advantage of lettings in England and Wales. It does need to be repealed, but we come to it in Clause 2. I was grateful to my noble friend for what he said.
As to the advantages of' the way in which productivity is dealt with in the Scottish formula, of course I take the point which my noble friend Lord Stodart made that, seen from North of the Border, Scottish legislation looks the best that one could possibly have. But my noble friend will forgive me for reminding him that at Second Reading my noble friend Lord Middleton was somewhat critical of this part of the Scottish formula. In particular, Lord Middleton said that the reference in the Scottish formula to the "current economic conditions in the relevant sector of agriculture" rather than to the productive capacity of the holding did not appeal to him. If your Lordships will forgive me, I do not want to enter into a general debate on the merits of the Scottish formula which do not arise directly from my noble friend's amendment, but I ought to say that the industry in England and Wales have looked at it and do not find it, as things stand at the moment, to be better. We are in the difficult position that the Scottish legislation has been on the statute book only for a short time, so it is difficult to prove or to disprove the matter one way or the other.
It is very important to underline that my noble friend's amendment goes on to discount from the open market for substantial scarcity. He feels that this is better set out in his amendment than it is in the Bill. 166 I am not absolutely certain about that, but perhaps I have become familiar with the wording in the Bill. I should like to study the wording of my noble friend's formula. It is enormously important to try, among other things, to achieve clarity in whatever legislation we finally put on the statute book, if for no other reason than to keep the number of arbitrations to the admirably low figure at which they have run in years gone by. In this respect I should like to assure my noble friend Lord Waldegrave that the new rent formula contained in the Bill and the amendment of my noble friend would not change the current arbitration procedures of the 1948 Act, although I am bound to say that my noble friend Lord Dilhorne wishes to do so by putting forward Amendment No. 29.
It is, therefore, in that general light that I feel the Government ought to have regard to the amendment of my noble friend Lord Renton in trying to find their way through the thicket of different and competing formulae which we have for the future. If my noble friend feels it right to withdraw the amendment, I assure him that we shall study it very closely—it has not been on the Marshalled List very long—for the next stage of the Bill.
§ Lord Renton
I am extremely grateful to my noble friend Lord Belstead for the open-mindedness which he has shown and for his willingness to consider this matter further. I am also grateful to the other noble Lords—eight of them—who have spoken in this short debate. I am especially grateful to the noble Lord, Lord Northfield, and to my noble friend Lord Mountgarret for the support they have given to the terms of the amendment. I must confess that when I moved the amendment it never occurred to me that I should find myself caught up in the Scottish situation, although I have a family interest in land on the other side of the Border. I had not declared this interest, because the Bill will not prevail, so far as I know, on the other side of the Border. In considering this amendment further I very much hope that my noble friend will consider it as a separate matter from the very interesting Scottish issue.
In conclusion, may I make two brief comments. First, my noble friend Lord Stanley of Alderley and my noble friend Lord Stodart of Leaston have complained of the prospect of an arbitrator having to assume that a tenant is reasonably skilled in husbandry. It may have been overlooked, especially by my noble friend Lord Stanley of Alderley, that the Bill refers to a competent tenant practising a system of farming suitable to the holding. I should have thought that the term "reasonably skilled in husbandry" was a very suitable paraphrase of those longer words in the Bill.
My last point is this. I believe it is very important to stress it, and I do so in the presence of the noble Lord, Lord Howard of Henderskelfe. He made the very important point, as I did in opening the debate on this amendment, that we have to help the arbitrator by stating the objective of all the detailed guidance we are to give him. Therefore, as in Amendment No. 1 so in this amendment, it was right to state at the outset the purposes of the foregoing subsection; that is, in fixing the rents. Whatever else may happen from moving this amendment—and I hope that much else may 167 happen—I hope that that is a point of which the Government will not lose sight. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 4 not moved.]
§ 6.31 p.m.
Lord Northfield moved Amendment No. 5:
Page 2, line 3, at end insert ("he may consider")
The noble Lord said: This amendment can be dealt with briefly. The existing drafting of Clause 1(3) at the bottom of page 1 of the Bill states:
Subject to subsections (4) to (6) of this section, in determining the rent properly payable in respect of a holding on any such reference the arbitrator shall take into account all relevant factors, and in particular"—
and the factors which then follow are, if you like, mandatory following the introduction of that subsection. What has come out of much of the debate this afternoon is that the job of an arbitrator is an extremely difficult one. The factors are complex, situations vary, and his judgment has to take into account many varying circumstances—not only in respect of the holding but also in respect of the particular type of agriculture, the degree of scarcity of the land, and the problems of defining what is a good farmer and what is a bad farmer. It is, I suggest, essential not to bind his hands too much.
The Northfield Report was very clear about this point. It stated in paragraph 733, sub-paragraph (b) that,
Such a basis would embrace the concept of fixing rents at levels acceptable to a willing landlord and a prudent tenant"—
and that, of course, is part of the subsection governed by the introduction I read out—
and we should like to see arbitrators given fairly wide discretion in their interpretation of this".
It occurs to me that it is best to leave this kind of factor as guidance to the arbitrator and not make it mandatory. Instead of spelling out no less than 11 factors which are mandatory on the arbitrator—as I believe the Government are doing—we would do much better to say that he "may" take into account all relevant factors and then just illustrate the kind of matter he may consider in defining what for him, in those particular circumstances, and of all the variations which can occur, appear to be the relevant factors.
§ Later, when we come to the remainder of Clause 1, other amendments I have put down would again change the word "shall" to "may" when it comes to the way in which the arbitrator is to act. All the way through, I return to the point which I know influenced my committee a great deal after hours and weeks of hearing evidence from people who came to see us about issues such as this one. It was, that the arbitrator must not be bound too much. He must be free to take into account the kind of factors I read out a moment ago from Cluttons as to the way in which we approach something nearer an open market level. He must take all those factors into consideration and we must trust his judgment—but, having given him guidance.
§ I shall be content if the noble Lord, Lord Belstead, in his response to this amendment, will accept that this 168 amendment, too, will be taken into account in the further discussions he has undertaken to have. I regard it as being somewhat important that we move away from tight instructions to more general guidance for the arbitrator, for one final reason in particular. It is, that once these rules are set down they will not only form the basis for arbitration but will form also the basis on which voluntary agreements between tenants and landlords are reached.
§ In those circumstances, we want to leave room for negotiation and room for various factors to be taken into account without there being too much legalistic phraseology, and thus allow reasonable interplay between the two parties in reaching an amicable solution. I beg to move.
§ Lord Belstead
I am sorry to introduce a controversial note because I believe that the Committee is very ready to accept the advice of the noble Lord, Lord Northfield, on many aspects of the Bill which is now before the Committee. But I really do think that this amendment would be an invitation to inconsistency in the basis of rent arbitration.
I put it to the Committee that the arbitrator would have no yardstick for the scope of his assessment. Landlords and tenants would be unsure of the results of arbitration; at least, they would be unsure of the basis upon which arbitrations were taking place. Although I listened to the noble Lord when he quoted from paragraph 733—and he did, of course, quote it with absolute accuracy—I was surprised that he placed emphasis on the permissive nature, as he interpreted it, of that paragraph. After all, the noble Lord and his committee recommended that where a true open market exists, then it remains the correct basis for determining rents, but where it is not so arbitrators should also take into account productivity; and that this would,embrace the concept of fixing rents at levels acceptable to a willing landlord and a prudent tenant".
§ Lord Northfield
But the noble Lord the Minister should read on, because in the middle of subparagraph (b) it states that in those conditions the awards "may reflect" this—not "shall" or "should"—as well as any other open market evidence. We were very careful to use that word "may", to try to show that after considering all these matters awards "may"—not "shall"—reflect the situation.
§ Lord Belstead
That is precisely where I disagree with the noble Lord, Lord Northfield. If this is to become permissive for one arbitrator to take into account but not another, where on earth is the landlord or the tenant to find himself? The noble Lord reminded us—as he had every right to do—that it is important to encourage voluntary agreements. But if landlords and tenants are not to be sure in one part of the country what is to be the basis of an arbitrator's assessment compared with another part of the country, it is very unlikely that landlords and tenants will continue to reach voluntary agreements in the very high numbers that they have in the past. They will be uncertain and they will tend, perhaps paradoxically, to go to arbitration because of the uncertainty of the whole basis of the matter.
169 We are not trying in this Bill to tightly tie down professional men. I will not weary the Committee by reading at any length from page 2 of the Bill, but I would just say that the arbitrator referred to at the top of page 2 is required to take into account all relevant factors. In particular, these four factors are underlined as being required to be taken into account anyway. I do not think one can say that that is removing the professional skill from those upon whose judgment at the end of the day the whole arbitration system relies. If we follow the amendment which the noble Lord, Lord Northfield, has put forward, it will be impossible for landlords and tenants to be sure in one part of England or Wales what the basis of arbitration is compared to another part. I am sorry to be unhelpful, but on those grounds it would not be possible to include Amendment No. 5 in any consideration of the Bill for the future.
The Earl of Caithness
Could my noble friend help me? What if we discover something in five years' time that we all consider is vitally important and we have not listed it here? I am thinking in particular of Subsection (4). I have an amendment down for discussion later which deals with a surplus of farms to let. That possibility is not listed here, but if this Bill works wonders, and with a lot of help from the Chancellor landlords are encouraged to let land, there might be a surplus. However, that is not in the Bill. I know that it is covered under the heading "all relevant factors" and that will probably be the argument used against me, but so is everything else that an arbitrator has to take into account. It is all relevant. I do not believe he should be restricted, in the main, to what is here when there could be future matters that would concern us.
§ The Earl of Kinnoull
May I put a question to the noble Lord, Lord Northfield, which is based on the same aspect? On the one hand the valuer or arbitrator "shall" take into account "all relevant factors." Among the relevant factors is (a), (b), (c) and (d). So why is the noble Lord pressing that the arbitrator "may" take into account those factors when in fact it has already been agreed that he "shall" take into account "all relevant factors"?
§ Lord Northfield
I am only trying to loosen up on the guidelines given to the arbitrator and not as drastically, with great respect, as indicated by the noble Lord, Lord Belstead. Just as "all relevant factors" applies to these parts of the clause, so it would apply in his case where he says there would be variations all over the country. If the arbitrator did make irresponsible or capricious decisions, on my formula he could be held responsible and wrong under the words "all relevant factors". So, with great respect, the noble Lord exaggerated the reply.
We have an open disagreement. The fact is that the real world is much more complicated and much more difficult and needs a great deal more latitude than the noble Lord really accepts in these very difficult matters of rent settlement.
170 This is not the point at which to press this amendment. I shall return to it when we see the new formula which is worked out after various consultations. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
Lord Prys-Davies moved Amendment No. 6:
Page 2, line 6, leave out ("and situation") and insert (", situation and locality").
The noble Lord said: This amendment may conveniently be taken with Amendments Nos. 10 and 14 because the same arguments apply.
Amendment No. 10: Page 2, line 16, after ("lettings") insert ("in the locality").
Amendment No. 14: Page 2, line 26, after ("holdings") insert ("in the locality").
The purpose of these amendments is to ensure that the arbitrator is referring, for the purposes of the new section, to agricultural holdings in the locality in which the farm is located. It should be clear that he must address himself not to an average farm of that kind but to the individual farm in the same locality. It may be a matter of English or of substance but the word "situation" which is used in the subsection may merely refer to a type of farm—perhaps a hill farm or a lowland farm. If we introduce the word "locality" into the new section then it becomes abundantly clear that we are referring to a farm in the geographical locality in which the subject farm is located.
§ This is particularly important in the context of Amendments Nos. 10 and 14 because in those amendments the arbitrator would be making a comparison with comparable farms in the locality. In this situation general figures for farm rents all over the country could otherwise be submitted to the arbitrator and that would be far too general and would be of little or no use. I beg to move.
§ The Earl of Swinton
I find myself in a difficulty here because I was preparing to accept Amendment No. 6 until I heard the noble Lord, Lord Prys-Davies, couple it with Amendments Nos. 10 and 14, which, when the time comes, I shall oppose. In the meantime, I hope a general atmosphere of goodwill will spread from these Benches to the Benches opposite. I am sorry that it is I who am accepting this amendment and not my noble friend Lord Belstead who has done all the hard work so far.
The word "situation" as it appears in subsection (3)(b) of the new Section 8 is intended to include "locality". I have sought further advice as to whether the term might be interpreted in such a way and I am advised that there may be advantage in widening this reference. We shall be happy to consult noble Lords opposite to produce an amendment at a later stage to cover the point. Meanwhile, I hope noble Lords will feel able to withdraw the amendment. However, I must give notice that I shall not accept Amendments Nos. 10 and 14.
§ Amendment, by leave, withdrawn.171
The Earl of Caithness moved Amendment No. 7:
Page 2, line 7, leave out ("productive") and insert ("potential productive and earning").
§ The noble Earl said: This is a simple amendment to leave out the word "productive" and insert the words "potential productive and earning". There are two aspects to this amendment. The first is purely agricultural. I understand that the parliamentary draftsman has advised the Minister that the words "productive capacity" take into account, in law, the word "potential". It is not clear to me that that is its meaning. The Bill should make it clear to all laymen that in assessing the rent to be paid the arbitrator must look not only at what the farm is doing in the hands of a competent tenant but what it might do in the hands of similarly skilled farmer who might farm it in a more profitable manner.
§ Tenants must be encouraged to improve their holdings and to realise their potential. The green revolution that has transformed farming in the past 20 years will be eclipsed by the changes in the next two decades. For example, genetic engineering although still in its infancy has enormous potential. It is possible that we could soon have nitrogen fixing cereals which are totally frost resistant and could yield 10 tons to the acre without detriment to the soil. The land is capable of growing the crops, but is the tenant capable of doing so? If he is not, does that mean he is not competent or that he is just uncompetitive?
§ The second aspect of the amendment is to broaden the scope of matters that can be taken into account in a rent review by enabling the arbitrator to consider the earning capacity of the holding. I refer noble Lords to the county court case of Tummon v. Barclays Bank Limited. This related to a caravan site built at the expense of the tenant. It was held however that the landlord was entitled by increased rent to the latent value of the holding resulting from the suitability of the farm for that enterprise and its planning consent.
§ We can all think of other non-agricultural uses for a holding. Although this amendment is similar to another of mine, Amendment No. 11, it is more extensive. It aims to take into account at a rent review all agreements made between the landlord and tenant: for example, the use of part of a field as a picnic site for part of the year or the advantage of farm gate sales to the occupiers of a caravan site on an adjoining holding. It seems illogical to me that where a landlord has said, "Here is my holding. You can farm and manage it to the best of your ability", the same landlord should not share in all the benefits that the tenant can accrue from that holding. Similarly, if there is a particular ancient earthwork that is visited regularly by a number of people, and that leads to access and trespass problems, that too should be taken into account in assessing the rent.
§ It is much easier for an owner-occupier to handle such matters than a landlord and tenant who are tied at present by the agricultural productivity of the holding. It is time, for the sake of the countryside and for all those who enjoy it, to move to a broader base of rent assessment. I beg to move.
§ 6.52 p.m.
§ Lord Mackie of Benshie
I think that there are grave dangers in the case put forward by the noble Earl, Lord 172 Caithness. "Productive capacity" is a nice phrase and it is true that the other phrase means the same sort of thing; but the examples that the noble Earl quoted were quite extraordinary. A picnic site may be producing revenue and the holding next door may open another picnic site. Immediately the revenue is halved. A farmer may, for example, have a "pick-your-own" site and another strawberry patch may be set up on the next-door holding; again the productive capacity of the farmer may remain the same but the sales capacity will not remain the same. The profit of both may go down the drain.
Young men with immense ability in a specialised field may come to an area, take a farm and, for example, go for the canning of peas, the production of strawberries or a large acreage of fruit, and pay a high rent. The basis for assessing the rent of a whole district cannot depend on the productive capacity and the rent paid by a specialised farmer with great ability in marketing. I accept that the words suggested may mean the same, but the argument that rent should be based on productive capacity in a specialised field is very dangerous.
§ Lord Prys-Davies
May I ask the noble Earl, Lord Caithness, a question? Perhaps only a particular occupier possessing certain special skills and possessing a holding in the area can turn the potentiality to account. Because this individual has the special skills which will enable him to turn the potentiality to account, does the amendment mean that he has to pay an additional rent?
The Earl of Caithness
If there is latent value of the enterprise of the tenant, there is a latent value to the landlord. The answer is yes. Why not?
§ Lord Belstead
While it is intended that the productive capacity of the holding should be assessed objectively—and that is a thought which we hope is conveyed by talking about "a competent tenant" rather than "the tenant"—it would be unfair, we believe, to base the assessment of productivity at the extreme of the holding's potential, since this might assume the use of highly capital intensive methods which may not be available to the sitting tenant. Subsection (3)(d) has been carefully constructed in order to avoid conveying the impression that it should be so assessed.
If I may try to meet the point of my noble friend Lord Caithness, we do however have that assessment as taking account of the productive capacity of the holding and the extent to which a competent tenant, practising a system of farming suitable to the holding, could reasonably be expected to profit from farming the holding. I hope that this may go some way to meet my noble friend's wish to look at what a holding can produce either now or in the future without stretching that concept to the extreme by saying that the potential under any methods—which would be undefined—should be the criterion of productive capacity. That would worry me and it would worry the Government.
I think that what we have put into subsection (3)(d) is fairer. It gives the flavour of both looking at the 173 present and at the future. I hope to that extent I have come some way to meeting my noble friend's wishes in his amendment.
§ Lord Walston
I should have thought that the noble Lord the Minister and the Government have got this just about right. I agree with my noble friend Lord Mackie of Benshie that it would be very wrong to base rent upon productive potential. In the first place it is a completely unknown factor. In the second place, as the noble Lord, Lord Belstead, rightly points out, much of an enterprise's productive capacity depends on how much capital the tenant has and is prepared to put into his farm—whether he is able to put in an irrigation scheme, whether he has the money to do so, and so on.
I think that it would be very wrong to have rents assessed on some theoretical potential which a well equipped, highly skilled and specialist tenant could make use of. On the other hand, one does not want to base rents purely on the pedestrian type of farming which may have been practised indefinitely for generations and where the tenant does not want to move at all. We have to hold a balance between these. In this respect at least I think that the Bill has the balance about right.
The Earl of Caithness
I am grateful to my noble friend Lord Belstead for his reply; but he seemed to devote his reply to the agricultural aspect. I should be grateful if he could comment on my thoughts for expanding the rent to a broader basis and taking into account the earning capacity of the holding.
§ Lord Belstead
If I may say so, the productive capacity of the holding as it is set out in subsection (3)(d) also can be taken to subsume what the holding's capacity is to earn. I do not want to appear difficult, but I should have thought that we were splitting hairs here.
The Earl of Caithness
I do not want to split hairs on this. The point that I am trying to make is that I want the broader base. If we go back to the 1948 Act, I am advised at the moment that the productive capacity of the holding is an agricultural definition rather than anything else.
To deal with the point raised by the noble Lord, Lord Mackie of Benshie, if he wants to grow strawberries when his next-door neighbour is growing strawberries, there might be a market to sustain both. If his next-door neighbour has started growing strawberries and the noble Lord wishes to grow them, and the market does not take into account both, he did not do his research properly in the first place. I admit that the first person will be a little disappointed that he has competition, but I am sure that the noble Lord, being the Scot that he is, will not stay in growing strawberries for long in those circumstances.
I did not want to take the amendment to the stage where we had to consider every aspect of the potential earning capacity or indeed the potential productive capacity. That is qualified later on in the clause. All I am trying to do is to get a broader base on which rents can be assessed, because there has already been a county court decision on this matter, in which, as a result of a caravan site put in at the tenant's expense, 174 with facilities and a road, the latent value to the landlord could be taken into account in a rent assessment.
I do not believe that as it stands the Bill clarifies this point. I shall withdraw my amendment, take it away, and have a look at it. I hope to have a word with my noble friend Lord Belstead between now and the next occasion, because I believe that there is here a point that we ought to pursue further in the interests of clarification, since we shall not get another chance probably for 20 years. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 7 p.m.
The Earl of Kinnoull moved Amendment No. 8:
Page 2, line 9, leave out from (" holding) ") to (" and ") in line 14.
The noble Earl said: I beg to move the amendment standing in the names of my noble friends and myself. The purpose of the amendment is simple. In Clause 1(3), the Bill sets out the relevant factors which the valuer and arbitrator should take into account. These include the terms of the tenancy, the character and situation of the holding. the productive capacity and the profitability of the holding, and comparable lettings. I would submit that four out of those five factors are very constructive and sensible. However, in regard to the profitability test, the Bill states:
and the extent to which (in the light of that capacity) a competent tenant practising a system of farming suitable to the holding could reasonably be expected to profit from farming the holding".
I would submit that that is somewhat strange wording. First, who is to judge who is a competent tenant? Is the noble Lord, Lord John-Mackie, a competent tenant? Before he jumps to his feet, I would immediately say that he is. But who is to judge this emotive term?
Secondly, I would suggest that the reference in the Bill to,
a system of farming suitable to the holding",
raises an emotive subject. Finally, the test of profitability is a wholly new concept in agricultural valuations. It is very commonplace in regard to bingo halls and supermarkets, but it has never before been applied to farming, and, knowing the notorious unprofitability of farms so far as the taxman is concerned, I doubt whether it has any value at all. I beg to move.
§ Lord John-Mackie
I very much agree with the amendment which the noble Earl, Lord Kinnoull, has moved. He is quite right: who is to judge who is,a competent tenant practising a system of farming suitable to the holding",who,could reasonably be expected to profit from farming the holding"?I think that any arbiter would find great difficulty in interpreting those words, and I have much pleasure in supporting the noble Earl in his proposal to delete them from the Bill.
The Earl of Caithness
I rise to support my noble friend Lord Kinnoull, since I believe that, as it now stands, the wording of the clause would lead to an increase in disputes between the landlord and tenant. I believe that the wording of this part of the clause and 175 that of subsection (4)(a) will lead to a considerable amount of extra business for that well-known firm of lawyers, "Messrs. Rent Reductions". My noble friend has put the case well, and I think that it deserves much support, because, if there is any acrimony, or increased acrimony, between the parties, it can lead to only one thing: fewer landlords and fewer tenants.
§ Viscount Mountgarret
I, too, wish to lend my support to the amendment and to what has been said. There is a problem in defining in legal terms a proper system of farming. I am sure that barristers and perhaps even the Government will say that this is an understandable and acceptable piece of phraseology, but it opens the field for too wide a discussion.
There is also the reference to a suitable level of profit, and we all know that there are ways and means of reducing one's so-called profit on paper if it is deemed to be necessary and is a prudent thing to do. It is probably wrong to have this kind of expression in the Bill. These are factors which are at present taken into account by arbitrators, and I do not think that it would be wise to have this kind of dubious phraseology inserted in the Bill. I hope that perhaps we may improve the Bill by accepting the amendment.
§ The Earl of Onslow
Is it perhaps strange that this is one of the few pieces of the Bill that I understand very clearly? If we go to farming advisory companies or to ADAS, they will tell us what kind of a profit we should make on a piece of land. They will show what should be the gross margin, given a certain amount of equipment, et cetera. I do not think that this particular part of the clause creates all that confusion—at least not in my mind.
§ Lord Walston
I think that the clause would be better with the amendment. The first paragraph of the subsection really covers the matter arid relates to a factor which any experienced valuer or arbitrator would take into account. I do not see that the words which it is proposed to delete add anything to the clause. Possibly they dot the i's and cross the t's, which, I would agree with the noble Lord, Lord Northfield, we do not want to do too much in the Bill. We want to leave it to the discretion of the arbitrator, bearing in mind the enormously variable circumstances which we all agree exist in different farms and in different areas, localities, holdings, situations and all the other circumstances that we have been discussing. So I support the amendment on the grounds that it will slightly strengthen the intention of the Bill. and it will certainly not in any way detract from what the Government are trying to do.
§ The Earl of Radnor
I, too, should like to agree with my noble friend Lord Kinnoull with regard to the amendment, simply for the very good reasons which he and a number of other noble Lords have put forward. It seems that the wording is superfluous to the Bill. It seems also that it would lead to imprecise decisions and woolly thinking all round, and I think that we should be far better without them.
§ Lord Belstead
If I understand your Lordships, there is not disagreement on the desirability of having in the 176 Bill the criterion of the productive capacity of the holding; though before one of your Lordships takes me up on that I should add that I realise that that view has not received universal support. But, as I understand the thrust of the debate, the point that we are discussing is not whether there should be a reference in the Bill to the productive capacity of the holding, but whether there should be the further words,a competent tenant practising a system of farming suitable to the holding could reasonably be expected to profit from farming the holding".Those basically are the words which the amendment of my noble friend and the noble Lord, Lord Howard, would seek to delete.
My noble friend Lord Radnor says that the words would lead to uncertainty. But the question which arises in my mind is how, if the words were not included, would the arbitrator know what criteria to take into account? Not for one minute do I mean that the arbitrator is not thoroughly skilled in knowing what he feels he should perhaps take into account. But how should we be sure that in one part of the country an arbitrator might not take into account the fact that a tenant should be highly skilled, while in another part of the country an arbitrator might consider that the tenant should be an average kind of tenant, while in yet another area a different level of skill might be assumed? Should the arbitrator assume that the holding is being suitably farmed? Or can the arbitrator take into account farming practices that may not be entirely appropriate to the holding? We come back to the difficulties that arose on the amendment of my noble friend, Lord Caithness, that we might, if we were not careful, be talking about extending the productive capacity of a holding to something that was highly capital intensive and that was really unfair, arguably, to the tenant.
It is worth noting that the concept of how a competent tenant practising a system of farming suitable to the holding would farm and assessing the consequences of that is not new. It is to be found in Section 48 of the 1948 Act, where, in order to measure compensation for improvements, the section requires compensation to be equal to the increase attributable to the improvement in the value of the holding having regard to the character and situation of the holding and the average requirements of tenants reasonably skilled in husbandry.
To point up the point rather better, one has only to look at paragraph 733 of the report of the noble Lord, Lord Northfield. The noble Lord will forgive me if sometimes I call him aid and sometimes I do not. Paragraph 733 contains the recommendation of a new possible way forward with the Northfield Committee, in that important report, using very much the same words which are to be found in paragraph (c), except that the noble Lord and his Committee use the word "efficient" instead of "competent".
There is one last point that I ought to make. Some of your Lordships earlier—I think it is important to have this exchange of information in Committee—were advocating the Scottish formula. The Scots turned their mind to how they would assess productive capacity. They came up with the criterion of the current economic conditions in the relevant sector of agriculture. All that I would say at this stage is that my 177 noble friend, Lord Middleton, was critical, in an amusing way, during Second Reading, of that particular formula. This brings us back therefore to the point that I believe we may have very well got the right formula in paragraph (c). I am absolutely certain that, if we do not include a description of what we mean by the earning capacity, it will put an arbitrator in a very difficult position. Of course, I shall look carefully at what has been said. I would ask noble Lords also to look carefully at what I have sought to put before the Committee. If we go on here, we really shall he in some trouble.
§ Lord Howard of Henderskelfe
I am an unrepentant and unreconstructed Englishman in this matter. I do not wish, in the least, to adopt any Scottish provisions. We have here a statement about the holding and its productive capacity, and we then go on to talk about what the competent tenant might do with it. It seems to me that these two things are so different that they ought not at any rate to be included in the same paragraph at this stage of the proceedings. They should be separated.
The competence of a tenant and the way in which he might farm a holding has nothing to do with the productive capacity of the holding. The valuer can look at a holding without any tenant being there at all. This could happen between tenancies when someone has perhaps died. The valuer can say that the holding, with the fixed equipment upon it, can be farmed in a particular fashion—I agree that there must be a reference to that—so that he can assess the rent. However, in view of what has been stated about looking at this matter again, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 7.15 p.m.
Lord Northbourne moved Amendment No. 9:
Page 2, line 9, leave out from ("holding)") to ("and") in line 14 and insert ("and the extent to which (in the light of that capacity) a thoroughly competent occupier practising the most profitable system of farming suited to the holding could reasonably be expected to profit from farming the holding;")
§ The noble Lord said: I should explain that I very much support the views of the noble Lord, Lord Northfield. I had hoped that the noble Lord, Lord Belstead, would also do so. I feel that a certain measure of discretion should be left to arbitrators, who have a great deal of wisdom in this sphere. If the noble Lord, Lord Belstead, feels that a close definition of what the arbitrator has to do has to be set down by Parliament, I submit that we have to get it exactly right. I suggest that this clause fails to do so, or at least leaves a substantial area of uncertainty. I approve of the principle that an arbitrator should take account of the profitability of a holding. This is in line with the practice of arbitrators at present and it is the practice of good landlords.
§ The wording of the clause at the moment is not absolutely clear. It refers to a system of farming suitable to the holding and, as several noble Lords have remarked, it refers to a competent tenant. Taking first the system of farming, there are often several systems of farming suited to a holding. It is possible to use a holding for different systems of farming. A dairy 178 farm, for example, can be used for raising single suckler beef. To do so is demonstrably less profitable. I should like to quote a few figures. I have taken these figures from a report of the University of Newcastle-upon-Tyne on the profitability of farming which happens to be for the year 1980 to 1981. That was the report that happened to be to hand. I could possibly demonstrate the same result from many other sets of figures. I have taken the figures for management and investment income. I am sure that some noble Lords will take me up on this. The figures can be adjusted. I have adjusted them, and I will discuss the adjusted figures with anyone who is interested. The results are the same, or comparable. A dairy farm is shown as yielding a management and investment income of £138 per hectare whereas a livestock farm yields only £28. In this particular year, the sample of arable farms yielded only £18. That is a very significant difference.
§ The comparison that arises from these figures is the difference between the total sample of farms—there were 20 to 25 in each sample—and the premium farms which were the best six farms in each sample. Here, we have figures in the dairy sector off 138 for the sample and £290 for the premium farms; in the livestock sector, £28 for the whole sample but £73 for the premium farms; and in the arable sector, £18 for the whole sample but £84 for the premium farms. These figures suggest that we have to define clearly what we mean by a suitable system of agriculture. We have to define clearly what we mean by a competent tenant. There is clearly an enormous difference between the performance of the average tenant and the performance of the competent tenant and between different systems on the same holding.
§ In this amendment I have substituted the word "occupier" for the word "tenant" in line 11 because use of the word "tenant" coupled with the word "profit" in line 13 begs the question of what rent it is assumed is being paid. It is fair to say that another way of dealing with this ambiguity would be to revert to the word "tenant" in line 11 and to add the words "if no rent were payable" after the word "holding" in line 14.
§ The productive capacity of a holding will only be realised by a thoroughly competent farmer who adopts a system of farming that optimises the productive potential of the holding. It is precisely this potential productive capacity that the clause, as amended, is intended to instruct the arbitrator to seek out. I beg to move.
§ Lord Mackie of Benshie
I would like to oppose this amendment, for exactly the same reasons as I opposed the amendment of the noble Earl, Lord Caithness. There are too many superlatives. Indeed, "a thoroughly competent occupier" is a little difficult to define. I do not know the difference between a competent and a thoroughly competent chap. I know a number of competent people, but I know very few thoroughly competent people. They are the type of people who do a great deal of harm to everyone by their thorough competence. If we could achieve a level of competence it would be quite sufficient. Again, I would use the arguments which I put forward previously. It really is a doctrine of perfection to say:practising the most profitable system of farming suited to the holding".179 It is too much. It is a little too ideal for practical purposes, and for those reasons we oppose the amendment.
§ The Earl of Kinnoull
I should like to ask for elucidation from my noble friend. In a way it stems from the previous amendment but it is, of course, the same point. Was my noble friend saying in reply to the previous amendment that he would consider the Scottish wording for the "competent tenant" section? Secondly, was he saying that in the 1948 Act the principle of profitability, the test of profitability, was actually included? If he was saying that, then I have been thoroughly badly advised this morning by someone who I thought was a leading counsel on this law.
§ Lord Belstead
My noble friend Lord Swinton is replying to this amendment but I think I ought to say that I did not say either of those things.
§ The Earl of Swinton
There has been a great deal of debate in the farming press and else whereas to what kind of tenant should be assumed to be farming the holding for the purpose of the objective assessment of its productive capacity. After much discussion the joint Ministry of Agriculture, Fisheries and Food/NFU/CLA/RICS Working Party agreed that the tenant should be assumed to be slightly above average, and the word "competent" was chosen to reflect this. There was a similar extended debate concerning the system of farming on which the assessment was to be made. Here the working party agreed that it should be one "suitable" to the holding.
The noble Lord, Lord Northbourne, would "up" the standard by making the tenant "thoroughly competent" and the system of farming the "most profitable". In my view, and in the view of the working party on which both sides of the industry and the professions were represented, the standard we have set is fair and reasonable and I would not wish to make it higher. In fact, I think I can do no better than echo the words of the noble Lord, Lord Mackie, that it just will not do. I hope that the noble Lord will withdraw his amendment.
§ Lord Northbourne
I intend to withdraw the amendment, but I would like first to say that I still contend that the word "suitable" is very unsure in this context and I do not think that the noble Earl, Lord Swinton, has done anything to allay my fears in this context. There are often several suitable systems of farming for a holding and some are more profitable than others. I very much hope that the Government will take this fact into account when they are redrafting the legislation. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 7.23 p.m.
§ Lord Prys-Da vies moved Amendment No. 10:
§ [Printed earlier.]
The noble Lord said: Amendment No. 10 refers to paragraph (d), which instructs the arbitrator to have regard to:
current levels of rent for comparable lettings".
I support this amendment for the same reasons as I supported Amendment No. 6. It is not quite clear to me why Amendment No. 6 should be acceptable, but Amendment No. 10 not acceptable. However, it appears to me that unless the comparison is restricted to holdings in the locality of the subject farm, then the door will be wide open for evidence about farm rents up and down the country—indeed in all parts of the country—to be introduced and to influence the award. I beg to move Amendment No. 10.
§ The Earl of Swinton
I did give the noble Lord, Lord Prys-Davies, warning that I should not be willing to consider this amendment any further. The difference between this amendment and Amendment No. 6 is quite easy to understand. Amendment No. 6 would simply expand the existing wording which obliges the arbitrator to take into account the character and situation of the holding. He would have to take into account:the character, situation and locality of the holding".We hoped, as I said, that "locality" was covered by "situation". In fact, because we are not certain of that, we are taking the matter back to have another look at it.
When we come to Amendments Nos. 10 and 14 we embark on quite a different ball game. The key to whether the arbitrator should take into account evidence of other rents being paid is whether those rents are in respect of "comparable" holdings. The amendment would restrict such evidence on comparable holdings to those in the locality. It might be quite difficult to define what "the locality" meant in this particular situation. I really can see no reason why, if a comparable holding is truly comparable—that is, it is similar in all important respects to the subject holding—the arbitrator should not take account of the evidence of the rents being paid. They would apply regardless of whether or not the comparable holding was within the locality, however one might attempt to define that. I hope that the noble Lord will withdraw the amendment.
§ Lord Prys-Davies
I would have thought that, although we are comparing a hill farm with a hill farm, or a lowland farm with a lowland farm, the rents do vary up and down the country for the same type of holding. Nevertheless, I will not press the amendment. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ The Earl of Swinton
I think that this might be a convenient moment to adjourn the Committee stage for dinner. I suggest, for the convenience of your Lordships, that we do not resume the Committee until at least half past eight. I beg to move that the House do now resume.
§ Moved accordingly and, on Question, Motion agreed to.
§ House resumed.