HL Deb 22 March 1990 vol 517 cc411-24

3.37 p.m.

The Minister of State, Department of Trade and Industry (Lord Trefgarne)

My Lords, I beg to move that this Bill be now read a second time.

The Bill is part of a package of measures to promote greater competition and consumer choice in the supply of beer. It will give tenants of pubs the same protection as other business tenants under Part II of the Landlord and Tenant Act 1954.

The Bill arises from the report by the Monopolies and Mergers Commission on the supply of beer. The report was published on 21st March last year. On 10th July last year my noble friend the then Secretary of State announced details of the Government's

response to your Lordships' House. This Bill forms part of that response. Other measures were implemented through the supply of beer orders which were debated by your Lordships on 18th December and are now in force.

The starting point for considering the Bill is the MMC report itself and its recommendations. In its report the MMC said that, tenants of on-licensed premises are not, under the present arrangements, able fully to act as independent businessmen. We therefore consider that it is essential that a tenant's interest in on-licensed premises should be legally protected". The commission recommended in consequence that the interests of all tenants of on-licensed premises should be brought within the provisions of the Landlord and Tenant Act 1954 whether the premises were subject to a tie or not. The Bill is addressed to this recommendation.

The MMC also outlined a number of further measures to increase tenants' security. These included, in respect of tenants of licensed premises, disapplying the provision in the Landlord and Tenant Act that allows parties to an agreement to agree to apply to the court to contract out of the Act and a recommendation that the Director General of Fair Trading renegotiate the current Brewers' Society's code of practice with all interested parties. The code would then be given some mandatory status.

Following publication of the MMC's report the Government listened to representations from all shades of opinion. These included the Brewers' Society, individual brewers, representative organisations of licensed trade tenants and managers, individual tenants, consumer associations, members of the public, and, of course, Members of your Lordships' House. It became clear that the issue with tenants' security was how to increase protection without making the tenancy system so unattractive commercially that it would be killed off.

The Government concluded that it would not be right to set up a special class of tenancy under the Act just for licensed premises. It is a fundamental feature of the 1954 Act that all business tenancies are treated alike no matter what the nature of the business. The Bill therefore provides that licensed tenants should simply be placed on all fours with other business tenants.

Before touching on the issues that arose on the Bill during consideration by the other place, it may be convenient if I briefly summarise the provisions of the Bill, and of the 1954 Act to which it is an amendment.

The 1954 Act sets out rules for both landlords and tenants of business premises with regard to the beginning and ending of tenancy agreements. Under these rules if a tenant has paid the agreed rent on time and complied with the tenancy agreement the landlord can only bring the tenancy to an end at or after the end of the current tenancy by serving the tenant with a notice of termination.

Upon receipt of the notice the tenant has the right to apply to the court for a new tenancy, which it is bound to grant unless the landlord can show grounds

for being granted possession. Such grounds include failure by the tenant to comply with the conditions of the tenancy or that the landlord wishes to occupy the premises himself for the purposes of running a business, residence or to reconstruct the premises.

At present, Section 43 (1) (d) of the Landlord and Tenant Act Part II exempts tenancies of on-licensed premises. Under the Bill Section 43 (1) (d) is repealed.

The transitional provisions are intended to ensure that tenancies agreed before 11th July 1989 are unaffected if they end before 11th July 1992. Most brewery tenancies are for terms of three years and the Act will therefore apply in those cases only when a new tenancy is agreed. The significance of the 1992 date is that it is three years after the 10th July 1989 Statement.

Clause 1 (3) provides that where the Landlord and Tenant Act provides for statutory notices to be given by a landlord or a tenant, these notices can be validly served before July 1992, where appropriate.

Since the Bill was published in December last, tenants' organisations have lobbied energetically for changes to enhance the protection available under the Act. We must, however, bear in mind that pub tenancies, like rented residential or any other form of property, are part of a market, with terms governed by supply and demand. A pub tenancy agreement is the result of a commercial negotiation; and while we can set out what are fair procedures for reaching agreement, we cannot force the agreement to be more or less favourable to one side than what the market dictates.

I have referred already to the importance the Government attach to maintaining the existing balance of rights and obligations in the 1954 Act.

During consideration of this Bill in another place arguments were put forward that the licensed trade was different in a number of respects from the normal run of business tenancies, and that this should be reflected in the Bill. In particular it was argued that some way should be found to take account of the good will that a tenant had contributed to the business if a request for a new tenancy was successfully opposed because the landlord intended to take the premises into management.

The Government have looked at this matter further. We do not accept the argument that one class of business tenant should be treated differently under the 1954 Act from others. However, I have also drawn attention to the fact that this Bill is one of a number of measures taken in the light of the MMC Report. We recognise that there may be special problems of a transitional nature as brewers adjust to the new obligations being placed upon them to open their estates to increased competition.

I can announce that after further consideration the Government intend to bring forward an amendment which will recognise that special arrangements for compensation should apply during the period of adjustment to a more open market. The amendment will provide that for a transitional period, additional and separate compensation will be payable to tenants of on-licensed premises to which the Landlord and

Tenant Act 1954 Part II will apply because of the Bill, and where the landlord wishes to use them as on-licensed premises himself.

The Government believe that taking account in compensation of actual good will contributed by a tenant raises too many technical difficulties to be practicable. The special compensation will therefore be based on a proportion of the rateable value of the premises. The proportion will vary on a sliding scale depending on occupation.

As I have suggested, this Bill represents a carefully struck balance between the interests of tenants and those of their landlords, who are in most cases brewers. In this the approach mirrors the one the Government have taken with all the measures to deal with the MMC's findings. It is natural that tenants should press the case for the greatest possible protection. I hope, however, that they can accept the logic of the Government's case that there must be a balance between the conflicting interests involved. This is not, as some have suggested, because we do not want to disadvantage brewers. We must recognise that brewers, like other landlords, own pubs and let them out on tenancies because it pays them to do so. If the balance of commercial advantage swings against such tenancies, landlords will exercise their option not to have tenants.

This Bill represents a substantial improvement in the position of tenants of public houses. The protection offered, while perhaps not being everything sought by tenants and their representative organisations, is significant and is welcomed by them. I commend the Bill to your Lordships.

Moved, That the Bill be now read a second time.— (Lord Trefgarne.)

3.45 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the Minister for introducing the Bill and explaining its various provisions and responding to some of the arguments that were put forward when the Bill was considered in another place.

From these Benches I wish to give the Bill a general welcome. It is a useful measure so far as it goes. If we have reservations, which we do, they are reservations on some of the details of the provisions outlined rather than the principle. The principle that tenants of public houses should have the same rights as tenants of other commercial premises seems to us to be a proper principle for the Government to adopt; and we support it. It was indeed recommended by the Monopolies and Mergers Commission, as the noble Lord has stated; and we certainly support that.

If we have reservations, they are on points of detail. The noble Lord has covered some of the points. The first point that I wish to bring to the attention of the noble Lord is the problem of Scotland and Northern Ireland. The Bill in front of us does not apply to Scotland or Northern Ireland. It is clear that the Bill could not apply to Scotland for the simple reason that the Landlord and Tenant Act 1954 does not apply to Scotland. Therefore a Bill which amends an Act which does not apply to Scotland could not apply to Scotland. It would be absurd to try to bring the whole of the Landlord

and Tenant Act 1954 into Scottish law through the mechanism of this Bill. We therefore recognise that there is a problem.

Nevertheless it surely is a matter of equity that tenants in Scotland be treated on exactly the samp basis as tenants in England and Wales. I have been advised that to try to amend this Bill to make it apply to Scotland will be outside the scope of the Bill. We shall therefore not be tabling amendments for that in Committee. However, I have also been advised that under Scottish law the position in Scotland is somewhat different from the landlord and tenant arrangements in England and Wales. The advice I have received is that there is no need for this or a similar Bill in Scotland since the Scottish Act corresponding to the English Act of 1954 already appears to extend to all shops, including retailers of intoxicating liquor. I understand that we ought to be looking at the Tenancy of Shops (Scotland) Act 1949, as amended, and to the Shops Act 1950, which defines the word "shop" and "retail trade or business" in one of its sections.

I am not an expert on Scottish law, as I am sure your Lordships will be the first to acknowledge, but I should be most grateful if the noble Lord could assure the House that my advice is true and honest and that the Government take the view that my advisers have given me: that the Bill is not necessary to Scotland, and that the same protection is available to Scottish tenants as will be available to English and Welsh tenants under the terms of the Bill if it is enacted. When the noble Lord winds up the debate I should be grateful if he could give me that assurance.

Our next reservation is on the timing of the starting date of the Bill. We wish to see the starting date of the Bill brought forward to Royal Assent. At present there is considerable agitation in the brewing industry. As a result of the report of the Monopolies and Mergers Commission, and of the subsequent debates and negotiations to which the Minister referred, a number of brewers are considering whether to be wholly in retailing and out of brewing, wholly in brewing and out of retailing or part in one and part in the other. There is a state of flux within the industry.

During such times of major disturbances within the industry due to government action and not to the market, the people exposed are those with least protection. In this case they are the tenants. We wish to see the protection for the tenant which the Bill provides start before 1992. If we wait until then the whole structure of the brewing industry and the retailing of intoxicating liquor could have changed completely. That is not to mention any intervention from the Community when it makes a decision about the timing. That is our first major reservation about the Bill.

Secondly, we have a reservation about contracting out. The 1954 Act provides for contracting out if the tenant and the landlord agree. They can remove themselves and the tenancy from the purview of the 1954 Act. The Minister addressed himself to the problem but we are not satisfied that he has given

us the right answer. He said that the market must rule. Our belief, which has been underlined in all our debates on the report of the Monopolies and Mergers Commission, is that there is a complex monopoly in the brewing industry and that there are market failures. Therefore, the balance of power between the landlord and tenant in such cases is different from that in the ordinary run of cases under the 1954 Act. We argue that there should be a special provision for pub tenants giving them greater security than would normally be available under the Landlord and Tenant Act 1954.

In its report the Monopolies and Mergers Commission recommended that the right of first refusal should be granted to the tenant when the brewer puts the pub up for sale. If there is such a right of first refusal it must be at the market price. If the tenant could not meet that price the right of first refusal would not apply. However, we believe that it is an honest option and we can see no reason why it should not be written into the provisions which the Government have announced. I accept that this is only one of a package of provisions but we can seen no reason why it should not be written in.

The Minister spoke about the acquisition of goodwill built up by the tenant before the pub is taken back into brewery management, a subject which was discussed in another place. He announced an amendment and we must wait until Committee to see what it means. I understood the Minister to mean that there would be compensation during the transition period. We wish to interrogate him closely in order to ascertain whether the compensation, if it is based on rateable values, should not properly be extended beyond the transition period.

There is also the question of the right of a spouse of a deceased tenant to continue to live in the premises. Frequently there is great hardship when a tenant dies and a spouse must leave his or her home almost immediately. We accept that if the Bill is enacted it will give greater protection to the spouse. Nevertheless, if contracting out of the Landlord and Tenant Act 1954 is allowed protection for the spouse is removed and we wish to see it reinstated in the Bill.

I have mentioned a number of reservations about the Bill and amendments which we shall bring forward in Committee for consideration. That does not detract from the general welcome which we give in principle to the Bill. However, we are suspicious about the relationship between the Government and the brewers, particularly the Brewers' Society. From time to time under Conservative Governments we see strong measures being proposed but then whittled down in negotiations as they move between the Government and the brewers. After the publication of the report of the Monopolies and Mergers Commission we saw retreat in the face of a heavyweight attack from the Brewers' Society. We saw a weak response from Government Ministers. In Committee we shall try to strengthen the Bill. A measurement of the Government's sincerity will be shown by their sympathetic view to the amendments. Are they prepared to risk the wrath of the Brewers'

Society and give proper security to the pub tenant or are they doing the minimum necessary to avoid yet another political row? We shall see.

3.55 p.m.

The Viscount of Falkland

My Lords, the Bill before us appears to be simple but it is deceptively complex. I compliment the Minister for outlining some of its aspects and difficulties. I wish to address some of the concerns felt by Members on these Benches. In many respects they reflect those outlined by the noble Lord, Lord Williams of Elvel, but I do not wish to articulate any suspicion about the relationship between the Government and the brewers. That would be somewhat over-egging the pudding. I look forward to hearing the remarks of the noble Lord, Lord Kimball.

The Bill will bring the tenants of licensed premises under the scope of the 1954 Act. It gives the tenant security of tenure providing that he fulfils certain conditions. Tenancies of licensed premises were originally excluded from the Act primarily because it was thought that such security would prevent landlords from exercising their rights to evict tenants, even where a tenant's licence was revoked. Today that is not a relevant problem because of changes in the practices of licensing magistrates. Furthermore, a clause to cover such eventualities can be written into tenancy agreements.

That is not the reason why the Bill is before us today. If it were we should be happy to greet it without reservation and the status quo within the brewing industry would appear to fit adequately. That is not the case because the Bill is part of a package of measures which result from the report of the Monopolies and Mergers Commission in respect of the supply of beer. There are differences of opinion about whether the complex monopoly which the commission found is as damaging to competition as it maintained.

Among other measures the commission recommended that, given the imbalance of negotiating power between the landlord and the tenant, licensed premises should be included under the 1954 Act. It considered that there was a serious undermining of competition and of the tenant's position, vis-à -vis the landlord. Tenants, particularly those who want to buy products at competitive prices, cannot act as independent businessmen able to provide the wide range of products and services available in pubs.

Clearly, to give a tenant more security cannot itself achieve the aim but that is obviously a vital element in the package. We recognise that. It will enable the tenant to withstand pressure from the brewers because that has undoubtedly existed in various forms; for example, as regards the right to sell guest beers and the right to put a price on soft drinks. That is a matter close to my heart which I have raised previously in your Lordships' House. I have drawn attention to the scandal of the differential between soft drinks, low alcohol or non-alcoholic beers and other alcoholic drinks.

Having conceded that security is desirable, we must ask ourselves whether the measures in the Bill

achieve that. Since 1970 there has been a brewers' code of practice which was supposed and intended to give tenants the same security which they would have had under the 1954 Act. Of course, that is legally unenforceable and was seen, rightly or wrongly, by the Monopolies and Mergers Commission to be ineffective.

Beside that, there are increasing numbers of licensed premises such as wine bars which are not owned by the brewers. Those tenants also deserve protection.

It seems that bringing licensed premises under the Act is generally the right way to provide tenants with the security they deserve and which the public interest demands. Therefore, we agree with the basic thrust of the Government's proposed legislation. However, we are somewhat surprised that they have chosen a form which makes it difficult to see how the public interest and competition are going to be served.

The 1954 Act allows landlord and tenant to opt out of the provisions of the Act so long as both petition the court. The value of having to petition the court is quite obvious. In going through that process the tenant will become aware of his legal situation and the possible effects of what he is agreeing to. Contracting out, which has been mentioned by the noble Lord, Lord Williams, is a common option. The information I have is that in 1986 there were 11,651 applications to contract out, set against a figure of 16,500 or so new business tenancies.

Therefore, it seems very likely that given the option in the normal way of things and the pressures upon them to maximise profits, the brewers will simply say to the tenant, "If you do not agree to come to court with me and apply to opt out of the Act, then I shall offer the tenancy to someone who is prepared to do that." There are plenty of people waiting to become tenants of public houses, it will be argued. There is anxiety within the National Licensed Victuallers Association which feels that that is the most likely result.

If tenants are forced out of the provisions of the Act they will have no security of tenure and will be wide open to brewery pressure. The Minister spoke about the free market. Indeed, his right honourable friend in another place effectively resigned himself to the scenario when he said that, a pub tenancy agreement is the result of a commercial negotiation, and while we can set out what are fair procedures for reaching agreement we cannot force the agreement to be more or less favourable to one side than what the market dictates". Your Lordships will not be surprised to hear that we on these Benches do not believe that this is all that can be done. Unfettered and free markets can, and often do, provide results which are in the public interest. We do not deny that. However, free markets are not by definition synonymous with public interest although one might be forgiven for thinking that the Government adhere to that view. However, it is perfectly possible, when it is right to do so, to place certain constraints to provide an outcome which best serves the public interest.

The Monopolies and Mergers Commission has completed a detailed study and has concluded that

tenants of licensed premises should be more protected than those of other business premises. I did not quite understand from the noble Lord's remarks whether or not the Government took on board that point. It seems that if one increases the protection to tenants, then one can reasonably assume that the supply of premises will decrease. However, this does not seem to be a case where that necessarily follows. The measures introduced as a result of the report of the commission are having a quite profound effect on the drinks industry. In order for those measures to become effective, it seems that it is of great importance that wherever possible tenants must be able to resist brewery pressure.

I return to my uncertainty about the noble Lord's comments. The pressures in the relationship we are discussing are somewhat complicated. First, tenants of pubs are often working from home. The pub is their home. They live there, as was referred to by the noble Lord, Lord Williams, with their wives and families. To lose a tenancy effectively means losing your home. Therefore, the likelihood of giving into pressures from the brewers must be greater.

Also, unusually, the landlord and the tenant are in the same business. I cannot think of many other areas of commercial activity where that is so. It gives the landlord scope to exert pressure. I do not wish to build up a picture of evil brewers exerting pressure for the fun of it because they are in the business of making money and want to maximise their profits. However, another aspect is that if the tenant works hard and is successful in his outlet, the landlord can simply remove him and seek to maximise his profits by putting in a manager in place of the tenant.

I absolutely agree with the Minister that there is an overriding need to create a balance between the brewers' and tenants' interests. However, can we really believe the brewers when they say, as they do, that disallowing the option to opt out will make tenancies unattractive so that they will not be able to offer them? I am sceptical about that. As I said, brewers are in the business of making money. They would obviously prefer not to give to tenants any rights which may eat into their profit potential.

It is a fact of life that in recent times brewers have been separating their property interests from their brewing interests. Moving back to installing their own managers is not seen as an attractive option. The difficulties, the complexities and the skills required in successfully managing a pub these days are very specialised. To put managers in often creates more problems than there were before.

If landlords and tenants cannot opt out of the Act, as I suggest, landlords will not need to renew a tenant's lease unless the tenant is persistently behind in his rent or refuses to pay, refuses to maintain the property or is in breach of obligations under the lease. He will then be entitled to a market rent for the property. Under those circumstances I do not think that brewers could claim to be hard done by. That seems to us to be the right balance between the landlord and the tenant.

Finally, the noble Lord, Lord Williams, referred to timing. We do not agree with him. I am happy to say the Government have it about right. There

seemed to be some confusion, on reading the proceedings in another place, with regard to the timing and implementation of the Bill. All new tenancies will be covered by the Bill and any remaining old tenancy agreements which are not renewed by 11th July 1992 will be covered by the Act as they are. July 1992 was chosen because most tenancies run for three years. The Government quite rightly— if I correctly read their intentions— wish to minimise the prospect of retrospective legislation while also phasing in the Bill at the same time as other measures which will increase competition in the supply of beer and other drinks.

Going with the drift of the noble Lord, Lord Williams, we agree with the basic intentions of the legislation, bearing in mind the reservations I have articulated.

4.30 p.m.

Lord Kimball

My Lords, there is no doubt that the National Licensed Victuallers Association has obtained an eloquent advocate in the shape of the noble Viscount, Lord Falkland. However, I am sure noble Lords do not want to be led down any road of sentimental attachment to the good publican, because we are discussing in this Bill a straight and profitable business relationship. I hope the House will remember that.

I agree with the noble Lord, Lord Williams of Elvel, that many of the effects of the report of the Monopolies and Mergers Commission on the brewing industry can already be seen to be counter-productive. The rationale behind the Bill as it left another place, which places the relationship between brewer landlords and their tenants on the same footing as other businesses, is entirely understandable. What is critical is that that arrangement should be precisely that; no more and no less. Any suggestion that the arrangements between a brewer landlord and his tenant should be any different from those affecting other businesses is unreasonable and unjustified from any logical point of view.

The viability of a tenanted pub depends on a fair balance of benefits between the tenant and the landlord. The tenants of the major brewers have already been given an enormous concession, as was admitted by the noble Viscount, in that they now have the right to buy non-beer drinks outside the tie and they have the right to purchase a guest beer. That has already upset the existing relationship. A further tipping of the balance towards the tenant risks making tenancies an extremely unattractive proposition for brewers and places the whole system at risk.

Currently tenants of brewery owned pubs are protected by the code of practice. So often in this House we see that codes of practice of one decade become the law of another decade, in a somewhat modified form. As the legislation stands at the moment all the pre-11th July 1989 agreements have to be reviewed before 11th July 1992, involving over 30,000 new negotiations taking place.

The National Licensed Victuallers Association were demanding special treatment for when the

tenant is dispossessed. However, why should the compensation for the termination of a tenancy be treated differently from any other business? Why should the level of compensation for a pub tenant be greater than for any other business? The goodwill argument is simply not valid. The value of a public house is not based on its goodwill; it is assessed on what is called the "maintainable trade". If one uses the concept of maintainable trade and judges it against the hypothetical average tenant, goodwill has absolutely no value and is not reflected in the ingoing or outgoing valuation. The only matter that is of real value is the licence which is granted by the justices and that belongs to the brewery.

That has been a longstanding view of all professional valuers. They firmly take the view that when an exceptional licensee leaves, he takes that goodwill with him because he is the person who has created it. In fact it has no value to the ingoing landlord. The noble Lord, Lord Williams, tried to make— I will not say "mountain"— a hillock out of a molehill on the question of contracting out. The noble Viscount, Lord Falkland, hit the nail on the head when he pointed out that contracting out agreements are openly negotiated by the court with both parties present. There are many arguments which say that this flexible arrangement is to the advantage of both the brewer and the incoming tenant for a short period. We should therefore view the question of "contracting out" in its true sense. It is not a way a brewer can get rid of a tenant and bring in one who is likely to be more compilable.

My noble friend the Minister will have to bring forward his amendments and we will see whether or not they can be supported by this side of the House. It is a very limited measure. It is a very doubtful necessity. I should like to think that if the committee of my noble friend Lord Rippon were judging what legislation should come forward, they might decide that in an over-burdened Session this was a little bit of legislation which was not necessary. However, I understand the rationale behind it and, provided my noble friend does not amend the Bill too drastically, we may be able to speed its progress.

4.18 p.m.

The Earl of Liverpool

My Lords, I thank my noble friend and the House for allowing me to intervene. I apologise for so doing. I shall be brief I declare an interest as the director of a regional brewery company and therefore it will come as no surprise to your Lordships to find that I agree with much of what my noble friend Lord Kimball said.

More than any other business involving a landlord and tenant, the level of trade conducted in a pub depends very much on the licensee himself. I am therefore pleased to learn that goodwill will not be taken into account. However, I was concerned about compensation because the level of compensation already offered— six times rateable value, often exceeded by negotiation and agreement— is sufficient. I am worried that it may discourage brewers in their intentions to continue with tenanted public houses. As I believe I said when we were debating the matter of the Monopolies and Mergers Commission last year, this Bill may have the effect

of reducing brewery tenancies. As my noble friend Lord Kimball said, we shall have to wait and see, but I should be sorry to see that come about.

The contracting-out aspect is a good one because there are pubs in special circumstances where short tenancies are to everyone's advantage, and that should be allowed to prevail. Of course, much-needed probationary periods are desirable so that brewers can assess the suitability of licensees.

I thank your Lordships for your indulgence and I look forward to the next stages of the Bill.

4.20 p.m.

Lord Trefgarne

My Lords, I believe I am entitled to say that your Lordships have welcomed this Bill, even if that welcome is somewhat guarded and qualified. I shall endeavour to deal with some of the points raised without straying into too much detail, which no doubt your Lordships will want to do at the next stage.

I turn first to the points made by the noble Lord, Lord Williams. He referred to the need to cover Scotland and Northern Ireland. The Landlord and Tenant Act does not, as the noble Lord knows, apply to Scotland and the Bill cannot therefore extend any of its provisions north of the Border. However, in terms of the issues addressed by the MMC, the Scottish Act— which I believe is called the Shops Act— already extends to retailers of intoxicating liquor. The need to consider the position of pub tenants in Scotland is much less acute since the pub tenancy system is much less prevalent in Scotland. I understand that only 3 per cent. of tenancies are north of the Border.

In Northern Ireland tenants are already covered by the Business Tenants Act 1964. The noble Lord asked whether the advice I have received agrees with the advice that he had. Since I believe we have the same advisers I daresay that it does.

Lord Williams of Elvel

My Lords, I was not aware that I was being advised by the Department of Trade and Industry.

Lord Trefgarne

My Lords, I do not confine my advice to that given by the Department of Trade and Industry. There are many other sources of advice available to all Members of your Lordships' House and I am happy to avail myself of those facilities.

Turning to the transitional provisions, I believe the noble Lord suggested that some of the protections which are not due to come into effect until the middle of 1992 should be brought in earlier. In drawing up the transitional arrangements the Government have had regard to two prime considerations: that legislation should not, as far as possible, be retrospective and disturb the basis of existing agreements to the detriment of the parties; and that all pub tenants should be protected before November 1992 when the national brewers are required to have released a portion of their estates from ties altogether.

Most brewery tenancies have been for three years. Any such tenancies which existed before 10th July 1989, when the Government announced their intention to bring them within the framework of the 1954 Act, will be unaffected. That is right and proper. A landlord who agreed to let a pub to a tenant for a certain period in the expectation that he could recover the premises should not suddenly find the basis for that transaction undermined. In a minority of cases where longer term tenancies have been entered into the Government have felt it right, nevertheless, to bring them within the 1954 Act by the deadline of July 1992. This is to ensure that the tenants have the security that they need to profit from the release of certain pubs from ties when that is completed.

I appreciate that some tenants would like immediate protection, but it would be wholly unreasonable for the Government arbitrarily to change the basis of so many tenancy agreements that were entered into in good faith before it has been made clear that they were to be brought within the 1954 Act.

In regard to contracting out, touched on by the noble Lord, Lord Williams, and my noble friends Lord Kimball and Lord Liverpool, the 1954 Act did not originally contain any provision for landlord and tenant to contract out of its provisions. Contracting out was actually introduced in 1969 because it had been found that the Act was discouraging landlords from letting some types of property, particularly where the landlord might wish to let it for only a short period of time. I accept that the relationship between brewer and tenant is an unequal one, but failure to allow contracted-out tenancies in circumstances where they might better suit the parties would only diminish the supply of tenanted pubs. The Government are particularly concerned that entry into the market might become more difficult for new or inexperienced tenants. If the only option available for a brewer is a fully secure tenancy he would be much less inclined to take the risk of granting a tenancy to someone whose skills are not fully proven.

In general, brewers will want to attract tenants who will make a success of the business. They will need to offer appropriate terms. If there are too few tenancies compared with the number of tenants, that would not be helped by discouraging the supply of tenanted property.

The noble Lord, Lord Williams, referred to first refusal. The issue being addressed by the Bill is security of tenure for pub tenants. A tenant's security under the 1954 Act is unaffected by a change in ownership of the premises. Therefore, I see no reason why provision should be made for the tenant to have the right to buy in this case. Indeed, there is no general right to buy for any private business premises. Of course, the Government would be pleased if opportunities arose for tenants to buy their premises, and a landlord interested in selling a pub will not generally wish to turn down an offer from a tenant that matches the best offer he can obtain on the open market.

The noble Lord also referred to protection of the spouse in the event of the death of the tenant. As the noble Lord accepts, the right of a spouse who inherits a late tenant's estate will be given greater

protection when the Bill takes effect. As for what happens when a tenancy is contracted out, I accept that the protection for a spouse will not then apply; but that is a fact that prospective tenants must take into account when deciding whether or not to enter into such a tenancy. No one has to enter into a tenancy if the terms are not acceptable. Brewers generally wish to attract good tenants, as I said earlier.

The noble Viscount, Lord Falkland, asked about the position of wine bar tenants. Wine bar tenants would fall for exclusion under Section 43 (1) (d) of the 1954 Act. As this provision is to be repealed by the present Bill they will in future be covered. The noble Viscount also asked about tenants of licensed premises having more protection than other business tenants. The Government's position is that tenants of licensed premises should be put on all-fours with other tenants. The 1954 Act provides a delicate and well-tested balance between the interests of tenants and of landlords.

The Government accept, of course, that this Bill is introduced in a special context; namely, the MMC report. To take account of this the Government propose that for a transitional period special compensation for tenants is appropriate. I referred to that in my opening remarks and we shall, of course, return to it in later stages of the Bill.

The noble Viscount also referred to model tenancy agreements— I think he had in mind a statutory code of practice. The Government and, indeed, successive governments, have rejected the concept of a standard model or form of lease or agreement. That would not sit well with the Government's policy that the market should operate freely. Landlords and tenants should be able to negotiate their own tenancy agreements as they wish. If the parties want to incorporate a code of practice in the agreement, it is up to them. It is entirely for the parties concerned to decide. The Government's concern is to ensure that the circumstances are flexible enough to deal with any situation which might arise.

I believe I have covered the principal points that have been raised, including those raised by my noble friends Lord Kimball and Lord Liverpool. We shall, of course, return to specific points at the next stage of the Bill. In the meantime, I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.