Agricultural Tenancies Bill [H.L.]

HL Deb 13 December 1994 vol 559 cc1205-64

3.10 p.m.

The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Earl Howe.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMM11TEES in the Chair.]

Clause 15 [Meaning of "tenant's improvement"]:

The Chairman of Committees

If Amendment No. 44 is agreed to I cannot call Amendment No. 45.

Lord Carter moved Amendment No. 44: Page 7, line 42, leave out from ("improvement") to third ("or") in line 43 and insert ("on the holding undertaken or financed in whole or in part by the tenant, acting individually or in conjunction with others").

The noble Lord said: I shall speak also to Amendments Nos. 45, 46 and 47. Members of the Committee will appreciate that with Clause 15 we move to Part III of the Bill, which deals with the tenant's compensation. The amendments in this group are probing amendments because we seek consideration of the definition of "improvement" and the compensation for the tenant. We also wish to consider more fully a matter that was discussed yesterday. In the light of increased diversification, which under the new regime the Government expect on farms, what will be the effect on the compensation for the tenant's improvements if he is involved with a diversified enterprise?

I presume that the phrase "physical improvement" in Clause 15(a) is intended as a contrast to the phrase in subsection (b), "intangible advantage". Clause 15(a) states: any physical improvement which is made on the holding by the tenant by his own effort". We have discussed the matter outside the Chamber and we have had a meeting with the Minister. We asked what will happen if unpaid family labour is used. If no expense is involved it will not be "by his own effort". If he has used unpaid family labour to carry out the improvement, will that count too?

As regards Amendment No. 44, we believe that the wording in the Bill appears to preclude circumstances in which the tenant might come to an arrangement with a third party to diversify—for example, to run a leisure enterprise on the farm—with the tenant contributing the land and the third party, say, erecting the buildings. We believe that the growth in diversification is likely to occur. However, a tenant without capital or the know-how to run an agricultural enterprise might need to make a wide range of commercial links in order to prosper. In order to meet that point, we propose inserting the words, acting individually or in conjunction with others".

Amendment No. 47 makes the same point and proposes the insertion of the words "or in conjunction with others". The intangible improvements could be the goodwill that is attached to a farm shop or leisure enterprise financed and run by a partner or franchisee. We are dealing with the whole area of diversification where other people are involved.

Yesterday we mentioned the compensation for ancillary non-agricultural enterprises. The substance of this group of amendments is whether all improvements, both agricultural and non-agricultural, should be treated in the same way. I am advised to inquire whether the Landlord and Tenant Act 1927 applies to improvements under a farm business tenancy. That Act is mentioned in the schedule, which I believe covers the point. However, it would be helpful if the Minister would confirm that.

Lord Stanley of Alderley

I warned my noble friend that I intended to raise a query about this amendment. It relates to intangible assets and in particular goodwill. Will goodwill be included in 1995 tenancy compensation assessments? Goodwill has never applied in previous agricultural tenancies but we are dealing with a farm business tenancy—and I emphasise the word "business"—and I believe that it should now attract compensation. Goodwill is becoming a feature in farms, in particular in the horticultural sector, and in my opinion it should not be discouraged.

The second issue, which is allied to goodwill, is the problem of obtaining the landlord's consent for intangible assets and goodwill in particular. Often goodwill and intangible assets will become evident only because the tenant's efforts to build up a trade, or whatever, become more successful than he originally anticipated. In such a situation, it is more than likely that the tenant will not have asked for his landlord's permission at the start. He may have been unaware that his efforts would produce goodwill or an intangible asset. I should be grateful for clarification of that point.

Earl Howe

I have listened with interest to the noble Lord's explanation of these amendments. The first amendment proposes some new wording to clarify Clause 15(a) and it may be true that it achieves more or less the same result. I am grateful for the noble Lord's clarification of his intentions but I wish to reflect on the matter.

I am not sure why the noble Lord, Lord Carter, takes exception to the phrase "by his own effort". The phrase is intended simply to cover any case where the tenant has provided the improvement but his contribution has been in some form other than a financial one; for example, the tenant may have obtained his landlord's consent to managing the holding so as to qualify for certification as an organic holding. Such certification might carry a value as an intangible advantage, since it might enable the holding to obtain premium prices for its crops or livestock.

Lord Carter

I mentioned unpaid family labour.

Earl Howe

In the situation that I have described, it might be difficult for the tenant to demonstrate that he had incurred any expenditure. However, he clearly would have obtained the certification by his own effort and if it was later assessed as having a value he would deserve to be compensated for it. For that reason, I am inclined towards retaining the existing wording for the time being. However, I take the noble Lord's point about unpaid family labour and had wondered whether that was the point of the amendment.

If the noble Lord is content, I suggest that we on this side and Members opposite reflect on the wording in this part of the Bill and that we discuss it again at a later stage. I shall certainly consider what the noble Lord said.

He asked me whether the Landlord and Tenant Act 1927 applied to tenant's improvements. It does not; paragraph (5) of the schedule disapplies it.

I should have said a few moments ago that I am advised also that technically unpaid family labour would count as the tenant's own effort if the family are in effect acting as agents for the tenant. Nevertheless, the noble Lord has made some good points on which we shall reflect.

My noble friend Lord Stanley kindly gave me notice of the points he wished to make about intangible advantage. Judging by the note of despair which sometimes creeps into my noble friend's contributions, I cannot help but wonder whether the advantages of his holding are more intangible than most.

When I moved that the Bill be read a second time I referred to the streamlined and simpler framework which it offers, allowing parties to reach sensible agreements between themselves. Clause 15 is a good example of a simple provision which gives people enough scope to agree what will constitute an improvement in their situation. For the mainstream of agricultural activities, I doubt whether there will be many practical problems but because the Bill allows for diversification away from traditional farming it is essential that we do not attempt to prescribe a legal straitjacket which requires amendment of the law to resolve.

In the case of intangible advantage, it is a requirement that the advantage becomes attached to the holding and in the context of the comments of my noble friend Lord Stanley, it will be for the parties to decide whether in their circumstances goodwill becomes so attached.

My noble friend is right to say that the concept of compensating for goodwill has not applied in previous tenancies as a right but parties have always been able to deal with that by separate agreement. The key test for entitlement to compensation is that the landlord must give written consent. If the tenant is aggrieved by the landlord's refusal, there is the right to seek unilateral arbitration.

Lord Stanley of Alderley

Perhaps my noble friend will clarify the matter further. The point is that one may not realise that goodwill is being created. If one suddenly realises that one has generated a lot of goodwill, is it possible for the tenant to go to the landlord and say that he wishes that to be treated as an intangible asset or advantage? If the landlord refuses, is he entitled to go to arbitration?

Earl Howe

The difficulty is that the landlord would not necessarily have prior notice that such a claim for compensation was to be made. That is why it makes all the difference if, at the outset, the landlord and tenant can agree that goodwill should be counted as an intangible advantage.

We are extremely doubtful whether it would be equitable for landlords to face a claim for goodwill when they have no prior knowledge that they might face such a claim. That is a point which may raise its head in one of our later amendments, but we do see difficulties.

Lord Carter

I am extremely grateful to the Minister. As always, he is helpful and says that there is a point to be looked at. I shall read what he said in Hansard. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 45 to 49 not moved.]

Clause 15 agreed to.

Clause 16 [Tenant's right to compensation for tenant's improvement]:

Lord Carter moved Amendment No. 50: Page 8, line 12, at end insert ("and the tenant shall not be required to surrender possession of the holding until the landlord has paid such compensation in full.").

The noble Lord said: This is a simple amendment. It has been suggested by a number of people outside this Chamber that if compensation for improvements is to be paid, in order to strengthen the resolution of the landlord in paying the compensation the tenant should not be required to surrender possession of the holding until the landlord has paid such compensation in full.

There may be rights for the tenant under common law. I am not entirely clear on that. However, this is a probing amendment to see whether we can do anything to make sure, through the wording of the Bill, that the tenant receives the compensation to which he is entitled; that he receives it as quickly as possible; and that he has the power to remain in the holding until he has received it.

The amendment raises the question of the definition of "compensation". I am interested to know why the Government rejected the Agricultural Law Association's proposal to define compensation of the tenant's improvements as the "value to the landlord or the incoming tenant, whichever is the greater". The point being looked at is one we touched upon yesterday with regard to tenants' fixtures where the tenant's improvements would be put to much more valuable use by the landlord. Perhaps I may use again the example of conversion of farm buildings. I found it difficult arguing that yesterday, but I believe that it is a fair argument to use here. Let us suppose that a tenant, with consent, has converted an old cart shed into a decent, modern tractor shed. There is hope value in the sense that the landlord may be able to obtain permission to convert it for use for light rural industry. Is there any way in which the tenant could achieve the hope value for that improvement he has made to the farm?

The problem would be overcome if we used the suggested definition, "the value to the landlord or the incoming tenant, whichever is the greater". That is a simple definition which meets the point well. The amendment seeks to ensure that the landlord pays up the compensation which he should do in full and that to strengthen his resolve the tenant should be able to remain in possession of the holding until he does so. I beg to move.

Lord Middleton

I am not altogether happy with the noble Lord's amendment. The issues of possession and compensation should be kept separate. I believe that problems may arise if the two are confused. Secondly, the settlement of a tenant's compensation may take some time to negotiate and agree. A problem may arise if, failing agreement, a tenant remains in possession well after the term date.

Lord Stewartby

There is a fundamental problem in what appears superficially to be a reasonable and attractive idea put forward by the noble Lord, Lord Carter. I presume that compensation is in respect of repossession of land to which improvement has been made. Therefore, it cannot reasonably be payable until such land is released to the person who has to pay the compensation.

Perhaps I may give a practical demonstration. It may very well be that the landlord would expect to pay compensation for material improvements either by raising a loan on the security of the land or indeed by selling it or part of it to raise the money. If he were not allowed to regain possession of the land until he had already paid the money, there would be stalemate. I believe that that demonstrates the fact that the compensation cannot, as the noble Lord said, be tied to possession.

Earl Howe

I am grateful to the noble Lord, Lord Carter, for explaining the intention behind the amendment. When I read it, I found it rather confusing. Clause 16 requires the tenant to quit the holding in order to claim compensation but, under the amendment, he would be entitled to remain in possession until compensation was paid. Perhaps, however, we should disregard that detail and concentrate on the issues of principle.

As the noble Lord pointed out, tenants need to be compensated quickly for their improvements so that they will have the money to establish a new business. I agree that that is important. However, as my noble friend Lord Stewartby pointed out, claims for compensation cannot begin to be assessed until after the tenant has quit the holding because until then there will be some degree of uncertainty as to which improvements he will leave on the holding and the condition of those improvements. He must then put in a claim. Therefore, it is clearly in the tenant's interest to do so promptly. Clause 22 sets a time limit of two months from the termination of the tenancy. Reaching agreement on the amount of compensation is then bound to take a little time.

If agreement cannot be reached on the amount of compensation or on the appointment of an arbitrator, Clause 22 allows an application to be made to the president of the Royal Institution of Chartered Surveyors for the appointment of an arbitrator four months after the termination of the tenancy. Under the 1986 Act, it would be necessary to wait eight months. I hope that my remarks will go some way towards reassuring the noble Lord that we have attempted to streamline the proceedings as much as possible. However, I do not believe that we should go any further in that process.

The noble Lord asked me a question about hope value. He wanted to know what the Government's feelings were about distinguishing more closely in the Bill between the value to the landlord and the value to the incoming tenant. We shall come shortly to Amendment No. 71 which deals with that issue as an isolated subject. Therefore, with the leave of the Committee, and if the noble Lord is content to wait until that time, I propose to cover the matter at that point.

3.30 p.m.

Lord Carter

I am extremely grateful to the Minister for his response. We seemed to spend a great deal of time yesterday discussing the problems of the impecunious landlord, and it seems we are starting to do so again. Obviously, I take the point that the Minister and other noble Lords have made. I was merely attempting to make the point that there should be some means of persuading the landlord to pay up in full as quickly as possible within the law and according to the arrangements under the Bill. Perhaps surrendering possession of the holding is not the right way to do so. I should like to reflect between now and the Report stage on whether there is a better way to do so through the Bill, although that may not be possible. As I said, I am grateful for the suggestions made by all speakers. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman of Committees

I should mention to Members of the Committee that, if Amendment No. 51 is agreed to, I cannot call Amendments Nos. 52 or 53.

Lord Carter Moved Amendment No. 51: Page 8, line 18, leave out subsection (3).

The noble Lord said: With the above amendment, and Amendments Nos. 52 and 53, we move on to the vexed question of milk quota. To put it as politely as I can, I believe it to be a very complicated question and one which has been ducked by the Government. I think that I can understand why. In their quest for simplification and deregulation, about which we heard much yesterday, they thought that the easiest way to achieve it was, in effect, to leave it to the landlord and tenant to agree among themselves. Perhaps I may remind Members of the Committee that the last attempt to simplify and deregulate the milk market has not produced the exact results that the Government expected. However, I shall leave that aspect on one side.

There is another point that I would like to mention. I had the chance to put it to the Minister when we met to discuss the Bill and I believe it would be helpful to the Committee if he could deal with the matter. The point has been put to me about the case of a tenant who has a tenancy under the 1986 Act with a milk quota allocated according to the regulations under that legislation. That tenant then takes on a farm business tenancy from the same landlord, perhaps on an adjoining farm or whatever. He buys some milk quota in order to provide the resources that he needs to farm the new holding. The tenant then leaves the old holding, so to speak, that he held under the 1986 Act and takes on the new holding under the farm business tenancy. The tenant is happy that he has paid for the second lot of quota on the farm business tenancy holding, but finds to his surprise—as I am advised—that, because of the European rules about a Euro-holding, the landlord will have a share in the second quota. I am not sure that that is correct, but it is a point that was made by a leading practitioner in the field. The group of amendments now before the Committee will give the Minister the chance to reply or, perhaps, to reflect on the matter and then to deal with it at the next stage of the Bill's proceedings.

I do not believe that quotas can be left to the landlord and tenant to agree. Indeed, there must be some form of machinery. We have already tried the suggestion of model clauses and this is the kind of item under what one might call the "model heads of agreement" that the landlord and tenant should almost be forced to consider as a part of the law. Therefore, when they come to draw up a farm business tenancy, they would have to consider such things as milk quota and set-aside. Such items are now central to dairy farming.

There is another way forward. We know that the RICS is working on the drafting of the model agreements and the model clauses. Perhaps that is an alternative way in which to deal with the matter. However, I hope that Members of the Committee will agree that it is important to consider such a subject. The suggestion to leave out the subsection was obviously intended to draw the matter to the attention of the Committee.

At present the milk quota—which, in effect, is a licence to produce milk—is now worth about five times the value of the cow that produces the milk. That is an extraordinary situation, as I am sure Members of the Committee will agree. It illustrates the deficiencies of the quota system; but not for those who were allocated a large amount of quota for nothing under the European rules in 1984. There are now some large sums of money involved. There is also the problem of the SLOM quota, with which I know Members of the Committee are familiar, which must also be dealt with. The purpose of this group of amendments is to bring the subject of milk quotas to the attention of the Committee so that it may be considered.

As regards Amendment No. 52, it seems unjust that the effect of Section 13 and Schedule 1 to the 1986 Act should be avoided by the subsection in the Bill. While it does not look like a serious problem at present, it is not possible to predict the future. There should be some justification for the decision to place the farm business tenants on a different footing from a tenant who has a tenancy under the 1986 Act.

As I said, it is a probing group of amendments designed to bring out the question of milk quota. For reasons that I can understand—indeed, it is highly complicated—I believe that the Government have ducked the matter. They have said that it is a matter for landlord and tenant to agree. As I illustrated, they may have some problems with that approach because of the Euro-holding point which must be considered. However, for all those reasons I believe that more thought is required regarding what we do with milk quotas, because of their very substantial value in the concept of the farm business tenancy. I beg to move.

Viscount Mountgarret

I should like to speak on the subject of quota generally. I sympathise with the noble Lord, Lord Carter, in that there is a danger that the Bill will put some tenants on a different footing from those under the 1986 Act. Indeed, it would be surprising if the legislation did not alter in some way—and rightly so, I believe—existing agreements held under the 1986 Act.

However, I turn now to the quota system. My noble friend and I have had correspondence on the matter. As I understand it—and no doubt my noble friend the Minister will correct me if I am wrong; and if I am wrong, I shall be very unhappy—the quota system not only for milk but also for sheep farming, and so on, is rather tied to directives received from Brussels. There is not much that we can do about that as the quota belongs to the producer and not to the landlord. Under the new Bill, landlords will be perfectly entitled to discuss with their prospective tenants any terms that seem to both of them to be a satisfactory way of proceeding with the farm tenancy.

Among those terms could be, although I do not say that it should be, the fact that it was deemed expedient that any tenant who was in possession of quota, be it for milk, livestock or any other quota which might be instituted, could be regarded, for example, as a tenant "fixer" (for want of a better word) so that he was compensated by the landlord when the tenancy was terminated in the same way as any tenant's improvements were met by the landlord. Therefore, any incoming tenant in the normal way, as happens now, would pay for certain improvements and so on, including quota. In other words, one could affect quota belonging to the land rather than to the actual producer as is the case at present. But if, as I understand it from my noble friend with whom I have been in correspondence, it is possible under the new tenancy terms of the Bill to have an arrangement whereby quota—be it milk or livestock—could be agreed between a landlord and tenant as regards how it should be treated, then I do not see that problems would arise.

Earl Howe

I am grateful to the noble Lord for taking the three amendments together, although I realise that they raise three distinct issues. I can assure the noble Lord that the Government have no wish to duck this or, indeed, any other issue. I hope that I can assist the noble Lord and my noble friend Lord Mountgarret in what I am about to say. However, I should point out to my noble friend that the issue is rather more complex than he suggested in his remarks.

Where there is milk quota on a holding held under an existing tenancy, the tenant is entitled to compensation at the end of that tenancy under Section 13 of, and Schedule 1 to, the Agriculture Act 1986. That is for an existing tenancy. Where, after the creation of a farm business tenancy, the tenant takes steps to obtain milk quota for the holding, which then becomes attached to the holding, he will be eligible for compensation under Clause 16(1) of the Bill provided that he has obtained his landlord's consent for providing the quota. In this case, Clause 16(3) ensures that the relevant provisions of the Agriculture Act 1986 "shall not apply" in order to avoid the tenant becoming eligible for compensation under those provisions also. Thus it would not be appropriate to delete Clause 16(3), which is what Amendment No. 51 would do.

However, it has been suggested, as the noble Lord, Lord Carter, explained, that where an existing tenancy with milk quota is replaced by a farm business tenancy, Clause 16(3) might exclude the possibility of the parties agreeing that compensation for quota under the old tenancy should be assessed in accordance with the provisions of the Agriculture Act 1986. That is not the case. Parties are free to agree compensation for quota acquired during the Agricultural Holdings Act tenancy, using whatever basis they believe to be appropriate. However, Amendments Nos. 52 and 53 go further and would allow the parties to use the Agriculture Act provisions, even in respect of quota obtained during the farm business tenancy by the tenant at his own expense or by his own effort. In those cases, compensation would be available under the Bill and there seems no reason why the parties should be able to substitute some other basis of compensation.

Milk quota will count as an intangible advantage if supplied by the tenant. So he will be eligible for compensation under the Bill for any such quota that he has provided during the farm business tenancy which obviously remains attached to the holding at the end. The noble Lord referred to Euro-holdings. I shall have to take advice on that as I am not well versed in the matter. Perhaps the noble Lord would care to write to me with further details as I did not note closely enough the point he was making. I recognise that any issue concerning milk quotas always raises legal complexities. I hope that the noble Lord, Lord Carter, will feel able to reflect on what I have said. Between now and Report stage perhaps we can have some discussions which will assist him further.

Lord Carter

I am extremely grateful to the Minister, and to the noble Viscount, Lord Mountgarret, for the point he made about sheep quotas. The amendments we are discussing concern milk quotas but as we are in Committee I suppose we can go a little wider. This is, I believe, a classic example of where the landlord and tenant would not be able to agree something which is not allowed by European law. The European law states that the sheep quota belongs to the tenant. We have had some discussion on that matter in this House. The Government were caused some embarrassment by their own Back-Benchers on a certain Motion if I remember. Even if the landlord and tenant agreed to share the sheep quota, I do not think they would be allowed to do so. That is the point. I see that the Minister is nodding. Therefore it is not correct, as has been said, that the Bill gives the landlord and tenant the freedom to agree between themselves what might seem to be equitable if that runs foul of the European regulations. The same applies to the point I made about the Euro-holding on which I shall write to the Minister. As I said, the point was put to me by a leading practitioner and expert in these matters. He believes that the example I gave poses a real problem.

As the Minister said, the two parties are free to reach an agreement. However, what we are concerned about is the situation where they do not reach an agreement because they forget about it or where perhaps there is an unwritten agreement—we referred to this yesterday—which falls within the Bill. A situation may arise where the parties concerned have not dealt with the matter and have to enter into negotiations. We are trying to establish some machinery by which they are reminded about this valuable asset. It is probably one of the most valuable assets on the farm in some ways, excluding the land. As I said, we would like there to be some machinery to remind them to deal with the matter when they come to negotiate their agreement.

I like the idea of the milk quota being an intangible advantage which, by European law, is attached to the land. That is a curious quirk of the European and the British law. Here we have a description of an intangible advantage. How can an intangible advantage be attached to land because it is under European regulations? That is another reason why I think we shall have to return to this issue at a later stage of the Bill. I shall certainly write to the Minister, as he suggests, on the technical point. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 52 and 53 not moved.]

Clause 16 agreed to.

Clause 17 [Consent of landlord as condition of compensation for tenant's improvement]:

Lord Gallacher moved Amendment No. 54: Page 8, line 24, at end insert ("save that, unless expressly provided in the written terms of the tenancy, the tenant shall be entitled to claim compensation for such tenant right matters as necessarily relate to the uses permitted under the tenancy without such consent.").

The noble Lord said: The effect of Amendment No. 54 is to drop the absolute requirement for written consent for compensation for tenant-right matters such as growing crops, manurial values and such like. It presumes that uses permitted for the farm imply consent for normal operations which currently warrant compensation. The amendment creates a general head of claim for valuers to seek compensation as warranted by the circumstances of each case.

The structure of the Bill requires written consent for any tenant's improvement to be compensated. While appropriate for major improvements involving significant investment and substantial changes in the character of the holding, there is no separate provision for growing crops and other matters for which compensation would currently be paid and for which tenants would expect to be compensated in future. This needs to be remedied on the face of the Bill both as a practical question and for the reputation of the reforms.

The amendment does not seek to replicate the detailed structure of the present law on tenant right but to provide a head of claim for valuers to interpret as appropriate in the circumstances based on the activities implied by the permitted uses of the holding. It is not seen as necessary to define tenant right since this will depend on the circumstances and the evolution of the industry. As an example, there are already areas where deer farming is not fully covered by the present detailed law. Thus it is not seen as appropriate to refer back to the detailed provisions of the current legislation.

Farmers have been accustomed for a great many years to claiming end of tenancy compensation for tenant right, first as a matter of custom and then, for the last century, under the law. It will not feel natural to seek written consent for the growing of crops which may be left behind. Owners may feel it rather odd to be asked for it. The effect of the Bill's wording is that, especially on units without written agreements, the tenant may lose the value of crops he leaves behind. As knowledge of this spreads, so tenants will tend to do less towards the end of the tenancy so reducing economic potential. That would be an entirely counter productive development; the amendment, we believe, would remedy it. I beg to move.

3.45 p.m.

Earl Howe

As the noble Lord, Lord Gallacher, pointed out, tenant-right has its origins in ancient custom which ensured that a departing tenant received at least some of the value left behind on a holding when he quit. There are many examples. Members of the Committee present today may well have experience of settlements in respect of hefted sheep flocks; others may be learned in such matters as sod fertility, with all the fascinating detail contained in Schedule 8 to the 1986 Act concerning "qualifying leys", "excess qualifying leys" and "accepted proportions", subjects of endless fascination in themselves.

The amendment of the noble Lord, Lord Gallacher, would enable parties to contract out of the basic provision of Clause 17 that a tenant shall not be entitled to compensation under Clause 16 of the Bill unless the landlord has given written consent to the provision of a tenant's improvement. It is possible for landlords to give consent to the provision of certain categories of tenant's improvements in the contract of tenancy if parties prefer to do so. This is made clear in Clause 17(2). It will be for them to agree what tenant-right matters are appropriate, if any, to their particular tenancy agreement.

The requirement to obtain consent means that both parties clearly know well in advance what claims will be made when the tenancy ends and may begin to plan accordingly. The requirement to obtain consent in itself gives a right to an aggrieved tenant to seek arbitration if the landlord refuses to give consent to a proposed improvement. That would include tenant-right.

I believe that those are very straightforward provisions which should not need any further elaboration. I hope that in the light of what I have said the noble Lord will see that the Bill caters for tenant-right. It allows the parties to cater for it in advance. I hope that what I have said will enable the noble Lord to withdraw the amendment.

Lord Gallacher

I am grateful to the noble Earl for his lengthy explanation of the present position and for his reference to the protection which he says the Bill gives as presently drafted, particularly in respect of written agreements. It has been a constant theme from this side of the Chamber that these agreements need to be in writing. Therefore, to the extent that what the Minister said gives further emphasis to that, we are grateful to him.

However, after listening to the noble Earl I have the impression that even when such agreements are in writing there is a somewhat circuitous procedure to deal with what by ancient custom and right would have been assumed to be the farmer's in any case.

The best that I can do in the light of what the noble Earl said is to take further advice as to whether the procedures in the Bill outlined by the Minister are satisfactory and reasonable in the circumstances. Arbitration over growing crops seems to me to be taking matters rather far, but there we are. If I am advised that all is well and that the various categories which the noble Earl enumerated as having been covered in the past can be covered in the future if private arrangements are made in the tenancy agreement in writing, then I shall not trouble him further. On the other hand, if there is an aspect of the matter which we still feel is unresolved, we may attempt to persuade him yet again of the principle, with a different form of draft, when we reach the Report stage of the Bill. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman of Committees

I should indicate to the Committee that if Amendment No. 55 is agreed to I cannot call Amendments Nos. 56 to 58 inclusive.

Lord Gallacher moved Amendment No. 55: Page 8, line 27, leave out subsection (3).

The noble Lord said: In moving Amendment No. 55 I shall also speak to Amendments Nos. 62, 67 and 70 with which Amendment No. 55 has been grouped.

In relation to Amendment No. 55, our first query is why subsection (3) has to be included in the Bill. As we see it, the parties are free to include such details as they feel to be appropriate and which do not appear to need statutory confirmation. There might be some point in having the subsection if the landlord could be taken to arbitration in the event of his asking for unreasonable terms.

Under Clause 19(5) the arbitrator can approve or withhold approval of a tenant's improvement, but he cannot make any changes to the landlord's demands. In view of that provision we would like the Minister to tell us what is the point of including the subsection. To enable him to give us that guidance, I beg to move.

Earl Howe

The noble Lord, Lord Gallacher, asked why Clause 17(3) needs to be included in the Bill. The purpose of Clause 17(3) as drafted is to ensure that any conditions attached by the landlord to his consent are legally binding on the tenant. It would be inequitable if the tenant were able with impunity to ignore any conditions attached to the consent and claim the full amount of compensation nonetheless. For example, the landlord may wish to specify that a building is constructed using certain materials or to ask the tenant to forgo his right to remove the fixture at the end of the tenancy under Clause 8 of the Bill. The clause therefore allows the landlord to require the tenant to accept a specified variation in the terms of the tenancy as a condition of obtaining consent.

That said, I accept that there may be anxiety that some landlords might use that provision to require tenants to accept some unrelated variation in the terms of the tenancy. But the effect of some of these amendments would be to deprive the conditions attached to the landlord's consent of clear legal enforceability. That is the central point at issue here. With the amendments in this particular group there would be no contractual duty on the tenant to comply with the conditions since they would not be terms of the tenancy. I feel sure that it is not the noble Lord's intention to provide for a tenant to receive full compensation even if he has totally ignored the conditions attached to the consent. Indeed, it might be more appropriate for the tenant to forfeit any right to compensation if he had ignored such conditions.

Amendment No. 70 raises separate issues as to whether the arbitrator should be able to lay down conditions. As that is also the subject of Amendment No. 69 tabled by the noble Lord, Lord Northbourne, I should like to address those points more fully when we come to that amendment.

I am not in the least opposed to the idea that any conditions should relate to the improvement that is proposed by the tenant. We shall discuss amendments which are directed to that purpose in a moment. But I am clear that whatever conditions are imposed by the landlord—and accepted by the tenant—they must in some way be made legally enforceable.

I hope that I have explained why the amendments in this group are unsatisfactory, and I hope that the noble Lord will feel able to withdraw them.

Lord Gallacher

The noble Earl has given me the information which I sought in tabling Amendment No. 55 in the first instance. I am grateful to him for that information. I agree with the general thrust of his remarks as to legality and the contractual position of tenant and landlord in this context, together with his references to unfair variations. I shall study his reply and take advice, as I need to do on most of these questions. I hope that I shall not need to return to this matter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Gallacher moved Amendment No. 56: Page 8, line 27, leave out from ("or") to end of line 28 and insert ("subject to conditions in writing").

The noble Lord said: In moving Amendment No. 56 I shall also speak to Amendments Nos. 63, 66 and 68.

Clause 17 ensures that tenants will be entitled to compensation for tenants' improvements on the termination of the tenancy only where the landlord has given his consent in writing to the improvement. That is the first principle of the Bill. While there is no argument with the principle in subsection (3) that the landlord's consent to improvements may or may not be subject to conditions, it is neither necessary nor helpful that the subsection steers the parties into conditions which require the tenant to agree to specified variations in the terms of the tenancy. It would be preferable to allow the parties to negotiate freely over whether or not to attach conditions to the landlord's consent and, if they decide to do so, what form those conditions should take. It might be in the form of varying the terms of the tenancy, but could well be otherwise depending on the circumstances.

The amendment to Clause 18, which is concerned with compensation for tenants' improvements consisting of planning permissions, is consequential on that proposed in Clause 17, and similar arguments apply.

The amendment to Clause 19(1) (c) is consequential on the proposed amendment to Clause 17. Instead of steering the parties towards the option of varying the terms of the tenancy as a means of attaching conditions to a consent, it is much better to leave the parties to devise whatever conditions suit them. The amendment to Clause 19 brings that clause into line with what is proposed for Clause 17 and refers back to subsection (3) in relation to which the amendment specifies that any conditions attached to a consent must be in writing.

I hope that I have been sufficiently clear to enable the noble Earl to give me some response to the main question. I beg to move.

4 p.m.

Earl Howe

As I said a moment ago, the purpose of Clause 17(3) as drafted is to ensure that any conditions attached by the landlord to his consent are legally binding on the tenant. However, the effect of the amendments would be to create uncertainty as to whether the conditions attached to the landlord's consent were legally enforceable. Once again there would be no contractual duty on the tenant to comply with the conditions since they would not be terms of the tenancy. The noble Lord has indicated that it is not his intention to provide for a tenant to receive full compensation even if he has totally ignored the conditions attached to the consent. I am sure that he will wish to reflect on how that factor impacts on these amendments too.

Amendment No. 66 deals with a somewhat different issue. I believe that while it is a well intentioned amendment, it would serve no useful purpose. Under Clause 17(1) the landlord's consent to a tenant's improvement is required to be in writing. That is to ensure that there is evidence when compensation comes to be assessed that the tenant is entitled to claim compensation on the improvement in question. If written consent has not been given, there is no entitlement.

Clause 19 concerns the reference to arbitration of refusal or failure to give consent or of conditions attached to the consent. Let us imagine that on the day after receiving the tenant's request the landlord has orally refused consent, for that is the situation addressed by the amendment. The effect of the amendment would simply be that that oral refusal would have no legal validity. What then? The answer is that if no written response was received from the landlord, the tenant would have to wait until two months had elapsed from the date of his written request before he could give a notice to the landlord to demand that the question be referred to arbitration. That, I am sure the noble Lord will agree, does not benefit anyone.

With regard to conditions imposed by the landlord, it is widely accepted that the conditions must in some way be legally enforceable. I hope that I have explained why Amendments Nos. 56, 63 and 68 are inherently unsatisfactory.

Lord Gallacher

I am grateful to the noble Earl. I hope that the slight interruption in the flow of his delivery does not indicate that he has been infected by the disease which afflicts those on this side of the Chamber; namely, that the more amendments we table, the greater the confusion which arises from the answers to the amendments.

I can only say that the queries arise as a result, I believe, of serious study of the Bill. In the light of what the noble Earl said it may be that that study has given rise to misconceptions. I am grateful to him for the clear way in which he has removed certain of those misconceptions. I shall further consider his reply with those who have an interest in this group of amendments. I shall ask them whether they seriously feel that the issues should be further examined at a later stage of the Bill. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Gallacher moved Amendment No. 57: Page 8, line 28, at end insert ("relating to the tenant's improvement which is the subject of the consent.").

The noble Lord said: In moving the amendment, I shall speak also to Amendment No. 64 in accordance with the list of groupings. When the noble Lord, Lord Carter, convened a meeting of parties with an interest in the Bill soon after its publication, there was concern that a landlord could take the opportunity provided by the clause as worded to rewrite any term of the tenancy agreement. My first query therefore is whether that is the Minister's intention. If it is not his intention, we believe that that should be made clear. If it is his intention, in our view, and in the view of our advisers, it could lead to some strange conditions being imposed, in particular if the landlord is reasonably certain that his tenant could not afford to go to arbitration.

We should like to know the view of the Minister. That view, we hope, will help us to decide whether or not to pursue Amendment No. 64. I beg to move.

Earl Howe

I indicated my general position on this issue a few moments ago when we talked about legal enforceability. The noble Lord will be pleased to hear that provided the conditions are enforceable I am not in the least opposed to the idea that any such conditions must relate to the improvement proposed by the tenant. Therefore we are prepared to consider the amendments further and possibly to come forward with amendments at a later stage. I am grateful to him for raising the point. With the assurance that we shall be prepared to look constructively at suggestions for linking the conditions to the improvement itself—however that intention can be worded—I hope that the noble Lord will feel able to withdraw the amendment.

Lord Gallacher

I am grateful to the Minister for what he said in respect of the amendments. Naturally, I hasten to accept his offer and look forward to the tabling of amendments which may help to dispel those queries. They were raised originally with Amendment No. 57 and might have been referred to on Amendment No. 64. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carter moved Amendment No. 58: Page 8, line 28, at end insert ("save that no such condition shall relate to compensation claimable by the tenant.").

The noble Lord said: The amendment proposes to establish that there is no opportunity to contract out of the proposed statutory valuation basis for tenant's improvements. It is possible that the combination of Clauses 20 and 26 prevents any continuation of the practice of basing compensation on writing down the cost of a tenant's improvements over a period of years. Everyone involved in tenancy agreements has felt that that has been an unfair feature. The tenant provides a substantial improvement to the farm which is written down over 20 years to £1; the tenant goes out, and the landlord is left with a substantial increase in the value of the holding. All sides have agreed that that matter should be dealt with in the Bill. I had hoped that we might have dealt with the matter by amendments to the 1986 Act within this Bill but I am told that that might not be possible.

However, the industry agreement provided that improvements should be paid out on the basis of the value that they add to the holding and on no other basis. The amendment is proposed to give full effect to that intention, and so avoid consent being given on the basis of a certain figure being imposed as a condition attached to the consent setting the nominal value that the improvement adds to the holding.

The Minister may say that the tenant has recourse to arbitration where such agreement is likely to be disregarded but the tenant in an annual tenancy may not feel that that amounts to a practical remedy and therefore may not challenge the valuation condition. The wording of the amendment may not be perfect, but I am sure that the Minister takes the point. The amendment expressly tackles the question. It establishes that there is no opportunity to contract out of the proposed statutory valuation basis for a tenant's improvements. I beg to move.

Earl Howe

The noble Lord has explained why he believes the amendment to be necessary. I am happy to be able to reassure him that it is not in fact required. Clause 17(3) does not go so wide as to enable a landlord to require the tenant to sign a variation in the tenancy agreement to the effect that compensation is always to be paid at written-down rather than current value. Clause 26(1) specifically overrides any agreement between the parties, whether in the tenancy agreement or elsewhere, that compensation is to be paid on any other basis than is provided in Part III of the Bill. So the safeguards are already there. I hope that with that reassurance the noble Lord will feel able to withdraw his amendment.

Lord Carter

I am extremely grateful to the Minister to have that assurance on record which I know will be helpful to those who advised me to put the amendment down. I beg to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carter moved Amendment No. 59: Page 8, line 30, at end insert ("or other intangible advantage.").

The noble Lord said: Clause 17 deals with the consent of the landlord as condition of compensation for tenant's improvements. The amendment inserts at the end of the clause and after the words "planning permission", the words "or other intangible advantage". I do not propose to move that Clause 18 do not stand part of the Bill when we come to it, but a point was raised at the meeting to which my noble friend referred when all the relevant organisations and others discussed the Bill. The question was why an exception has been made for planning permission in the Bill. It is an intangible advantage so why is it not being dealt with in the same way as all the other intangible advantages that could arise? I have discussed the point with the Minister and it would be helpful to the Committee if he explained why the Government feel that it is important to have special clauses dealing with planning permission.

It seems odd to have a separate rule for planning permission. Requiring the consent of the owner of the land before an application is made will put tenants with farm business tenancies in a different position from every other person. We know that anyone can apply for planning permission on a piece of land, whether or not they own it or have an interest in it. The general planning laws do not require the consent of the owner of the land before an application is made.

The protection for the landlord is that the tenant could not go on to act on the planning permission without the landlord's consent. The Committee will appreciate the central point that, as we understand it, it seems that the tenant is to be denied the rights which apply to everyone else under the general planning law.

There will be some intangible advantages which attach to the farm and for which consent could not realistically be obtained or for which it would be unreasonable to require consent, but it would be unfair for the tenant to go uncompensated. One example has already been mentioned on an earlier amendment, and that is the goodwill attaching to a farm business, especially with greater diversification, for example, into bed and breakfast accommodation or something similar. One can hardly ask for the landlord's consent to obtain goodwill. There is also the point which I raised on an earlier group of amendments regarding the additional milk quota acquired during the course of the tenancy.

For all those reasons, this is a probing amendment to ascertain why the exception was made for planning permission in the drafting of the Bill. We achieve the probe by adding the words "or other intangible advantage" at the end of Clause 17. I beg to move.

Lord Middleton

On the amendment itself, apart from the wider question of the application of Clause 17, the clause excludes payment of compensation for planning permission obtained by the tenant. That is catered for by Clause 18. The purpose of Amendment No. 59 is also to exclude from Clause 17 other intangible advantages. That would at the same time take away the necessity for the landlord's consent for an intangible improvement.

In the Bill, intangibles do not come under Clause 18 where consent is obligatory. So, as I see it, under Amendment No. 59 intangibles would emerge as not requiring the landlord's consent at all. I do not believe that that would be quite within the spirit of the Bill. I understand that the noble Lord will not argue that Clause 18 should not stand part.

On the wider question, under the Bill the landlord has an absolute right of veto where a tenant wishes to apply for planning permission. I believe that that is correct because otherwise the landlord will be compensating the tenant for something which the landlord might not want—for example, if permission were for residential housing which he did not want on his land, any compensation might amount to a very large sum indeed.

4.15 p.m.

Earl Howe

Despite the explanation given by the noble Lord, Lord Carter, I find it difficult to see why he seems so opposed to the idea that it is only equitable for the person paying compensation to know well in advance of the end of the tenancy that he is to pay it. In the case, for example, of milk quotas the landlord may be required, as my noble friend said, to pay a substantial sum of money at the end of the tenancy. Indeed, he might decide that the more affordable course would be to grant a further tenancy and that would surely be to the tenant's advantage unless he had a compelling reason to move holding.

By requiring all forms of tenant's improvement to be dealt with on the same principle—namely, that the written consent of the landlord is an essential requirement if compensation is to be paid as of right—parties know exactly where they stand from the outset. The consent requirement is by no means onerous and where the tenant is aggrieved over the lack of consent or conditions attached to it, the Bill ensures that the matter may be resolved with the assistance of an arbitrator.

Clause 17(4) does not exempt planning permission secured by a tenant from the requirement that written consent be obtained from the landlord in order to ensure that compensation may be paid. All that the subsection does is to remove planning permission from the general provisions concerning tenant's improvements in Clause 17. Specific rules are provided for planning permission in Clause 18 and it may be of assistance to the Committee if I outline them briefly.

Clause 18 implements the joint industry agreement on agricultural tenancy reform of December 1993 that compensation will be payable in respect of a planning permission gained by a tenant which is related to activities on a holding permitted by the terms of an individual tenancy agreement. It is not intended that the tenant should obtain a share of the development potential by being compensated for the fact that a planning permission enables development other than for the specified purpose for which the consent of the landlord was given.

That means that the requirements for landlord's consent under Clause 18 are slightly different from the provisions in Clause 17 which cover other intangible advantages. A landlord's consent in respect of planning permission must be expressed to be given to enable a specified physical improvement to be made or a specified change of use to be effected. Also, at the end of the tenancy that improvement must not have been completed or the change of use must not have been effected.

Clause 18 imposes a necessary limitation on compensation in respect of planning permission. As Members of the Committee may be aware, there is no legal requirement that planning permission must be sought only by a landowner and planning permission may enable fairly general development or a change of existing use to be made. Clause 18 makes it clear that entitlement to compensation in respect of planning permission is directly related to a physical improvement or change of use that was specified at the time consent was given by the landlord. Thus, although we are introducing for the first time the possibility for the tenant to be compensated for an unused planning permission, there are certain safeguards to ensure that he is not over-generously compensated, that is to say, compensated out of proportion to the value of the improvement for which the permission is sought.

With the leave of the Committee, while we are debating intangible advantages, perhaps I may revert to the question which my noble friend Lord Stanley put to me a while ago. He asked whether a tenant could seek consent part way through a tenancy if he had already begun to build up goodwill. The tenant may seek consent at any time, although, of course, it is prudent to seek it before making the improvement, as I indicated earlier to my noble friend, because the landlord might refuse. What the tenant cannot do is go to the arbitrator to obtain retrospective approval because the tenant has in effect pre-empted the case by going ahead with the improvement, albeit part way. So, as I said earlier, the advice to a tenant would be to seek an agreement with the landlord at the outset. I hope that with those words of explanation, the noble Lord, Lord Carter, will feel able to withdraw the amendment.

Lord Carter

I am very grateful to the Minister and to other noble Lords who have taken part in this debate. This is a complicated point. The reason why I have decided not to oppose Clause 18 stand part was that I suspected that we could deal with the issue in relation to this amendment and thus save the time of the Committee.

I still have one concern. As I understand it—and perhaps the Minister can confirm this point—under general planning law anyone can apply for planning permission on a piece of land whether or not they own it or have any involvement with it. It is often the case that developers go round the country and put in for planning permission even without the owner being aware of it until he sees it on the agenda of the local planning committee. Are we saying that the tenant under a farm business tenancy is to be put into a separate category where he will be the only category of person to whom that does not apply? It would be helpful if the Minister could reply on that point. It is central to the debate.

Earl Howe

I am not quite sure that I understand the noble Lord's point. He is, of course, quite right in that the planning laws in this country enable any individual to apply for planning permission on any piece of land, whether it is their land or someone else's. Here, quite clearly, if a tenant has by his own efforts sought and obtained planning permission for a specified development, then it is equitable that at the end of the tenancy, assuming that the development has not proceeded, he should be recompensed for that planning consent. If someone else has been responsible for obtaining the planning consent, then the situation is somewhat different. If, for example, the landlord has applied for the consent, my understanding is that the landlord has a case for claiming that the value of the planning consent should be attached to him. What the tenant has to do is get the landlord's consent first. That is the pre-requisite for obtaining compensation at the end of the day.

Lord Carter

A shaft of light suddenly strikes the Minister on this point. There is a point here which I shall not labour, but on which I am still not clear. It seems to me that, if we are not careful, farm business tenants will be a unique category. Perhaps I may give as an example the situation—it is a little unlikely but is possible—where a tenant decides that there is some development value in the land on which he farms. In the ordinary way, whether or not he had any involvement with that land, he could apply for planning permission. As I understand it, before he can even apply for planning permission on that land he has to get the landlord's consent. I believe that that puts him in a unique category. I see that the noble Earl, Lord Kinnoull, knows something about this subject. I give way to him.

The Earl of Kinnoull

I believe the point is that if a developer makes an application and notifies the owner, he still has to buy the land. He may go through the whole process and the cost of an application and appeal is charged to him, but still he has to negotiate. Hopefully, he will negotiate an option. If the tenant applies, he will have to have had permission from the landowner first if he is to gain anything at all out of this. I am sure that the normal course will be an application for a building related to the farm business, not a residential five-acre development. That would be very unusual. If that happened, I assume that the landlord would not give permission because he would feel entitled to gain from that as it would be a residuary interest to his farm.

Lord Stanley of Alderley

As this is Committee stage, perhaps I may enter the debate. I have to get my shafts of light, when I get one, by going outside. I believe that the point has been made that it is vitally important that we have (not on the face of the Bill) these heads of agreement to warn tenants and landlord, before they enter into agreements, of the possible problems that could occur. They were discussed yesterday.

Lord Monkswell

I wonder if I may seek some clarification. The Minister will no doubt correct me if I am wrong. As I understand it, if a landlord does not want to see development on his land, he can effectively deny the tenant the authority to apply for planning permission or to get any benefit from that planning permission. The result is that when the tenancy comes to an end the landlord is not required to compensate the tenant for any planning permission that has been gained. That is right, in the sense that if the landlord was required to compensate the tenant for the planning permission that was gained, the tenant would then almost be forced to go ahead with the development of the land, which the landlord did not want. I can accept that side of the argument. No doubt the Minister will tell me if my interpretation is wrong.

The point that concerns me is this. Where a tenant, with the permission of the landlord, obtains planning permission, from what the Minister said earlier there seems not to be what I would describe as a free market situation in the sense that the tenant and the landlord have to come to an agreement as to how the development gains will be shared. The Minister seemed to imply that even though the tenant had received the planning permission—and that might have been the result of quite extensive work by the tenant—the landlord would be in the position of being, as it were, a privileged party and taking most of the development gains should the development go ahead. I hope that I am wrong, but that is my impression of what the Minister said.

Earl Howe

Perhaps I can be of some help to the noble Lord, Lord Monkswell. He should bear in mind that the land does, after all, belong to the landlord. The landlord is therefore in a privileged position in that sense. It would not make sense for any application for planning permission to go ahead without the landlord's consent under the terms of the Bill. After all, even if the tenant were to go ahead with such an application, the landlord could oppose it when the case came to be considered by the local planning authority. So the landlord in any case has a sanction as an interested party.

If for some reason the tenant is able to proceed with the development—let us suppose, for the sake of argument, that he gets his planning permission notwithstanding the objection of the landowner—then the tenant does so at his own risk. He does so in the knowledge that he is not able to claim compensation for the improvement at the end of the term. He may still make a conscious decision that he wishes to go ahead because he needs the building, or whatever it is, to house his animals, or whatever the case may be. But he runs the risk that because he has not obtained the landlord's consent he will not be compensated for that asset. It may not matter that the term of the tenancy may be long enough for it not to matter. He may be able to dismantle the asset (the building, or whatever) when he leaves the holding. There are various other avenues for him to pursue. But he closes his options if he does not obtain the consent of the landowner.

Lord Carter

We have had a "clause stand part" debate even though we did not intend to. It is interesting how often when we discuss issues in this Chamber that the fundamental difference between Right and Left comes into play. It is the difference between concern for property rights and concern for personal rights. However, this is not the time to go into that issue.

In his first reply the Minister said that it could not be expected that the share of any development value should accrue to the tenant rather than to the landlord. I can only say that if a Conservative government ever introduced a measure which allowed the tenant any share of the development value, it would be very surprising.

Earl Howe

I said "development potential". That is rather a different thing.

Lord Carter

"Hope value" has a value, and a substantial one. As I said, this illustrates the point that I made about the concern of the Government side for property rights and the concern of the Opposition side for personal rights.

There is also the possibility mentioned to me by my noble friend Lord Gallacher that the local authority might require the land. We have laboured the point enough. There is an issue here which needs further consideration. I certainly need to take advice outside the Chamber. This is a matter to which we shall return at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 17 shall stand part of the Bill?

The Earl of Kinnoull

I wonder if I might briefly interrupt. Clause 17 is a fairly turgid clause. The Committee has done very well in not straying too far from the brief. My noble friend referred to compensation in regard to tenants' improvements and also said that that included tenant-right. I should like to make quite certain that there is no question that within a tenancy agreement neither party can contract out of tenant-right, as they cannot under existing legislation.

4.30 p.m.

Earl Howe

When we debated the matter of tenant-right I assured the noble Lord, Lord Gallacher, that the Bill provided for tenant-right to be. included in the tenancy agreement. As for contracting out, if the landlord contracted out of the need to deal with tenant-right at the end of the tenancy that would not be acceptable to most tenants. One supposes that that will be a serious sticking point in any negotiations between the parties. Quite clearly, it is essential that the tenant has the landlord's assurance that that matter will be dealt with in a certain fashion when the tenancy comes to an end.

Lord Carter

This is a classic example of the weakness of the Bill. The assumption is that the landlord and tenant will negotiate as equal partners. I give an example with which I know a lot of your Lordships will be familiar. In the past, institutional landlords have used the desire of a tenant to obtain a farm to change the terms of the tenancy. The tenant will be told, "If you want the farm, this is what you have to do." We always used to pay our rents six months in arrears. Most institutional landlords, because of the requirements of pension funds or whatever, unilaterally said that the condition of their tenancies was that rents would be paid quarterly, sometimes in advance. That is a classic case where the tenant will say, "I do not like it. It is not the custom in the country but I want the farm and so I will agree to it." The same will apply under this Bill, as it has under previous Acts of Parliament, if it is not prevented.

There is an assumption that the landlord and tenant will settle down as reasonable people and agree. Tenants will be very anxious to get these farm business tenancies. We know that demand exceeds supply. The landlord can say that the condition of the tenancy is that the tenant-right will not be included. If a tenant wants the farm that is the deal. The tenant will either have to agree to it or not take the farm.

Earl Howe

The noble Lord overlooks one very important point about this Bill compared with all other previous legislation. Given that a landlord has decided to let a holding, if he is faced with the prospect of a lifetime tenancy naturally he will call the shots on every other aspect of the tenancy that he can. What we now have is the prospect of a bargaining situation from the outset.

The question that will be asked—which has not be asked for a very long time—is how long the tenancy will be for. That is probably the first question that the parties will wish to agree upon, but it may not end there. That is probably a bargaining point that can be used to influence many other aspects of the tenancy. I do not believe that the noble Lord's pessimism is well founded. The bargaining situation between landlord and tenant will be completely transformed by the flexibility afforded by the Bill.

Lord Carter

The Minister has just made my case. The landlord will say, "It is a 10-year agreement with tenant-right; it is a 15-year agreement without. You choose." It is an open market with free bargaining and no statutory control. The landlord will say, "If you want a longer tenancy I will put some conditions on it." Perhaps the example of the tenant-right is not the best one. The commercial property market is at present a buyer's market. The tenant can call the shots. He can impose conditions under the contract. In the ordinary way, they will be unacceptable to the landlord but he has to accept them because he wants to let the office block, or whatever it is.

I believe that exactly the same will apply, but the other way round, in this market. For all sorts of reasons there will be a shortage of land to let. I accept that it is the tenant's judgment, whether or not it is misguided. But I believe that, because of the removal of the statutory protections, landlords will impose certain conditions and say, "If you want a longer tenancy you will agree to these conditions. If you want the tenant-right you can have it for 10 years; with no tenant-right, it will be 15 or 18 years."

Earl Howe

In the classic example that the noble Lord has given there are two buyers, not one. Each has an interest in securing a fair agreement. All sorts of matters will require the consent of both the parties. I do not believe that it is as simple as he portrays. I believe that the point I have made still stands. There will be a much healthier bargaining climate under this Bill. There will no longer be a one-sided disadvantage, as there has all too often been in the past.

Lord Cledwyn of Penrhos

Will the noble Earl agree that, whatever the advantages, the tenant will have lost something very important; namely, his security?

Earl Howe

He will at least have a tenancy, which is a lot better than the kind of short-term arrangements that are now being negotiated under Gladstone v.Bower or grazing-type agreements that certainly do not help tenants to establish thriving businesses and enable them to invest for the long term. This Bill will at least get the industry out of that rut. We know from indications provided in a recent survey by the RICS that much of the land that will come onto the market for letting will be available for 10 years or more.

Lord Stanley of Alderley

I believe that I started this hare in relation to the question of rent and scarcity—a point brought out by the noble Lord, Lord Carter. My noble friend will not be very pleased when I say that the noble Lord, Lord Carter, is right. Of course, as a tenant I will agree to practically anything. The tenant-right and everything else will go, but —this is where I will annoy the noble Lord, Lord Carter—if I wish to agree to it, so be it. Under the agreement that is now before your Lordships in the Bill, I believe that, on balance, the tenant will pay a higher rent and will sacrifice his soul to get it, but it is better to have that and land put on the market than to have the present situation where obviously the landlord will not let. I should like this question to go to sleep. We have aired the matter, and I believe that both of us know where we stand.

Lord Carter

The noble Lord, Lord Stanley, said that he would agree to anything. I know that the Whips, on the basis of past experience in this House, will agree with that.

Lord Monkswell

This afternoon reference has been made to different forms of tenancy; that is, the things that do not amount to a proper tenancy which it is hoped will come into a proper tenancy. It is interesting to those of us who are not intimately involved in agriculture to learn about these kinds of assets.

I make two other points. The type of landowner will be different. The Bill refers to landowners. Someone who is not closely involved in agriculture will think of a landowner as a country squire—someone who has a large acreage of land to let to a tenant farmer and who is intimately involved with its long-term future. We have to recognise that landowners are not necessarily of that ilk. Many of them are institutions and City firms with no love for the land and no interest in maintaining the environment to the benefit of the countryside.

Because of the horrendous market situation that will be engendered by the Bill, a lot of people will want tenancies and very little land will be available for them. It will drive up rents and the price of tenancies. What will be the knock-on effect of that? In this country and overseas we can see examples where increases in rents charged to tenant farmers have been so large and have put so much pressure on farmers that to eke out an existence they have been forced to rape and pillage the land. One thinks of the Oklahoma dust bowl in the 1930s. I wonder whether, in their ideological fervour for free market solutions to everything, the Government have thought through the implications for our countryside and for the land.

Lord Middleton

With great respect, the Oklahoma dust bowl is a long way from the amendment we are discussing.

The Earl of Kinnoull

We are addressing Clause 17 stand part. Coming back to tenant-right, I am a little unhappy. No doubt the industry has agreed this, but whereas the noble Lord, Lord Carter, said yesterday that he did not always agree with the industry, perhaps he is changing his mind today. Where there is an unwritten tenancy and where the Royal Institution of Chartered Surveyors gives guidelines or model clauses, will they address the question of tenant-right? I remind my noble friend that tenant-right has been fundamental in all previous legislation.

The Earl of Harrowby

I, too, would like to express my concern about the possibility of a tenant having to surrender tenant-right. I do not have the same optimism as my noble friend the Minister about the freedom that will be engendered in the bargaining position and the equality of the bargaining position. I do not think it will arise until the whole tax situation is fundamentally altered. I am concerned that a tenant can be inveigled or pressurised into losing his age old rights. I cannot believe that that is what the average landlord would want. He would not think it was right. I accept the point about institutional landlords. I ask my noble friend the Minister to give this matter further consideration.

Earl Howe

We have had a very interesting debate on this clause which, I must say, I was not expecting. I take on board all the points that have been made about tenant-right. We had a debate on that subject earlier on. My noble friend himself said that most landlords would be keen to see their tenants properly compensated for tenant-right. I am sure he is correct in saying that. The answer that the prospective tenant would give if he were refused the opportunity of compensation for tenant-right would be to walk away from negotiations. I contend that in most cases that will become a possibility because there will be a lot more land on the market to rent and there will be much greater choice available.

The noble Lord, Lord Monkswell, expressed his fears about the way the world is moving. He said that the type of landlord may turn out to be rather different in the future from how he has been in the past. There are already institutional landowners. Not all of them are faceless. Charities, foundations and the National Trust are, I am sure, good examples of very responsible landowners who like to see the land managed properly. Indeed, it is in their interests to do so because they are protecting their own asset.

I do not necessarily accept that the effect of the Bill will be to drive up rents. Views on that subject differ. If market forces operate, then increasing the supply of land for letting should, if anything, tend to bring rents down. We must remember that 75 per cent. of all new letting at the moment is currently done on short-term arrangements that are not subject to the 1986 Act rent formula. Therefore, one cannot necessarily make too many judgments from that. The scarcity factor should melt away, which will have a beneficial effect on rents as far as concerns the tenant.

I do not want to detain the Committee for too much longer. I have stated my view that I regard the future with optimism. I hope I am proved right.

Clause 17 agreed to.

Clause 18 [Conditions in relation to compensation for planning permission]:

[Amendment No. 60 not moved.]

Lord Gallacher moved Amendment No. 61: Page 8, line 42, leave out paragraph (c).

The noble Lord said: Amendment No. 61 is in the form of a probe. In order that the probe can be comprehensive, the terms of the amendment are to leave out paragraph (c). The query turns on the definition of the word "completed" in this paragraph and also on why it is necessary to have it. For example, a development may be phased. Phases 1 and 2 may be completed—the leisure park and the miniature golf course—but not phase 3; the conversion, say, of a barn to a restaurant. Even a partially completed individual improvement may add some value to the tenancy and may be worthy of compensation. In addition, with no counter notice procedure to protect the tenant, the landlord may give the tenant notice before he has been able to complete the improvement in order to avoid the payment of compensation. Our fears in this respect may not be well founded because what I have just outlined may not be the intention. Indeed, it may not even happen. Nevertheless, we believe a possibility exists and the reason for the probe is to ascertain the Government's response to this possibility. I beg to move.

4.45 p.m.

Earl Howe

I am grateful to the noble Lord because he has enabled me to put my reply on the record, which I am sure will be helpful to him. Compensation for a planning permission as a separate item is only paid when the physical work has not been completed or the change of use has not been effected. Where the work has been completed the tenant is compensated for the value of the improvement, including any value due to the planning permission. That is made clear in Clause 20(4). If one were to carry this amendment through into the Bill it would lead to double counting.

The noble Lord asked about work in progress. That may or may not be an asset to the holding at the end of the term, an asset which a subsequent tenant would find of value. Clearly, that is a matter to be assessed when the tenancy comes to an end and the valuer does his work. It could, on the other hand, be deemed a liability in certain circumstances. I do not think one can necessarily generalise but the point of principle is, I hope, clear as regards the planning consent itself.

Lord Gallacher

I am grateful to the noble Earl for what he had to say about Amendment No. 61. I have always been wary about work in progress and valuations in balance sheets and I shall look at that in the context of this amendment. I am grateful for the noble Earl's reference to Clause 20(4), which I shall study together with his remarks. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 62 to 64 not moved.]

Clause 18 agreed to.

Lord Carter moved Amendment No. 65: After Clause 18, insert the following new clause:

Consent not to be unreasonably withheld

(". In sections 17 and 18 above, "consent" shall be interpreted as meaning "consent not to be unreasonably withheld"").

The noble Lord said: We are all familiar with these words. The wording simply supplies a test against which refusal of consent by the landlord is to be measured. The wording is commonly used in tenancy and other agreements. It would not prevent recourse to arbitration but might make unreasonable refusal less likely and so would help to cut down the number of arbitrations. We know that the Minister is a very reasonable person. I cannot imagine that he will not accept this helpful, clarifying amendment. I beg to move.

Lord Middleton

When we were debating Amendment No. 59 I referred to the landlord's right of veto—in other words, he could refuse to give consent in a Clause 18 application by a tenant for planning permission. I gave reasons why I thought it was right that that veto should be kept. He has the veto because in Clause 18 if he does not give consent the tenant cannot refer it to arbitration. I explained why I thought it necessary for the landlord to keep that right. This amendment waters down that right and I am not happy with it.

Earl Howe

It is worth reminding ourselves of a central point at this stage. One of the main objectives of the Bill is to encourage landowners to let land. If we are to succeed in that they must have confidence that their interests will not be overlooked. We have to recognise that agricultural tenancies are not quite the same as commercial tenancies. That is a point which the noble Lord has used to his own advantage in our debates to date. In the agricultural sector many more landlords are likely to have a close personal interest in their land and the way it is managed and developed.

As regards the question which the amendment raises, there is a delicate balance to be struck. The noble Lord's amendment would mean that the landlord's consent could not be unreasonably withheld. As I understand it, that means that there would be a presumption in favour of the tenant making the improvement; the balance would be tipped in the tenant's favour. Instead of that, we have given the tenant the right to go to arbitration if the landlord refuses consent. An arbitrator will have to decide whether it is reasonable for the tenant to provide the improvement, having regard to the terms of the tenancy and any other relevant circumstances, including the circumstances of the landlord and the tenant. This is a much better approach where agricultural tenancies are concerned and all the main industry organisations agree that it represents a fair compromise between landlord's and tenant's interests. Rather than depart from the spirit of the industry agreement, I hope that the noble Lord, Lord Carter, will feel able to withdraw the amendment.

Lord Carter

It is very amusing to see noble Lords opposite twisting around on this matter. The noble Lord, Lord Middleton, put the point very clearly and we understand what he is saying; namely, that the landlord must keep the right of veto and anything which waters down that right is unacceptable. I was slightly amused by the words of the Minister to ensure that the landlord's rights will not be overlooked. Anyone who believes that the landlord's rights have the slightest chance of being overlooked is not reading the same Bill as I am. The noble Earl referred to the delicate balance between the landlord and tenant. That is not the real world which is being talked about.

The amendment is a very simple and, I hope, helpful proposal that consent is, not to be unreasonably withheld". If it is not accepted, then consent, if the English language means anything, can be unreasonably withheld.

The noble Earl referred to the rights of arbitration. We all know what that costs and that the scales are definitely balanced in favour of the landlord. We have all advised tenants and said to them, "If you go to arbitration it will cost you £10,000. If you are lucky you will get perhaps £3 an acre on a.300-acre farm. That is knocked off the rent and that is £900 over three years. So do not go to arbitration". We all know how it works.

I really felt that by accepting this amendment the Government would be saying that they were prepared to show that the remark which was made to me was a little unfair; namely, that this is a landlord's Bill. But as the debate has developed I have begun to wonder whether that description of the Bill is in fact correct. We shall not spend any more time on it at the moment but, as we did yesterday, we are learning a great deal as the Bill proceeds. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 [Reference to arbitration of refusal or failure to give consent or of condition attached to consent]:

[Amendments Nos. 66 to 68 not moved.]

The Deputy Chairman (Lord Brougham and Vaux)

If Amendment No. 69 is agreed to, I cannot call Amendment No. 70.

The Earl of Kinnoull moved Amendment No. 69: Page 9, line 31, leave out from ("may") to the end of line 34 and insert ("withold his approval for the proposed tenant's improvement or may approve it either unconditionally or subject to such conditions as he may think fit after considering the matters set out in subsection (4) above.").

The noble Earl said: I move this amendment in the absence of the noble Lord, Lord Northbourne. I am sorry that he is not here because he is very lucid on these technical points. He has asked me to move the amendment.

This is a very important clause—the reference to arbitration—as my noble friend has explained. When it comes to how the arbitrator will work, I understand that much of what has happened in the past as regards the 1986 Act has been imported into the Bill except for the fact that the arbitrator is limited in his flexibility. He can say either yes or no, but he cannot impose any conditions. It is a hindrance to good arbitration and a good result for both the landlord and tenant. I do not believe that I need explain it any further, but I am happy to do so if my noble friend so wishes. I beg to move.

Lord Carter

This is a helpful amendment because it enables us to discuss what I believe was in the mind of the Government; namely, a form of pendulum arbitration. Both sides will know that if they go to arbitration, as the noble Earl said when he moved the amendment, the arbitrator will say either yes or no. He will not do as he can now. Those of us who have been involved with arbitrations are familiar with the procedure. He will put certain conditions and suggest to the two sides that they think about some other way of approaching the problem. He will isolate the one area where he feels that his ruling is required and he will tell the parties to agree between themselves about other things.

A good deal of flexibility in arbitration has been deliberately removed by the Government. It is almost like a referendum where you say either yes or no. That may have been subconsciously in the mind of the Government when they were considering the matter. The Bill removes all the skill of arbitration in the sense that the arbitrator is given no flexibility at all to try to vary the situation, to see the weaknesses in one case or the other, and to advise either side as to which way they might go. I have been involved in arbitrations. I have experienced being sent out with the other side's professional in order to do a deal on one aspect while the arbitrator stays in the room with the others and debates the point.

There is a great deal of flexibility if you can afford to go to arbitration. But that is all being deliberately removed by the Government. They have explained why. It is because they believe that it will help restrict the number of applications for arbitration. It will be said, "You are taking a big risk and it is a winner-takes-all bet that you are on". It is rather like the National Lottery or something of that nature. When you go to arbitration you have to decide whether your case is strong enough for the arbitrator to say yes or no because he is not going to say maybe.

Earl Howe

This has been a very interesting short debate on the amendment introduced by my noble friend. I realise that the aim of the amendment is to give arbitrators greater flexibility when considering whether or not a tenant should be allowed to make an improvement for which he will be entitled to compensation. However, I have to say that I am not convinced that in this instance flexibility is desirable. Landlords may be nervous about the type of conditions which arbitrators might attach when giving consent. In any case, we would have to prohibit what might be the most obvious condition; namely, a reduced amount of compensation for the improvement. As many Members of the Committee are aware, one of the key provisions in the Bill is that a tenant should receive full compensation for improvements made with the landlord's, or an arbitrator's, consent.

I would like to suggest, as the noble Lord, Lord Carter, foreshadowed in his remarks, that if the parties know that the arbitrator is limited in what he can do, they will endeavour to reach agreement. Arbitration is, after all, a last resort. We believe that a single test of whether it is reasonable for the tenant to proceed with the improvement, either unconditionally or subject to the landlord's conditions, will encourage compromise between the parties and reduce the temptation to take up extreme positions and rely on the arbitrator to "split the difference", as it were. We have discussed this in detail with the industry and I am pleased to say that the main landlord and tenant organisations share the Government's view. In the light of that, I hope that my noble friend will agree to withdraw his amendment.

Lord Carter

Before the noble Earl decides what to do with the amendment, perhaps I may say that we have had a lot of discussion about the impecunious landlord; we now have the nervous landlord as well.

The Earl of Kinnoull

I am somewhat nervous about what to do because the noble Lord, Lord Northbourne, is not present and I feel that he had a good point. I am not privy to the discussions which the Government have had with the arbitrators, the Royal Institution of Chartered Surveyors and all those who know a great deal about the subject. Although I shall be happy to withdraw the amendment, I should like to feel that the matter may be reconsidered. I should also like to take advice from outside before we reach another stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 70 not moved.]

Clause 19 agreed to.

5 p.m.

Clause 20 [Amount of compensation for tenant's improvement not consisting of planning permission]:

The Earl of Kinnoull moved Amendment No. 71: Page 9, leave out line 45 and insert ("landlord's reversion").

The noble Earl said: In moving Amendment No. 71, I should like to speak also to Amendments Nos. 72 and 73. This is an important amendment as Clauses 20 and 21 deal with compensation.

The provisions relating to compensation for tenants' improvements are spelt out in Clause 20(1). The compensation is to be, an amount equal to the increase attributable to the improvement in the value of the holding at the termination of the tenancy as land comprised in a tenancy". I understand that that compensation has been agreed by the industry, but I am nevertheless advised that it could prove to be extremely unfair because when a valuer sees a very specialised improvement, which is suitable for the tenant and his business but which may not be at all suitable for another tenant or, indeed, for the holding, the landlord will be subject to paying compensation for something that will be worthless to him in the future. I say that because the valuer will look at the improvement and say, "That improvement is worth £x per acre in addition to the existing rent". That will be a notional rented figure. The valuer will then take another notional figure, the year's purchase, and will come to a compensation figure. The valuer will not look at what I think he should look at, which is the question of the value of the improvement to the landlord's interest upon the termination of the tenancy.

That is why I have tabled this amendment which seeks to substitute the basis of the compensation to the "landlord's reversion". It is an important amendment. It is not just a landlord's amendment. It is intended to seek parity between the parties. In a way, it is a technical point about valuation. It endeavours to encourage the furtherance of the Bill because compensation for improvements is a very important feature of the Bill. I beg to move.

Lord Carter

I can see the point that the noble Earl is making. It is a fair point, but presumably the landlord will have given his consent to the improvement otherwise it would not be up for compensation. Having given his consent in the knowledge of what the improvement was likely to do to the farm, the landlord cannot really then turn round and say, "It isn't worth what I thought it was, so it isn't worth as much as the tenant thinks because of the increase in the value of the holding". As I have said, I can see the point that the noble Earl is making, but if the landlord has given his consent, does he not ultimately have to accept what the valuer says?

Earl Howe

I am grateful to my noble friend Lord Kinnoull for his explanation of the amendment. I am not persuaded that this amendment would set a more appropriate basis for compensation. Clauses 20 and 21 as drafted refer to the increase in the value of the holding as land comprised in a tenancy. This is based on the assumption that the holding is re-let to another tenant, which seems the most reasonable assumption. I have to confess that I have not had time to consider in detail precisely what effect the amendment would have, but I am advised that in practice it might have two effects. First, if the landlord was intending to use the land for non-agricultural purposes when the tenancy terminated, there is a risk that the tenant's improvements would be assessed as having no value to the landlord's reversion. The tenant would then get no compensation, which is clearly unacceptable. The second effect would be that in the case of compensation for planning permission, the landlord might be the loser. This is because the amendment would appear to require him to pay the full increase in the value of the landlord's reversion, instead of the increase due to planning permission for the specific improvement that the tenant was intending to make. This is not an easy issue, but I can say that we consulted the industry organisations, including the Central Association of Agricultural Valuers, on this specific point and none of them saw any difficulty with the wording that we used.

With regard to my noble friend's opening remarks, I think he was addressing a separate point when he tried to suggest that there might be circumstances in which a landlord found himself paying over the odds for improvements at the end of the tenancy. If my noble friend will allow me to do so, I should like to discuss that matter when we reach Amendment No. 72. Therefore, if he will forgive me, I shall not cover that very important point now although I believe that I can deal with it satisfactorily. I hope that my noble friend will feel sufficiently reassured to withdraw his amendment.

The Earl of Kinnoull

I am grateful to my noble friend, although I cannot say that I am reassured because the subject is quite technical. Therefore, I should like to take his answer away and to consult outside advisers. Perhaps I shall be able to meet my noble friend before the next stage of the Bill.

The noble Lord, Lord Carter, referred to the landlord giving consent. Despite the fact that the landlord has the material right not to give consent, the tenant can refer the matter to arbitration and the arbitrator may rule in his favour.

Lord Carter

Before the noble Earl sits down, if the tenant has gone to arbitration and the arbitrator has ruled in his favour, surely the noble Earl is not suggesting that the improvements should be down-valued. After all, although consent has been given via the arbitrator rather than directly, it has still been given and the landlord cannot really expect some change in the basis of the value.

The Earl of Kinnoull

It is perhaps easier if one describes a case. Growing crops such as cauliflowers or brussel sprouts can be intensive, and to maximise the crop value one has to erect certain buildings and to buy certain equipment. It could well be that both the tenant and the landlord see that as a good thing, but the tenant may, sadly, suddenly die and the landlord will be left with a massive operation for which he cannot find a subsequent tenant. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Kinnoull moved Amendment No. 72: Page 9, line 45, at end insert ("let to a tenant of average skill and competence in the agricultural systems commonly practiced on similar land in the district.").

The noble Earl said: I shall move the amendment briefly, because I believe that my noble friend wishes to make an important statement on the point. So that I do not misconstrue the purpose, I beg to move.

Lord Carter

We can only wait with bated breath to hear what the Minister is going to say.

Earl Howe

I am grateful to my noble friend for giving me the opportunity to speak to the amendment, which raises an important point.

I am sure we all agree that a landlord should not have to pay a large amount of compensation on an improvement which will be of no use to an incoming tenant. I am advised that that is already achieved under Clause 20(1) as drafted and that this amendment is therefore unnecessary. The amendment as drafted is in any case somewhat narrow because it refers only to the competence of the incoming tenant in matters of farming, whereas, of course, some of the improvements on a diversified agricultural holding will be non-agricultural.

It may help if I explain how Clause 20(1) will work in that respect. It requires the value of the improvement (and hence the compensation) to be based on the extent to which the improvement increases the value of the holding, on the assumption that the holding is relet. If an improvement were of a highly specialised nature there would be little or no demand for it and it would not increase the value of the holding to any great extent. Therefore it would not attract an over-large amount of compensation.

There is, of course, the additional safeguard that the landlord or an arbitrator—as the noble Lord, Lord Carter, pointed out on a previous amendment—must give consent to the improvement if the tenant is to be eligible for compensation. An arbitrator, who must have regard to the circumstances of the landlord as well as those of the tenant, is unlikely to consent to an improvement that would be of no use either to the landlord or to future tenants of merely average competence.

In the light of that explanation, I hope that my noble friend will agree to withdraw his amendment.

The Earl of Kinnoull

I thank my noble friend for the clarity of his reply and the wisdom of his words. I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 agreed to.

Clause 21 [Amount of compensation for planning permission]:

The Deputy Chairman

I must point out that Amendment No. 73 should read "leave out from the second ("the").

[Amendment No. 73 not moved.]

Clause 21 agreed to.

Lord Gallacher moved Amendment No. 74: After Clause 21, insert the following new clause:

Compensation for damage by game or hunting

(".—(1) Where the tenant of a farm business tenancy has sustained damage to his crops—

1. (a) from any wild animals or birds the right to kill and take which is vested in the landlord or anyone (other than the tenant himself) claiming under the landlord, being animals or birds which the tenant does not have permission in writing to kill; or
2. (b) from any hunting activity where the landlord and not the tenant is able to give permission for hunting to take place across the land which is the subject of the tenancy—

he shall, if he complies with the requirements of subsection (2) below, be entitled to compensation from his landlord for the damage.

(2) The requirements of this subsection are that the tenant shall give his landlord—

1. (a) notice in writing within one month after the tenant became, or ought reasonably to have become, aware of the occurrence of the damage;
2. (b) a reasonable opportunity to inspect the damage—
1. (i) in the case of damage to a growing crop, before the crop is reaped, raised or consumed, and
2. (ii) in the case of a damage which has already been reaped or raised, before the crop is removed from the land; and
3. (c) notice in writing of the claim, together with full particulars, within one month of the year in respect of which the claim is made.

(3) For the purposes of subsection (2) above—

1. (a) seed once sown shall be treated as a growing crop whether or not it has germinated; and
2. (b) "year" means any period of 12 months ending in any year with 29 september or with such other date as may be agreed between the landlord and the tenant.

(4) The amount of compensation under this section shall in default of agreement made after the damage has been suffered be determined by arbitration under this Act.").

The noble Lord said: The amendment seeks to add a new clause to the Bill. The purpose of the clause is to provide circumstances in which there can be compensation to the tenant of a farm business tenancy if he has sustained damage to his crops by game or hunting. The clause, I believe and hope, is self-explanatory, but it may be for the convenience of the Committee if I mention one or two points contained in it which I believe justify its tabling and show that the conditions suggested for compensation and arbitration are such that the clause, taken as a whole, is reasonable.

First, as I said, the purpose of the clause is to compensate where damage has been sustained, from any wild animals or birds the right to kill and take which is vested in the landlord or anyone (other than the tenant himself) claiming under the landlord, being animals or birds which the tenant does not have permission in writing to kill"; and, secondly, from any hunting activity where the landlord and not the tenant is able to give permission for hunting to take place across the land which is the subject of the tenancy".

In those circumstances, subject to compliance with subsection (2) of the clause, the tenant may be entitled to compensation from his landlord for damage. Subsection (2) specifies the conditions for qualifying for a damage payment; that is: notice in writing within one month after the tenant became, or ought reasonably to have become, aware of the occurrence of the damage; a reasonable opportunity to inspect the damage—

1. (i) in the case of damage to a growing crop, before the crop is reaped, raised or consumed, and
2. (ii) in the case of a damage which has already been reaped or raised, before the crop is removed from the land; and
3. (c) notice in writing of the claim, together with full particulars, within one month of the year in respect of which the claim is made".

Finally subsection (3) qualifies subsection (2) as follows: seed once sown shall be treated as a growing crop whether or not it has germinated". The definition of a year is given under the paragraph (b).

Under subsection (4) it is provided that: The amount of compensation under this section shall in default of agreement made after the damage has been suffered be determined by arbitration under this Act".

We feel that the Bill omits that important aspect of relationships between a farm business tenant and his landlord, and that some attempt should be made during this stage of the Bill to discuss the matter. I hope that the new clause will enable the Committee to have that discussion. I beg to move.

5.15 p.m.

Lord Mountgarret

I hope that my noble friend will consider seriously accepting the amendment. It seems to be entirely fair. I believe that I am right in saying—no doubt I shall be corrected if I am wrong—that under the Agricultural Holdings Act 1948 tenants are entitled to compensation for game damage. It is right that there should be a similar provision in the Bill. If a tenant does not wish to make any claim for game damage, that is up to him. If the tenant is upset by the hounds and the hunt going over his land, it is a matter between the tenant and the landlord. If the landlord wants to see the tenant right on that, that is fine, otherwise the tenant may come to some arrangement with the hunt. As I say, it is only fair, and I hope that my noble friend will go some way towards accepting it, if not immediately, before the Bill leaves this place.

Earl Howe

I am grateful to the noble Lord, Lord Gallacher, and to my noble friend for their remarks. The new clause proposed by the noble Lord, Lord Gallacher, seeks to address what we all appreciate can be an unfortunate problem which a tenant of a landlord who has reserved the shooting rights to himself (or perhaps vested them in some third party) may from time to time suffer. In respect of game damage, the clause has been modelled closely on Section 20 of the 1986 Act, but it has been extended to deal also with any damage to crops caused by a local hunt.

The question we have to decide is whether the Bill should provide for such a situation or whether it should be for the tenancy agreement to do so. If the tenancy agreement provides for the tenant to be compensated by the landlord for game damage, Clause 28 will enable any dispute that arises to be referred to arbitration. Where the tenancy agreement provides an alternative dispute resolution procedure under Clause 29, either party may still have access to arbitration under Clause 28 if they prefer.

There is a separate problem with the amendment. Little benefit would be derived from the amendment where land under a diversified farm business tenancy was damaged by hunting activities. The clause deals only with damage to crops. It would not help resolve claims where other damage to a holding was sustained. The clause suffers from, shall we say, a lack of flexibility, and as the industry itself has already been prepared to accept that parties should make their own arrangements for dealing with these matters—an approach which I favour—I hope that the noble Lord will feel able to withdraw the amendment.

Lord Carter

The Minister referred to Clause 28. He said that under the terms of the tenancy, any dispute could be referred to arbitration. Subsection (1) refers also to "under any custom". Will he explain what that means? Will it help cover the point?

Earl Howe

I regret that while the noble Lord was asking his question my attention was occupied elsewhere. I should be grateful if he would ask me again.

Lord Carter

The phrase appears at page 13, line 9. The Minister referred to "the terms of the tenancy" but Clause 28(1) refers to: the terms of the tenancy or under any custom". I presume that means the custom of the country. Would that provision apply to the situation that we have been discussing?

Earl Howe

I am grateful to the noble Lord for pointing out that part of the Bill. It had escaped my notice. I shall take advice and write to him about it.

Lord Gallacher

I am grateful to the noble Viscount, Lord Mountgarret, for his support. The Minister will not complain if I say that his attitude to the proposed new clause is somewhat lukewarm. I understand the reasons why he feels that way about the Bill.

He sought to assure me that what I am seeking in the new clause can be provided for in the tenancy agreement—and, indeed, it can. However, the tenancy agreement may involve hard bargaining between the parties. There may be rivals who wish to be parties to the agreement; in other words, the landlord has a choice. In those circumstances, the tenant whose agreement should include terms relating to damage by game or hunting could find himself the runner-up in the stakes of such a contested agreement. However, if provision appears on the face of the Bill, which is what we wish to see, the tenant's position is considerably strengthened in asking for that to be included in the agreement or in relying on the clause for the protection to which he feels entitled.

The Minister said that the drafting of the amendment was deficient in that it lacked flexibility as regards the buildings. If he had been more than lukewarm about the matter I should have been happy to take it away and include a provision about buildings. However, he has agreed to write to my noble friend regarding the reference made to another part of the Bill, which may or may not have a bearing on this aspect. Therefore, I shall seek the leave of the Committee to withdraw the amendment and indicate to the Minister that at a later stage we may feel disposed to return with a reference to buildings and a firmer intention to warm him up a little as regards his attitude to this clause. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 22 to 27 agreed to.

Clause 28 [Resolution of disputes]:

Lord Gallacher moved Amendment No. 75: Page 13, line 10, at end insert ("under the Arbitration Acts 1959 and 1979.").

The noble Lord said: The purpose of the amendment is to make it clear that the dispute system is to be under the Arbitration Acts and not under the agricultural code in the current agricultural holdings legislation. We accept that Section 31 of the Arbitration Act 1950 makes it unnecessary to include the statement. However, in view of the separate agricultural code of arbitration in Schedule 11 to the Agricultural Holdings Act 1986 and the dairy produce code of regulations, it is important to make it clear to the industry, which has been used to a different code, that it will no longer apply. I beg to move.

Earl Howe

I take the point that the amendment is meant to make it clear which legislation governs the arbitration procedures that are referred to in Clause 28. However, I am advised that it is not necessary to state explicitly that arbitration under the Bill—and this refers also to the arbitration envisaged in Clauses 10 and 19 and Part III of the Bill as well as Clause 28—means arbitration under the Arbitration Acts 1950 and 1979. Incidentally, I believe that there is a misprint in the Marshalled List; it refers to 1959 instead of 1950. The position is that the wording of Section 31 of the Arbitration Act 1950 makes such a reference unnecessary and also that other recent statutory provisions requiring arbitration do not contain any express reference to the 1950 Act. I hope that that explanation has reassured the noble Lord and that he will withdraw his amendment.

Lord Gallacher

I am grateful to the Minister for giving the answer that I had expected. We have achieved some limited purpose in that our comments will be recorded in Hansard, and the fact that the Arbitration Act 1950 is referred to in this and other legislation should suffice. In moving the amendment, we wished to put beyond doubt that this would be the new legislation as regards arbitration. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 28 agreed to.

Clause 29 [Cases where right to refer claim to arbitration under section 28 does not apply]:

Earl Howe moved Amendment No. 76: Page 13, line 42, leave out ("and").

The noble Earl said: The need for this amendment arises because we seem to have omitted a small cog from the machinery for resolving disputes. Clause 28 gives either the landlord or the tenant the right to require that disputes relating to their rights and obligations shall be resolved by arbitration. Clause 29, however, allows the parties to adopt an alternative disputes resolution procedure if they prefer to do so, perhaps in order to save money on costs. Clause 29 also contains certain safeguards: the tenancy agreement must contain a provision for disputes to be resolved by a third party; the third party may not be appointed by the landlord or the tenant alone without the other's consent; and they must either have agreed jointly to refer the dispute to the third party, or one of them must give the other a written notice that he alone has done so. In this latter case, the recipient of the notice then has a period of four weeks within which, if he does not wish to go ahead with this procedure, he may instead invoke the arbitration procedure under Clause 28.

This amendment is needed to ensure that the arbitration procedure under Clause 28 continues to be available, notwithstanding that an attempt has been made to activate the alternative procedure envisaged by Clause 29 in a case where one of the parties wishes to terminate the alternative procedure within the four weeks allowed for him to do so. I beg to move.

On Question, amendment agreed to.

Earl Howe moved Amendment No. 77: Page 13, line 44, at end insert ("and the other has not given a notice under section 28(2) of this Act in relation to the dispute before the end of that period.").

On Question, amendment agreed to.

Clause 29, as amended, agreed to.

Clause 30 agreed to.

Lord Gallacher moved Amendment No. 78: After Clause 30, insert the following new clause:

Section 22. of the Solicitors Act 1974 not to apply

(". Subsection (1) of section 22 of the Solicitors Act 1974 shall not apply to any member of the Royal Institution of Chartered Surveyors drawing or preparing any instrument under this Act.").

The noble Lord said: The effect of the amendment would be to enable valuers and surveyors to prepare agreements for the letting of farm business tenancies of any length. I am advised that the Law of Property Act 1925 requires any lease for a fixed term of more than three years to be by deed. The effect of the Solicitors Act is to make it an offence for anyone other than a barrister or solicitor to prepare deeds.

At present, most agricultural tenancy agreements, which may now offer lifetime security, are prepared by agents who will no longer be able to prepare agreements for fixed terms of more than three years without committing an offence and exposing themselves to a fine. That adds an element of difficulty in cost to the preparation of farm business tenancies.

It is in the interests of the industry that as many agreements for the letting of farm business tenancies as possible are made in writing. The amendment removes one disincentive to that end by making it easier and cheaper to put agreements into writing since there will be no need to refer to lawyers the finalisation of leases for three years or longer.

Without the amendment, the requirement of the Solicitors Act may encourage the parties to use their agents to let on annual tenancies rather than taking a longer-term perspective than might otherwise have been intended. In particular, in regard to smaller parcels of land, the Act may encourage the parties to let without formalising the terms in writing at all, with all the uncertainty that may flow from that.

Agricultural lettings are a specialist subject with which qualified surveyors and valuers may have more familiarity and expertise than some solicitors and so may be more likely to avoid serious mistakes. I warm to that part of my brief. The amendment does nothing to prevent the current practice of referring agreements for complex situations to solicitors with specialist agricultural expertise but does allow for practical, experienced handling of conventional situations. I beg to move.

5.30 p.m.

The Earl of Kinnoull

I declare an interest and I warm to the noble Lord, Lord Gallacher, who moved an amendment yesterday evening which I felt was not in the interests of the Royal Institution of Chartered Surveyors. I am delighted that he has restored his reputation and I warmly support the amendment.

Earl Howe

As the law currently stands, farm business tenancies of less than three years, including tenancies from year to year, could be drawn up by anybody. Farm business tenancies for more than three years could be drawn up both by solicitors and, following the reform of the conveyancing market brought in by the Government in 1985, by licensed conveyancers. There is thus, as a result of these reforms, sufficient competition in the market for this type of service to ensure that landlords and tenants will be able to have their farm business tenancies drawn up at a reasonable cost.

In the case of the medium and longer term tenancies which we expect the Bill to encourage, the farm business tenancy agreement is a very important document for both sides. As with any other important business contract entered into by responsible businessmen, it is essential that the legal details are absolutely correct. There are certain legal prescriptions contained in the Bill which must be adhered to and, where parties have negotiated particular covenants, rights or obligations, it is in their own best interests that the formal tenancy agreement is legally watertight. In that respect there is a direct comparison with commercial business lettings.

I have no wish whatever to cast any aspersions on the widely recognised abilities of members of the RICS, who will have a very important role to play in advising parties during the process of negotiating a farm business tenancy. There is no question about that. But I think it right in the interests of both landlord and tenant that the formal instrument of agreement should be drawn up by a person with suitable qualifications and experience for that particular task.

While I appreciate the sentiments expressed by the noble Lord, I differ from him. I believe that this is a clear instance where legal expertise is warranted and, on reflection, I hope that he will agree.

Lord Hylton

I happen to be a chartered surveyor but I have never practised so I do not think that I have an interest in the matter. It seems to me that the noble Earl has quite failed to understand the point and the thrust of the amendment; namely, that, for a long time, chartered surveyors and valuers have been preparing normal farm tenancy agreements which, while in theory they last only one year, in practice last for a lifetime and in some cases may last for more than one generation. Therefore, they have plenty of adequate expertise to enable them to draw up agreements which may last for two years, three years, 10 years—a short or medium-term contract.

Moreover, they are experienced in very large lettings which may not be of the type envisaged in the Bill. I should have thought that chartered surveyors are perfectly competent and, in my view, it is not always necessary to have a solicitor devoting his legal knowledge to such matters.

Earl Howe

I am grateful to the noble Lord and I take note of what he has said, as he clearly has knowledge of those matters.

I merely wish to convey to the Committee my view that the drawing up of a farm business tenancy agreement presumes a high standard of legal knowledge, not merely relating to the contents of the Bill but a high standard of legal knowledge across the board. I believe that it would be right to ensure that the task of drawing up that agreement rests with someone who is fully at home with the law generally and not simply with property law.

As I understand it, members of the RICS are not able to draw up forms of tenancy other than very short ones. I am not sure why, in this instance, there should be an exception for longer term agreements. I shall reflect on what has been said in the debate but I shall need some convincing that my position is incorrect.

Lord Carter

If that is so, why is the RICS, rather than the Law Society, being asked to draw up the model tenancy agreements?

Earl Howe

It is certainly the province of the RICS to draw up the model agreements because those concern day-to-day matters with which they are familiar. My point is that a legal document in its full state is rather a different matter. I believe that the two points are separate.

Lord Carter

If the landlord and tenant agree to take off the shelf the model clauses which have been designed by the RICS, they must have a solicitor to tell them that it is legally OK; is that right?

Earl Howe

That is as we propose it, yes.

The Earl of Kinnoull

When my noble friend reconsiders this matter, I hope that he will consider other bodies which are equally well qualified, such as the CAAV and so on.

Lord Gallacher

I am grateful for the support that I received from the noble Earl, Lord Kinnoull, and from the noble Lord, Lord Hylton, on the amendment. I am indebted also to the Minister for saying that he is prepared to reflect on the matter and I hope that he may look rather more sympathetically at the thinking behind the amendment.

To the best of my knowledge, licensed conveyancers were introduced because of complaints about the costs of conveyancing in relation to housing. There were complaints that some solicitors were rather expensive in that area and that the work could be done quite well by a qualified body of people who specialise in such transactions.

At this stage I am not advocating that the remit of licensed conveyancers should be extended to this area which is being created by the Bill. It is true that some comparison with business lettings is valid but surely this is a completely new area. While I agree entirely that it is extremely important that in the document to be drafted, the legal details are totally correct. But in my experience, the authorisation of qualified surveyors to undertake such work will not diminish in any way the possibility of incorrectness and, indeed, their reputation stands extremely high in that regard, as was pointed out to me in no uncertain terms yesterday evening.

What worries me—and the Minister did not refer to it—is that, on this side of the Committee, we are desperately anxious that as many as possible of the agreements between landlord and tenant should be in writing. We are against anything which may act as a disincentive in that regard. The new clause may not be an incentive but it is at least an encouragement to tenant and landlord to put their agreement in writing. Indeed, it is for that purpose that the RICS is to publish, as my noble friend persuaded the Minister to admit, a code which will be very important, even to solicitors, in drawing up tenancy agreements of the kind which the Act will require.

Nevertheless, the Minister has promised to reflect on what has been said and we shall do the same. Perhaps, at a later stage of the Bill, we may ask the noble Earl for the outcome of his reflections. But, in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 31, 32 and 33 agreed to.

Clause 34 [Service of notices]:

Lord Gallacher moved Amendment No. 79: Page 15, leave out lines 22 to 25 and insert ("in accordance with the Rules of the Supreme Court relating to service of documents in force at the time of the service").

The noble Lord said: The above amendment seeks to specify in the legislation the manner in which the service of documents is to be handled so far as concerns the Bill. Perhaps I may say at the outset that we are not claiming that we have here an amendment which is particularly perfect as regards its wording. However, we are of the opinion that Members of the Committee may be interested to note the peculiarity of having rules of service which relate only to farm business tenancies. We wonder whether it would be better, by and large, for there to be standard rules of service. The amendment would achieve just that aim.

There are problems with the clause as drafted; for example, what about faxes? My noble friend Lord Carter is an authority on faxes. In fact, I believe that, had he been given his title a few years later, he might have considered a change of name to Lord Fax. In the room that we share, the fax machine spills them out non-stop. When I am acting as my noble friend's underling, I have the responsibility of dealing with them, and the difficulty of not knowing what a fax machine is, let alone how to deal with such an outpouring of paper.

Nevertheless, we have taken the trouble to look up a document concerning the Supreme Court practice and its rules. In those rules, we believe that there are assurances regarding, first, how faxes are dealt with; and, secondly, the rules allow for first-class post. Both those items of information are contained in the rules, a copy of which I have with me.

The amendment is by way of an invitation to the Government to think again on the matter. It is to be hoped that, if they are not able to agree to what we are asking, they will be able to suggest to us an alternative means which may achieve the uniformity of procedures which the amendment seeks and, at the same time perhaps, bring the question of faxes into the Bill somewhere. However much I may deprecate them, faxes are a fact of life and likely to remain so. I beg to move.

Earl Howe

I am grateful to the noble Lord for speaking to the amendment in his customary clear way. I accept that the ideas proposed in the amendment would be helpful to the extent that they would allow for changes in the rules as regards the transmission of documents in the future, instead of prescribing specified delivery methods in the Bill. The Rules of the Supreme Court prescribe how service of a document may be effected for the purposes of court proceedings where the document is not required to be served personally. For example, they include rules governing transmission by fax, as mentioned by the noble Lord.

However, I understand that the rules are fairly complex and may not be easily accessible to, or understood by, the general public, including agricultural landlords and tenants. Indeed, under the current rules, service of a document by fax can only be effected by one solicitor upon another. I therefore have some reservations about whether the amendment would be the best way of achieving the desired flexibility towards accommodating new methods of delivery at some future time.

Having said that, I accept in principle that it may be desirable to provide more flexibility than Clause 34(2) has, as currently drafted. An alternative option to a reference to rules prescribed by some other body might be to set out the principles with which any delivery method should comply, rather than prescribing the precise methods which are permitted to be used. For example, we might consider allowing forms of postal delivery provided that confirmation of delivery can be obtained.

Clearly the question goes wider than just the service of notices for the purposes of the Bill and it is, therefore, appropriate that we should take time to give it proper consideration and consult more widely. I should like to invite the noble Lord to withdraw the amendment for the present, on the understanding that the Government will consider the issue and will initiate further debate on the amendment, or on an alternative proposal, at a later stage in our consideration of the Bill.

Lord Gallacher

I am grateful to the Minister for what he said and for his invitation to me to withdraw the amendment, which I readily agree to do. I was intrigued to be reminded that the Rules of the Supreme Court allow faxes only between solicitors. The previous amendment sought to ensure that only solicitors could undertake such very important legal work. Therefore, that in itself would not be an inhibition. Nevertheless, I do not wish to cavil or quarrel with the noble Earl about such points of detail.

I believe that the noble Earl has said enough to cause me to think that the Government will look at the matter in a constructive way and that they will do something about it, if not in the Bill then at some suitable time. I hope that that, plus the fact that we have had this brief discussion recorded in the Official Report, will be of some value in stimulating the interest of the farming profession in the matter. At the outset, I frankly admitted that we had an imperfectly worded amendment. That gives me additional cause to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 34 agreed to.

5.45 p.m.

Lord Carter moved Amendment No. 80: After Clause 34, insert the following new clause:

("Agricultural Holdings Act 1986: Rights to apply for new tenancy, and good husbandry responsibilities

.—(1) The Agricultural Holdings Act 1986 shall be amended as follows.

(2) In section 36(3) (a), after the word "agricultural", where it first appears, there shall be inserted the words ", or any related ancillary,".

(3) In paragraph 9(2) of Schedule 3, for the words ("in pursuance of any provision of the contract of tenancy, or of any other agreement with the landlord, which indicates (in whatever terms)" there shall be substituted "in pursuance of any obligation imposed upon the tenant under any scheme for the protection or conservation of the environment whether under the national law or the law of the European Union where the scheme in question indicates".

(4) In paragraph 9(2) of Schedule 3, at the end there shall be added— (d) the set-aside of agricultural land.".").

The noble Lord said: In moving the above amendment, I have the first chance to accept the kind words of my noble friend Lord Gallacher, who compared me to a fax machine. If my noble friend means that the fax is quick, correct, thoroughly modern and of immense value to everyone who uses it, then I shall be entirely happy to accept the analogy.

The above is not the only amendment by which we shall be attempting to use the Bill to make some improvements to the Agricultural Holdings Act 1986. In fact, I made mention of that on Second Reading. Although the Government—and, indeed, a number of noble Lords opposite—have said that they wish to draw a line under the 1986 Act, I believe we can all agree that it will be around for some time yet. Many tenancies will be affected by it; for example, there are succession tenancies which will continue for some time. A number of practitioners have drawn our attention to deficiencies in the 1986 Act. The Government now have a chance to make such amendments by using the Bill to do so. I believe that that would be making good use of the legislation.

Therefore, we have drafted the proposed new clause, subsection (2) of which states that, after the word 'agricultural', where it first appears, there shall be inserted the words ', or any related ancillary'". The purpose behind that subsection is that it is often difficult for successors to satisfy the principal source of livelihood test; namely, that the person concerned must have earned his principal source of livelihood from his agricultural work in five out of the past seven years. We know that successors usually do not succeed to holdings until they are in their 30s or 40s, by which time many will have families of their own, and agriculture has not been able to sustain the livelihood of two families. Thus, the close relatives—for example, sons or daughters—who would otherwise be fully eligible to succeed and who intend to farm have to supplement their incomes. That can take a variety of forms but it is usually agricultural or related to agriculture. Indeed, the one that we are all familiar with is contract farming for someone else or, perhaps, carrying out some haulage in the agricultural sector and similar activities.

We feel that the 1986 Act should be amended to reflect the reality of the situation and to ensure that those who are suitable and have succession rights can actually realise them. We would regard that as an improvement in the Act as it stands.

Subsection (3) of the amendment deals with environmental matters. Paragraphs 9(2) and 10(1) (d) of Schedule 3 to the 1986 Act make provision for conservation covenants to protect tenants from the consequences of a breach of the rules of good husbandry. However, the landlord must agree to the covenant either in the tenancy agreement or in a separate written agreement. We feel that tenants should not face such harsh consequences for inadvertent breaches of the rules of good husbandry simply because they have entered into set-aside. I think I am referring to the wrong subsection here. I am talking about subsection (4) which deals with set-aside. The rules of good husbandry are outdated and inconsistent with modern farming methods and in particular with environmental schemes. The rules of good husbandry, the covenants and set-aside are covered in subsection (4).

Subsection (3) also deals with conservation management, set-aside and environmentally sensitive areas. The management agreements which are reached under ESAs could in certain circumstances also fall foul of the rules of good husbandry which are set out in Section 11 of the Agriculture Act 1947. The rules provide that a tenant must maintain a reasonable standard of efficient production as respects the kind, quantity and quality of produce, and must maintain the agricultural unit in a condition to enable such a standard to be maintained in the future. No allowance is made in the rules for conservation management. However, a breach of the rules can give rise to an incontestable notice to quit under Case C of Schedule 3 to the 1986 Act, and also notice to remedy, which can be followed by notice to quit under Case D.

We feel that these proposed subsections are improvements. Perhaps the wording is not absolutely exact and correct but it is an improvement to the existing Act and would affect and help a number of people who will still be bound by the 1986 Act. I should tell the Minister that we shall be making a number of attempts to alter the situation. There is a later amendment down for Committee stage, and another at Report, which seek to use this Bill to achieve improvements to the 1986 Agricultural Holdings Act. I beg to move.

Lord Middleton

I understand what the noble Lord, Lord Carter, is trying to do. I am slightly worried both as regards the proposed subsection (2) and subsection (3) of the amendment. As the noble Lord, Lord Carter, has explained, Section 36 of the 1986 Act lays down the criteria for eligibility of a person who wants to take a succession tenancy on the death or retirement of a relative. Section 36(3) (a) in that Act, as the noble Lord, Lord Carter, has explained, lays down that the person who wants the succession must have worked for at least five years in farming on the holding. The wording is that his livelihood must be, derived from his agricultural work on the holding". The noble Lord wants to insert—if I understood him correctly—after the word "agricultural" that his livelihood must now be derived, from his agricultural or any related ancillary work". I am slightly worried that that widens the position. It is quite right that a landlord wants to have a tenant who has had at least five years experience of farming.

I suppose one could have a claimant for succession who has spent five years sitting behind a counter in a farm shop. I am not sure that that would be acceptable. Therefore I do have that worry as regards the proposed subsection (2) of the amendment. As the noble Lord has explained, the proposed subsection (3) of the amendment refers to paragraph 9 of Schedule 3 to the 1986 Act, and relates to the matters which can be ignored when there is an application for a certificate of bad husbandry. As the noble Lord has explained, where there has been a landlord's consent to carry out practices for the conservation of flora, fauna, buildings or general amenities, those practices can be ignored in assessing whether or not there is bad husbandry.

I believe that the proposed subsection (3) in the amendment has the effect of taking out this element of landlord's consent. I think that consent is necessary, for instance in a case where a tenant wants to take part in a countryside stewardship scheme which, however laudable, might have some effect on the holding. The landlord would certainly like to know about that and would like to be able to give consent, or not give consent, according to the merits of the particular scheme. I shall now describe an extreme case. Under the amendment a tenant could, without the landlord's consent, put down an entire farm to trees to obtain some grant from the European Community. I believe that would create difficulties. I have those worries.

Lord Carter

Before the Minister replies, I should say that I am not sure that on that final point the noble Lord, Lord Middleton, is quite correct, because the wording in the amendment states: in pursuance of any obligation imposed upon the tenant". It is not a matter of anything that is done at the tenant's behest; it is an obligation imposed upon the tenant. The obvious example here is set-aside.

Lord Hylton

I wish to support what the noble Lord, Lord Middleton, said about the proposed subsection (2) in this amendment and the way in which it widens the section about livelihood in the 1986 Act. I believe it could widen it in ways that would be completely opposed to the interests of good estate management. I hope that the Government will resist it, at least on those grounds.

Lord Middleton

I wish to take up the point made by the noble Lord, Lord Carter. The amendment seeks to cut out the words in paragraph 9 of Schedule 3 to the 1986 Act, which state: in pursuance of any provision of the contract of tenancy, or of any other agreement with the landlord". Those words would be cut out. That is what worries me.

Earl Howe

I have listened with great interest to the reasons of the noble Lord, Lord Carter, for wishing to make these amendments to the Agricultural Holdings Act 1986. Indeed I have also listened with care to my noble friend Lord Middleton. I have noted all the points that have been made and I do not doubt that the amendments have been drawn up with some care. Notwithstanding that, however, I hope that the noble Lord and the Committee will not mind if I reply very briefly and in general terms.

Throughout all the discussions leading up to the Bill, we have made it absolutely clear that the new legislation would not be retrospective and that we would not amend the 1986 Act. I am sure that every Member of the Committee could come forward with a list of desirable amendments; I myself would have quite a number of suggestions, but that is not the purpose of the current legislation. We wish to stick with the principle of making no changes that relate to existing tenancies, because that would be the start of a slippery slope. Without questioning the motives or merits of this particular amendment in any way, I think I can safely say that there are many Members of the Committee who would like to alter the provisions relating to succession but in an entirely different direction. In my view, the safest course is to leave well alone. I mean no discourtesy to the noble Lord in not responding to the amendment in detail, but these are matters which in principle we feel should not intrude into the Bill. I hope that the noble Lord will understand our position.

Lord Carter

I can certainly understand it but I do not agree with it. That seems to me an extraordinary statement. We all know from the practitioners what the situation is. For example, under the 1986 Act there was a provision—it is not contained in this amendment, but I refer to it as an example —to require certain regulations to be laid regarding the forms which are used in agricultural transactions. I believe that all those regulations have not yet been laid and the practitioners are having to use old fashioned and out of date forms just because the Government have not got round to improving the Act or to fulfilling their obligations under the Act.

This is a Bill which—as the Long Title states—can be used to improve the 1986 Act. We have checked this out. The Government are saying, "Even if you show us that it is badly drafted, that it is unjust, that it makes omissions and that it is bad law, we do not intend to make any changes to it". That seems to me extremely unfair to the large number of tenants who will spend the rest of their working lives bound by the 1986 Act. Possibly their sons or daughters or their grandsons or granddaughters will spend their working lifetimes bound by the 1986 Act. We do not accept that view and we shall press to change it. Where we are informed and advised by practitioners outside this House that there are weaknesses in the 1986 Act, we shall try to improve them.

On the related ancillary point I accept that the wording is perhaps too wide. The important point is whether we accept the principle. The example that I gave shows that succession is not working as it should because of the way the Act is drafted. If the Act is to be improved to meet the points that were made from the other side of the Chamber —which I accept—we have to decide whether it is the wording or the principle that is at fault. I have already dealt with the point raised by the noble Lord, Lord Middleton, about the obligation imposed upon the tenant.

The Minister and I have an excellent relationship, but for once I have to tell him that I do not find his last answer in the least satisfactory. It is not good government. If it can be clearly shown that an Act of Parliament which governs the livelihoods of large numbers of people includes weaknesses of drafting and an Agricultural Tenancies Bill is before Parliament providing an opportunity to put those right, it is not good enough to say "We are not going to do it. We are drawing a line". That attitude has overtones of a certain triumphalism which we used to see in the party opposite a few years ago. I thought that that had changed, but it seems that in this respect it has not. It is not good enough, and I can tell the Minister that we shall return to the issue. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 35 agreed to.

6 p.m.

Viscount Addison moved Amendment No. 81: After Clause 35, insert the following new clause:

("Conservation: codes of guidance

.—(1) The Ministers shall, from time to time, after discussions with such interested persons or bodies as they consider appropriate, prepare codes of guidance to local authorities, the Ministry of Defence, the Crown Estate and other Government Departments or public bodies which own or occupy agricultural holdings to which this Act applies, containing advice and information relating to the conservation of flora and fauna.

(2) In this section "the Ministers" means the Minister for Agriculture, Fisheries and Food and the Secretary of State for the Environment acting jointly.").

The noble Viscount said: The proposed new clause in Amendment No. 81 will require Ministers to issue a code of guidance to local authorities, the Crown Estate and government departments which own agricultural holdings.

The proposal is intended to ensure that advice and information is available to county councils and other public landlords to guide and encourage them to include specific management practices which are likely to benefit nature conservation when drawing up farm business tenancies under the Bill.

County councils in England and Wales own more than 360,000 acres, involving more than 5,400 tenants, on agricultural land much of which is of potential value for wildlife. Since modern farming practices driven by financial incentives have caused the decline of once common plants and animals it is essential that, where possible, opportunities are created to reverse the declines in wildlife.

Many county councils are already conscious of the need to include conservation practices in tenancy agreements. Indeed, the Association of County Councils together with the Association of District Councils support my proposed new clause. The provision of guidance encapsulated in the amendment will assist county councils in deciding the type of management practices which should be agreed upon with new farm business tenants.

Perhaps I may illustrate that with an example. The Committee will be aware that the use of pesticides and herbicides has resulted in the decline of wild flowers, including shepherd's needle, corn buttercup and corn marigold. Similarly, game birds, including grey partridge, have suffered enormous declines due to the lack of wild food, including leaf beetles, weevils and sawfly larvae, which have disappeared due to crop spraying. Research by the Game Conservancy has shown that avoiding the use of chemical sprays along field margins and headland creates a mini-habitat for invertebrates and wildlife higher up the food chain, particularly for birds.

The county councils could therefore include specific clauses in a farm business tenancy along the lines of the following: requiring tenants to trim hedges every other year and keep to a maximum height of 2 metres; not to spray within a metre of hedgerows or "beetle banks"; to create a six metre conservation headland at the edge of a crop.

Of course the code of guidance proposed in the new clause should not have to contain such detail, but the guidance needs to indicate the desirability of having specific conservation clauses written into tenancy agreements in order to reverse the declines in wildlife.

Similarly, the government guidance could include advice to county councils on the benefit of setting conservation objectives and targets for the life of a farm tenancy. That would encourage county councils to include specific clauses which provide, for example, that the length of hedgerow shall be increased by 20 per cent., or that unworked land in field corners should be planted with woodland trees or shrubs.

My proposed new clause indicates that the code of guidance should also apply to the Crown Estate, Ministry of Defence and other government departments which own agricultural holdings.

For completeness, the new clause includes the definition of "the Ministers" to mean the Minister for Agriculture, Fisheries and Food and the Secretary of State for the Environment acting jointly. I commend the clause to the Committee. I beg to move.

Lord Carter

I was very glad to add my name to the amendment. As the noble Viscount has moved it so clearly I can be brief.

Perhaps I should declare an interest as a tenant of the Ministry of Defence, which tends to carry out conservation obligations despite all the difficulties involved with military training.

The amendment contains an excellent suggestion for a code of guidance. If the public sector cannot give the lead on such matters, who can? I hope that the Minister will be able to accept the amendment.

Earl Howe

I am grateful to my noble friend for introducing the amendment. However, I confess that I am still a little unclear as to how the amendment relates to the Bill.

As I have mentioned in earlier debates, the Bill provides much greater opportunities for landlords to draw up tenancy agreements in which environmental aims are furthered. However, I am not sure that it is appropriate in this context to require the preparation of guidance containing general advice and information on conservation matters aimed only at public bodies. I should have thought that the furtherance of conservation objectives by private landlords was, if anything, even more important than by public landlords because of the greater area that they occupy.

More importantly, I am unclear as to what new advice or information the guidance is supposed to contain. I say that because guidance on environmental matters is not in short supply. For example, MAFF itself publishes separate codes of good agricultural practice for the protection of air, the protection of soil and the protection of water. It also produces numerous booklets on good upland management, straw and stubble burning, heather and grass burning, farm waste, nitrates, pesticides and various other conservation-related matters. All of those items are available free of charge to public bodies as well as to the general public. Therefore, for the moment I need a little more persuading that there is a gap in the guidance which we already issue that needs to be filled by imposing a requirement such as that envisaged in the amendment.

Of course, if it is the case that what is envisaged should take the form of some new obligations rather than advice then that would give rise to different questions about whether such obligations were appropriate and whether they could be applicable to all the cases in which they would apply. However, my understanding is that the amendment does not propose such obligations.

I should perhaps add that the Royal Institution of Chartered Surveyors has begun work on preparing guidance for general use by all in the agricultural industry on matters which may be covered by agricultural tenancy agreements. I hope and expect that such guidance would include a section on environmental matters, which may help to fill the need perceived by my noble friend.

I invite my noble friend to reflect on what I said and to consider what the objectives of any guidance would be and whether he therefore still believes it is necessary for it to be mentioned in the Bill.

I hope that my remarks have not been entirely negative. They are meant to be constructive, in response to the concerns that my noble friend expressed. I hope that he will feel reasonably content to withdraw the amendment.

Viscount Addison

I thank my noble friend for his reply. The intention is really more to stimulate advice rather than to be too objective.

Will my noble friend the Minister give his formal approval to the guidance being drawn up by the agricultural industry working party in the same way as ministerial approval was given to the NFU guidance on straw burning?

Earl Howe

We have yet to see it. I am sure that we shall wish to pass comment if there is some matter in the guidance which we believe should be amended. But, clearly, we have always said that any forms of guidance prepared by the industry bodies in a responsible fashion, as of course they will always do—I cite model clauses as another example—are matters the Government warmly welcome. I am sure that we shall be in a position to welcome the guidance when it emerges.

Lord Stanley of Alderley

Perhaps I may intervene. I have referred to guidance previously. Such information will give us guidance on what we should consider before we enter into a tenancy. Is there any chance of our seeing that guidance before the Bill leaves the House?

Earl Howe

My understanding is that the work is fairly far advanced. However, I believe that it will be touch and go as to whether we shall see the finished version before the end of January which is when the Bill is scheduled to leave this House. I believe that some publication should emerge relatively early in the spring.

Viscount Addison

I thank the Minister for his reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 36 [Interpretation]:

The Deputy Chairman (Baroness Serota)

In calling Amendment No. 82, I should point out to the Committee that if this amendment is agreed to, I cannot call Amendments Nos. 83 or 84.

Lord Carter moved Amendment No. 82: Page 17, line 9, leave out from ("includes") to end of line 14 and insert ("the breeding and keeping of animals and the growing and harvesting of plants to gain income from those animals or plants, their products and derivatives and associated environmental benefits and includes fallow or other set-aside arrangements and any activity coming within the scope of the Common Agricultural Policy of the European Union, and 'agricultural' shall be construed accordingly.".

The noble Lord said: In moving the amendment, I shall also speak to Amendments Nos. 83 to 86. The amendments are all in connection with the definition of agriculture. The definition which appears in Clause 36 is the one with which we are all familiar. It arose in the 1947 Act and has been used continually in Acts of Parliament concerning agriculture ever since. The department more or less admits that every time an Act of Parliament involves agriculture, it ducks away from the chance to introduce a new, more modern definition.

The chance now arises in this Bill. We admit immediately that if we were to change the definition in this Bill it would apply only to farm business tenancies. But at least it would provide a lead so that as other agricultural Bills were produced over time we could use the more updated definition.

We know from our discussions yesterday that the new farm business tenancies do not have to meet the agricultural conditions in the Bill. Despite that, we shall still seek to persuade the Government to adopt a more up-to-date definition of agriculture. The obvious omission from the existing definition in the Bill is arable cropping. I do not know off the top of my head how many acres are involved in arable cropping in this country. The figure runs into several millions—perhaps 9 million or 10 million. But that aspect is omitted from the definition of "agriculture". We can all relax. There is no need to worry about osier land because that is referred to in the definition. I simply illustrate the absurdity.

We were told yesterday that horse grazing is agricultural but horse keeping is not. While the horses are grazing they come within the definition of "agriculture" but if one puts out feed for them or saddles them up, it is a non-agricultural activity. That is daft. It is time we had a look at the definition to see whether we can improve it.

The existing definition comes from the 1947 Act. We know that this Bill intends to establish the tenancy system for the indefinite future. Perhaps that is not as indefinite as some Members of the Committee might like to think. But it is time that the definition was revised to take account of the major changes that are under way or which may take place. I cite one example. The farming of sheep for medical products seems to lie outside the express examples which are given of agricultural use in present law. Energy crops such as miscanthus are not obviously included. Does willow for biomass have to be considered as an osier bed to fit within the definition of agriculture?

The approach taken in the amendment is to define "agriculture" from first principles rather than to revise the present list. The amendment makes clear that agriculture is a commercial activity that is based on animals and plants although that may be a means of delivering environmental objectives.

I suspect that the Government will argue that it is important to maintain a stable definition consistent with those used in planning, rating and other areas. However, the proposed definition can be used only in this Bill on farm business tenancies. It is important to recognise the evolution of the industry and not permanently to defer the issue. In any event, the Government have themselves slightly altered the definition by deleting the last phrase of the present definition of livestock, or the carrying on in relation to land of any agricultural activity".

There is the problem of set-aside. It is not covered by the definition. We have been told that we should ask the Minister whether he regards fish farming as "agriculture". I have a long brief from the Agricultural Law Association which I shall not read to the Committee. It helpfully points out the four areas at which we should be looking. I say immediately that I am entirely happy for the Government to take the matter away and return with their own version. The amendment is a genuine probe to see whether we can improve the definition as we go through the Bill.

The four areas that the Agricultural Law Association believes should be considered in any redefinition refer to new activities in agriculture. I have mentioned some. Others appear in other amendments in the group. Clarification is sought of the grey areas which we all know exist. I have referred to horse grazing and horse keeping. The problem of diversification of agriculture has been referred to a number of times. The Minister has stated that one of the objectives of the Bill is to encourage the diversification of agricultural activities. That is not caught by the present definition. Above all, there is the simplification of the definition.

It may be easier to move away from the definition we have put forward to simpler definitions of principles. I understand the problems of the Government. The parliamentary draftsman always says, "If you have a list, you will leave something out". For that reason we have not moved from the definition since 1947. That does not seem to be an improvement. There is scope for improvement and for bringing up to date the definition with which we are all familiar. In that spirit, with the intention of helping the Government and the industry to have a more modern definition, I beg to move.

6.15 p.m.

The Earl of Kinnoull

It may be for the convenience of the Committee if I speak to Amendments Nos. 83 to 86 which stand in my name. The noble Lord, Lord Carter, put the matter clearly. We are looking for a modern definition of "agriculture" in the Bill. I had hoped that after 82 amendments—my noble friend has accepted only one amendment in his name—that the three amendments in my name might have been accepted. However, I was discouraged when I read the notes on clauses because they state what I suspect my noble friend may say, namely, that the definition—the noble Lord, Lord Carter, says that it comes from the Agriculture Act 1947 and the 1986 Act —is a non-exhaustive definition. I am not sure what that means. However, it is stated that any amendment might call into question the meaning of the term "agriculture" wherever it is used in statute law. It is a fairly depressing thought that we can never alter or modernise the word "agriculture" in a new Bill which we hope will involve many new entrants into farming.

My amendments concentrate on areas of what I term non-agricultural uses which are coming more and more into play in agriculture. Amendment No. 83 refers to, the growing of crops for the production of fibres, fuel or for other industrial purposes". Amendment No. 84 refers to, leisure purposes and environmental preservation and enhancement according to national policies". Amendment No. 86 refers to "transport or leisure purposes".

I shall not go into great detail. I say only that with regard to the amendment in the name of the noble Lord, Lord Carter, I am not happy with the suggestion of linking the amendment with the common agricultural policy of the European Union. That policy may well change.

Earl Howe

I am not unsympathetic towards the aims of the amendment as so ably explained by the noble Lord, Lord Carter. I accept that even the most hallowed definition of anything can benefit from occasional clarification or updating. My remarks which follow will be relevant also to the amendments tabled by my noble friend Lord Kinnoull.

There are unfortunately two main problems with the amendments. First, Clause 36 sets out the definition of agriculture for the purpose of this Bill only. It is not within the scope of this clause or, I submit, of the Bill, to amend the definition of agriculture in all the other myriad places where it appears on the statute book. In any case, to seek to do so would raise many and complex issues which would require a great deal of time to consider and debate properly. That is not to say that I would not enjoy a debate of that kind, but, that being so, we could only amend the definition for the purposes of this Bill. We would then create a situation where one definition of agriculture applied for the purposes of the Bill while another definition applied for all other statutory purposes. That seems to me a recipe for confusion rather than clarification.

My second objection is this. It is a lesser objection, but even so I shall explain it. Not all the proposed additions which the noble Lord included would fall appropriately within the definition of agriculture. To take the example of set-aside land, there was a provision under the five-year set-aside scheme (though not under the current Arable Area Payments Scheme) for land to be set aside to a non-agricultural use. Some farmers converted land to golf courses, for example, under that scheme. In my view, it would be wrong to redefine agriculture so that those golf courses came within the definition but other golf courses obviously did not. Nor is the growing of plants to gain income a concept that is obviously agricultural, since it would embrace all commercial forestry, for example.

The draftsman who drew up this definition of agriculture, which I believe dates from the Agriculture Act 1947, had the wisdom and foresight to make it an inclusive definition. That is, it does not rule out activities as being agricultural simply because they are not mentioned. For that reason, the definition is a flexible one and can adapt to changing circumstances. Just as I do not imagine that there was ever any doubt that arable land—which the noble Lord cited as an example—was agricultural, despite not being mentioned, so it seems equally certain that land left fallow—whether as part of a traditional rotation or under a set-aside scheme—would also qualify. I am not saying that the present definition could never be improved upon, but merely that I see no pressing need to do so at this time and for this Bill only.

The Bill allows considerably more scope than the present legislation for tenants to diversify their activities into non-agricultural areas without the nature of the tenancy being called into question. It is partly for that reason as well that I see no additional need to extend the definition of agriculture, particularly if it would lead to a discrepancy between this Bill and other legislation as to what was and what was not agricultural.

I am sorry that I have sounded so negative, especially as I am not unsympathetic to what the noble Lord is trying to achieve, but I hope that once again he will be not unsympathetic to the arguments that I have put forward.

Lord Carter

I am extremely unsympathetic, but not in the least surprised. I expected that to be the answer that the Minister would give and I said that we realised that, even if it is not in this Bill, we must start somewhere. We must change the definition and I suppose it could be achieved in all the relevant Acts by a miscellaneous provisions Act, that might be a route to use. I believe that we all agree that it is silly that we have a definition of agriculture which includes seed growing and excludes the 9 million acres of cereals and 1 million acres of oil seed rape that we grow. However, so be it.

It seems to me that the Minister's answer is like the remark of St. Augustine. He said that he was prepared to accept chastity, "but not yet". This comes in that category. We might try again, I know that the draftsmen always say the same thing and we are always given the same answer, it has been tried with other Bills. We have a definition for a modern industry which is out of date; we all accept that, but the Government seem to be content with it. It is a pity, I wish that we could convince them.

We might attempt to return with an amendment at Report stage which is simple in terms of principle. It might serve as guidance in other later Bills. However, obviously we shall get no further today and so I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 83 to 88 not moved.]

Clause 36 agreed to.

Clauses 37 to 39 agreed to.

[Amendments Nos. 89 and 90 not moved.]

Schedule [Consequential amendments]:

Lord Carter moved Amendment No. 91: Page 19, line 37, leave out paragraph 6

The noble Lord said: The amendment's effect is, in the interests of the industry's flexibility, to put farm business tenancies on the same footing as business tenancies as regards the ability to assign leases. We have already touched on the point, but it is worth returning to it.

In farm lettings against assignment there has traditionally been a bias. The more commercial approach of the farm business tenancy calls for that to be challenged, while the emergence of more fixed term tenancies makes it an essential flexibility to overcome the problems which can arise as a result of being locked into a fixed term lease. It is in line with the modernisation and increased commercialisation which the Government wish to see in the farm business tenancy. The landowner has the option of selling his interest. The amendment is designed to encourage a more open attitude towards assignment as a cultural change in land management. It does not give the tenant an automatic right to assign.

A practical example of a situation where assignment could be useful is where a tenant dies or becomes incapable of farming halfway through a fixed term lease and has no one who can carry on. He can be held to that lease until its expiry. Some ability to assign gives a solution to the problem. Other examples are: attracting specialist skills into a diversification or ensuring its future when successors in the farming business are no longer interested; or enabling a tenant who is making his way up the farming ladder to win a new farm in the knowledge that he can assign his interest in his current farm and so avoid overstretching his resources.

The underlying legal situation is that tenancies are assignable unless stated otherwise. Almost all written agricultural tenancies include that prohibition. Then there is the question that I think I asked on an amendment yesterday and I am not sure that the Minister answered me: does an unwritten agreement under this Bill which is caught by the farm business tenancy have the same common law effect if it becomes assignable? I am aware that unwritten tenancies under the existing law are assignable and when the tenancy is reduced to writing that is almost invariably removed. Is the situation the same with an unwritten farm business tenancy? There is the implied right to assign which would be lost, presumably, if the tenancy were reduced to writing. It is an interesting legal point and it would be helpful if the Minister could deal with it.

The relevance of Section 19 of the Landlord and Tenant Act 1927 in this context is that, where an agreement states that a lease may not be assigned without consent, that consent shall not be unreasonably withheld. We had that point earlier today. Accordingly, it is not seen as appropriate to carry forward that exclusion from the Landlord and Tenant Act 1927 and it is not seen as a proper consequential amendment.

What we are really saying with the amendment is that, if we are to have—and some of us have argued against it—all the factors of the farm business tenancy, making it become much more like a commercial tenancy agreement, then we should have the same rights in that agreement as already exist in the normal business tenancy. I beg to move.

The Earl of Kinnoull

If one were to pursue this amendment—I hope that that is not the intention—can the noble Lord, Lord Carter, say what protection the landlord would have against the tenant assigning to someone not qualified to farm?

Lord Carter

The consent of the landlord is required on the understanding that the consent should not be unreasonably withheld. It would be entirely reasonable to withhold it if it were clear that the person to whom the tenancy was being assigned was an unsatisfactory tenant.

6.30 p.m.

Earl Howe

I am grateful to the noble Lord for introducing what is a rather technical amendment in his customary clear fashion. We considered earlier today the question of landlord's consent for tenant's improvements. The arguments which I used then apply equally to landlord's consent to assignment and change of user where no structural alteration to the premises is involved. In the latter case, because a farm business tenancy will usually comprise more land than it does buildings, significant changes of user can take place without structural alterations. Such changes might have a significant effect on the landlord's interest.

As the noble Lord mentioned, the question was raised yesterday of what the position is on the tenant's right to assign a tenancy held under an oral agreement, and I undertook to write to the noble Lord. However, it may be convenient if I answer the point now. The tenant has the right to assign the tenancy if the tenancy agreement does not contain a provision which prevents him from doing so. Since oral agreements by their nature are unlikely to include—or at least to be shown to include—such a provision, the tenant will normally have the right to assign them. The important point, however, is that where a tenancy agreement does contain such a provision, it should be allowed to have effect and not be overridden. That is why the Agricultural Holdings Act 1986 and the Bill which we are considering today both disapply Section 19 of the Landlord and Tenant Act 1927 in relation to agricultural tenancies.

We must give landlords the confidence to let land and the best way of doing that is by ensuring that their interests are not overlooked. That is not the same as creating a bias in favour of landlords, as the noble Lord sought to suggest. To remove their control over whether or not the lease is assigned, which is what this amendment would do, would give rise to understandable concerns and would deter letting. That is the central point. I therefore hope that the noble Lord will not press his amendment.

Lord Carter

I am not surprised by the answer. We have had a useful discussion. It is very interesting to have it confirmed that oral agreements under the Bill relating to farm business tenancies will have in them the implied right to assign. That will increase interest in the possibility of unwritten agreements, which might not be what the Government want or indeed what any of us wants. As a tenant, I would be only too keen to enter an oral agreement if I had the right to assign it. I am not a lawyer but I believe that the Government cannot override this as it is part of common law. It is an interesting admission. It will be looked on with interest and may well increase the attraction of unwritten agreements under the Bill which I suspect will make for neither good order nor good practice. Obviously, this is a question on which I shall have to take advice. I shall read what the Minister said with great interest. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carter moved Amendment No. 92: Page 27, line 15, leave out paragraph 26.

The noble Lord said: In moving this amendment I shall also speak to Amendments Nos. 93 and 94. These amendments are very simple in that they employ the usual device in seeking to leave out a paragraph to enable the Minister to put clearly on the record what particular paragraphs mean. I believe it will help us to understand the degree of protection or otherwise which the Government are prepared to give to the occupants of farm houses—the tenants—as a result of the operation of the Bill. We merely ask for the paragraphs to be left out as a probe to give the Minister the chance to tell us how much or how little protection the Government are giving to farm tenants under the Bill in the occupation of their residence. I beg to move.

Earl Howe

I hope that I can be of assistance to the Committee. The Rent Act 1977 deals with protected tenancies of dwelling houses. The position is that houses comprised in an agricultural holding are not included in the definition of a protected tenancy and are outside the scope of the Act. As the Act has now been replaced by the Housing Act 1988, in the case of most tenancies entered into on or after 15th January 1989 the chances of a farm business tenancy coming within its scope are pretty slim though I accept that it is possible. However, as I made clear when we discussed Amendment No. 13 yesterday, dealing with residential farm business tenancies, we do not want to discourage landowners from letting houses.

Where Part III of the Protection from Eviction Act 1977 applies, if a tenancy of a dwelling-house comes to an end but the occupier continues to reside in the house, the owner must use court proceedings to recover possession. As a farm business tenancy may comprise a very large business as well as the house, it is reasonable that landowners should, as a last resort, be able to make use of common law rights of entry where appropriate.

Finally, Section 11 of the Landlord and Tenant Act 1985 deals with repairing obligations of landlords in short leases of dwelling-houses. As I explained yesterday, we would expect parties to a farm business tenancy to make their own arrangements for repairs which would apply to the whole holding.

We do not want special provisions in respect of houses. I should also like to point out that none of these provisions applies in relation to tenancies covered by the Agricultural Holdings Act 1986. I hope that that point in itself will commend what I have said to the noble Lord as he seems keen to follow the precedent of the 1986 Act. I would urge him to do so in this particular case and I hope that he will be content with the explanation that I have given.

Lord Carter

I am grateful to the Minister. I shall certainly wish to read the explanation and I shall of course withdraw the amendment. Perhaps the Minister can confirm the point that none of this changes the situation which was drawn to the attention of the Committee yesterday by my noble friend Lord Gallacher. My noble friend said that at the end of the tenancy the farmer will have less protection in his house than will the farm workers on that same farm. It is a situation to which we shall certainly wish to return at a later stage of the Bill. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 93 and 94 not moved.]

The Deputy Chairman

In calling Amendment No. 95, I should explain to the Committee that there is a mistake in the Marshalled List. A section of an earlier amendment has been wrongly included. Sub-paragraphs (2), (3) and (4) are incorrectly included and should be deleted.

Lord Carter moved Amendment No. 95: Page 28, line 27, at end insert:

("The Agricultural Holdings Act 1986 (c.5)

1. In paragraph 6 of Schedule 6 to the Agricultural Holdings Act 1986 (occupation to be disregarded for the purposes of occupancy condition) there shall be added to the end of sub-paragraph (1)— , or

1. (g) under a farm business tenancy within the meaning of the Agricultural Tenancies Act 1995 granted for less than five years.

The noble Lord said: Perhaps I may make it absolutely clear that the mistake was not in the drafting amendment. Apparently it was due to a computer glitch somewhere in the Public Bill Office which somehow lifted sub-paragraphs (2), (3) and (4) from a previous page and deposited them at the end of Amendment No. 95. To make it clear to the Committee, Amendment No. 95 ends with the word "years" at the end of sub-paragraph (g). The paragraphs listed below have nothing to do with it.

I can deal with the amendment fairly briefly. Again, it is an attempt to amend the Agricultural Holdings Act 1986. I hope that the Minister will not give me the same answer he gave earlier. The succession procedures under the Agricultural Holdings Act 1986 depend upon the applicant passing a number of tests, one of which relates to the scale of his present business. In assessing this, the present law disregards all land that is held under Gladstone v.Bower tenancies for up to two years and short lets approved by the Ministry of Agriculture which cannot be for more than five years.

The purpose of the amendment is to carry forward the present practical position so that, for example, someone with 100 acres held under a Gladstone v.Bower tenancy this year would not lose his opportunity to gain succession by holding the same 100 acres next year on an 18-month farm business tenancy under the terms of the Bill. We have had the industry agreement referred to a number of times. This amendment has been suggested by the NFU. One of the obvious uses of the farm business tenancy (I have already referred to it a number of times) is to regularise the number of cases—the situation with share fanning, with contract farming and with Gladstone v.Bower arrangements. There seems to be a flaw which, were it not picked up and corrected, would mean that the incentive to switch from a Gladstone v.Bower tenancy to a farm business tenancy could be reduced. I beg to move.

Earl Howe

I cannot help wondering whether the amendment, as printed, is the product of a fax. My fax machine tends at intervals to spill out unsolicited garbage in large quantities. I would therefore not wish to associate myself wholly with the comparison that the noble Lord's noble friend—

Lord Carter

So that is the argument the noble Earl uses when he is debating the problem!

Earl Howe

I hope not. I am grateful for the noble Lord's explanation of the purpose of this amendment. There appears to be a case for allowing short farm business tenancies to be excluded when determining whether or not a farmer already occupies a commercial unit of agricultural land. I shall consider this point further. I hope that the noble Lord will be content to withdraw the amendment on the basis of that assurance.

Lord Carter

That is a U-turn within half an hour! The noble Earl said earlier in relation to another amendment that the Government would not consider any changes to the Agricultural Holdings Act 1986, but when we produce an amendment that is sensible the Government are prepared to accept it. There will be many other examples of that at later stages of the Bill. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule agreed to.

House resumed: Bill reported with amendments.