HL Deb 23 January 1995 vol 560 cc862-9

3.7 p.m.

Report received.

Clause 1 [Meaning of "farm business tenancy"]:

Lord Carter

moved Amendment No. 1: Page 1, line 10, after ("conditions") insert ("or the agricultural condition"). The noble Lord said: My Lords, in moving Amendment No. 1 I shall speak also to Amendments Nos. 2 and 3. With this group of amendments we return to the interesting discussion we had in Committee on the definition and the nature of a farm business tenancy proposed under the Bill. In Committee we discovered the extraordinary irony that the Government have succeeded in producing an Agricultural Tenancies Bill in which the new agricultural tenancy does not have to meet the agriculture condition. With this group of amendments we hope to put that anomaly right to some extent and also to deal with the real concern expressed in Committee and outside the House about the need to put the essential terms of the farm business tenancy in writing.

I say immediately that it is clear from the amendments that we are not attempting to change the fact that there are three conditions in Clause 1 of the Bill; the business condition, the agriculture condition and the notice condition. We accept that, but we believe that the amendments and the argument I shall be developing turn round the Government's approach to one which we believe is more sensible.

We suggest that there should be an obligatory notice in writing—the notice conditions in the Bill are optional—which will also set out the terms of the tenancy. We propose no restriction on those terms. This is not a prescriptive amendment, to use the phrase which the Minister constantly deployed in Committee. We do not propose any restrictions beyond those already in the Bill.

Having established that the obligatory notice shall be in writing and set out the terms of the tenancy, then either the business or the agricultural conditions can be fulfilled. At this stage we accept reluctantly, although we may wish to come back to the issue at Third Reading, the extraordinary idea developed in Committee which the Government appeared to be entirely happy with; namely, once a farm business tenancy, always a farm business tenancy. I believe that we all agreed, including Members of the Committee on the other side of the Chamber, that it was odd that once a farm business tenancy had started then, no matter what happened afterwards, one remained in that circumstance. The example we had was the farm which became a golf course with a small field and four chickens in it, although it still remained a farm business tenancy.

The idea of the obligatory notice in writing is not new. Perhaps I may quote from the Housing Act 1988, Chapter II, Section 20(2), as regards an assured shorthold tenancy. It states: The notice referred to in subsection (1)(c) above is one which—

  1. (a) is in such form as may be prescribed;
  2. 863
  3. (b) is served before the assured tenancy is entered into;
  4. (c) is served by the person who is to be the landlord under the assured tenancy on the person who is to be the tenant under that tenancy; and
  5. (d) states that the assured tenancy to which it relates is to be a shorthold tenancy".
There is not a great deal between that proposal and what is already in the Bill which I am not attempting to amend except in one important respect. We suggest that the notice should set out the principal terms of the tenancy.

Perhaps I may deal with the notice having to be in writing. At Committee stage we were all unclear about the oral agreement. For reasons which I understand, the Government believe that if they require all farm business tenancies to be in writing, people will make oral agreements in order to get round the Bill. The noble Earl kindly agreed in Committee to write to me to explain the situation and that he did.

Without in the least wishing to comment on the opacity of the noble Earl's letter, which I am sure he had some help in drafting, I believe, having read it four times, that I am now beginning to understand what it says. Perhaps we may make sure that we all understand it. There was a lack of clarity and understanding throughout the Committee.

In the letter the noble Earl says: As I said in the debate, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides that a contract for the sale or other disposition of an interest in land"— and obviously a tenancy is an "interest in land"— must be in writing. Short leases are excluded from this provision. A short lease is a lease for a term not exceeding three years at the best rent that can reasonably be obtained without taking a premium". The noble Earl was careful in Committee to say that the Bill would not remove agricultural tenancies from the normal law of property. As I understand it, the only oral agreements then can be short leases, provided that that is a correct understanding of the letter. It will be extremely helpful to the House if it is made clear whether oral agreements apply only to leases of less than three years.

Amendment No. 3 states that the notice condition should set out, the terms of the proposed tenancy". In Committee on 12th December, at col. 1133 of the Official Report, the Minister said, It is no part of a deliberately simply and streamlined Bill"— and the Bill is certainly that— to write in provisions about deemed covenants for oral agreements. It is for the parties to decide what conditions and arrangements should apply in respect of their agreements, whether written or oral in nature. It is not for the Government to do so. The whole point of the Bill is to allow the parties to an agreement maximum freedom to decide on the terms which suit them best". As always, having read that and having been persuaded by the eloquence and oratory of the noble Earl, we have accepted that point. We have allowed the two sides to state what the tenancy should be in the notice conditions. Having agreed what they are, they should at least be set out in the notice.

Clause 13(2) deals with arbitration. We also return to the phrase, "the terms of the tenancy", where the arbitrator has to take into account all the relevant factors. There will certainly be discussion about that in later amendments. Those factors include in every case the terms of the tenancy. The phrase to which I have referred is already in the Bill. We have taken it from there and put it into the notice condition.

In the next group of amendments we shall be dealing with the need for guidance. Under the terms of the tenancy that could be part of the non-statutory guidance. I emphasise that we are proposing a very simple and not over-prescriptive approach. If the landlord and tenant wish to set up a farm business tenancy they exchange notices which are obviously in writing. They say that they intend to do this or that. The notice will include the main terms of the tenancy and, as I say, it is entirely up to the parties to decide what the terms are.

In Clause 1(4) (a) (i) the notice shall identify, the land to be comprised in the proposed tenancy". So there is already one term of the tenancy in the Bill. That having been achieved, the tenancy agreement is signed. As long as it either fulfils the business or the agricultural condition, there is a farm business tenancy. If the oral agreement for a term in excess of three years has to be in writing under the Act which I have quoted, and if the agreement is for less than that period, it is highly unlikely that the landlord and tenant will exchange a written notice and then have an oral agreement. But if they do so—and we have not attempted to change it in the Bill —and if our amendments are accepted, provided the oral agreement fulfils either the business or agricultural conditions there will then be a farm business tenancy. If the oral tenancy is for over three years that will be left to the courts in any event, which is the case at the moment.

We have come a long way to meet the Government. We have accepted the three conditions; namely, the notice condition, the business condition and the agricultural condition. But we have altered their order of importance. We ask the Government to consider that the notice condition should be the obligatory one in writing with the terms of the tenancy as decided by the landlord and tenant. Then, as long as the tenancy in practice fulfils either the business or agricultural condition, there will be a farm business tenancy. I beg to move.

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

My Lords, I am grateful to the noble Lord, Lord Carter, for explaining the reasoning behind the amendment so clearly. I am also grateful for the fact that he has accepted the broad structure of Clause 1 as drafted.

I have to say that I see two fundamental flaws with Amendments Nos. 1 and 2. First, as their name implies, farm business tenancies are business tenancies, yet Amendment No. 1 would make it unnecessary for them to comply with the business conditions. If the noble Lord had his way, land let solely for non-commercial hobby farming or for grazing a pet pony could be let under a farm business tenancy. This is not the purpose of the legislation.

The second flaw is much more serious. The amendment would make the notice conditions mandatory. It is true that we expect—and indeed would wish—many parties to comply with the notice conditions, but we cannot force people to do so and the status of their tenancy should not depend on this. Some people, particularly those who need short agricultural tenancies so that they can, for example, grow specialist crops on clean land, may see the notice requirement as a bureaucratic waste of time, not relevant in their circumstances as they have no intention of diversifying out of agriculture. Others will forget to exchange notices or, if they do not take professional advice, will not realise that it is necessary. If this amendment was accepted, what would be the legal status of those tenancies?

If the lettings were for business purposes, in all probability they would be subject to the Landlord and Tenant Act 1954. We concluded some years ago that that legislation was inappropriate for agricultural tenancies. There might also be some which were not subject to the 1954 Act in which case they would most likely be subject only to common law rules. Those people, to their surprise no doubt, would find that they were not subject to the same rules that govern other agricultural lettings. This would give rise to considerable confusion. At the end of a tenancy tenants might find that they were not entitled to compensation for improvements even if these had been made with the landlord's consent. On the other hand, if the 1954 Act applied, landlords might find that the tenant had the right to a new tenancy. This would present a trap for the unwary not unlike that posed by Section 2 of the 1986 Act; and that is precisely the type of provision we are so anxious to avoid. Provisions of this nature undermine confidence and would discourage lettings.

The noble Lord asked about oral agreements and whether they apply to short leases only. The answer is yes, for terms of less than three years or for tenancies from year to year. Oral agreements which purport to be for longer terms than that are void in law.

Amendment No. 3 proposes that the terms of the tenancy should be set out in the notice. I am afraid that therein lies a further flaw. The proposed amendment would, in effect, make the notices which are exchanged before the tenancy is granted a rehearsal of the tenancy agreement itself.

Although I understand what the noble Lord seeks to achieve with this amendment, I fear that he runs the very substantial risk of negating the entire purpose of having the notice at all. It is essential that parties can exchange, where they choose to do so, a simple notice which states in the clearest possible terms that the tenancy on offer is to be a farm business tenancy. Clause 1(4) (a) sets out all that the notices need to say. All questions of terms and conditions ought to be dealt with in the tenancy agreement itself as a matter between parties. We want to avoid creating the position where a tenant was faced with a great list of terms which failed to highlight that a farm business tenancy was on offer.

Worst of all, what if the notice failed to incorporate all of the agreed terms? It is possible that parties might want to make last-minute minor changes after exchanging notices but before the tenancy is granted. If none of those affected the business or agriculture conditions, there ought not to be any difficulty over such late changes. However, if the terms set out in the notice condition did not correspond with the actual tenancy agreement, it would be possible for parties to challenge the validity of the notices which had been exchanged—and thus the true status of the tenancy itself. That would be an easy trap to fall into and a serious one. Not surprisingly, therefore, the industry does not favour this proposal.

I hope that with this further explanation the noble Lord will feel able to withdraw his amendment.

Lord Carter

My Lords, I get the impression from the Minister's reply that he is not very keen on this group of amendments. He seems to have made quite a meal of what was intended to be a helpful approach to a matter that we discussed at length in Committee. I certainly did not want to repeat all of that discussion about the nature or definition of a farm business tenancy. We think that this is the right approach to take. I agree that, if accepted, the notice conditions would be mandatory, as are the provisions which I read out in the Housing Act 1988 for assured shorthold tenancies. Is the Minister saying that the approach that was adopted in the Housing Act for assured shorthold tenancies should not apply to agricultural tenancies? If so, I find that extremely surprising.

The Minister referred to those who grow specialist crops. I am involved, for example, in the growing of carrots which over-year. The exchange of notices can be very simple. One already has to go through quite a performance as a result of Gladstone v. Bower. There will have to be something in writing for specialist crops. I am sure that a simple notice could be drawn up.

It is possible that the parties could forget to exchange notices. That is feasible, although one assumes that it will not happen once the provisions have been made clear. The next group of amendments will deal with the guidance which I think that the Government should give to those who are considering a farm business tenancy. As I remember it, in Committee we heard about the "impecunious landlord" and the "nervous landlord"; apparently we now have the forgetful landlord.

The Minister referred to the business conditions not being met in relation to hobby farming. However, Clause 1(2) states that the business conditions are, that all or part of the land comprised in the tenancy is farmed". We debated whether it should be farmed or occupied and the Minister said that it was important that the word "farmed" should remain in the provisions because it related to an agricultural activity. Clause 1(2) continues: for the purposes of a trade or business, and (b) that, since the beginning of the tenancy, all or part of the land so comprised has been so farmed". The Minister referred to tenants having to operate under different sets of rules. That will be the case now in any event because all the tenancies that derive from the 1986 Act will be working after 1st September 1995 while all the tenancies that will be drawn up once this Bill becomes an Act of Parliament will work under this legislation. Although there is no way of proving it, I suspect that initially a larger number of tenancies will operate under the 1986 Act than under this legislation. At the moment, out of the comparatively small proportion of land which is let at arm's length—the figure that we discussed both on Second Reading and in Committee varied between 25 and 35 per cent.—it is likely that the larger proportion operates under the 1986 Act. I suspect that that will continue to be the case. The effect of that Act will last for a long time yet because, as we have all agreed, we have only just reached the first generation of succession—and not even that in some cases.

I am extremely grateful to the Minister for his confirmation that oral agreements apply only to short leases of less than three years and that oral agreements relating to leases of longer than three years are void. If that is the case, I am not entirely clear why the Government are so concerned about sweeping in oral agreements and not requiring the tenancy agreement to be in writing. We discussed that previously. If the oral agreement stands up in law only for short leases of less than three years, I do not understand the Government's fear that, if they do not allow oral agreements to be included in the Bill, everybody will rush out to agree them.

It is entirely sensible that the main terms should be agreed. The contract between the landlord and tenant could easily allow for late changes up to the time that the tenancy agreement is drafted. There is no earthly reason why the contract should not state, "These are the main terms", and that a subsection cannot state, "The terms can be altered up to the moment that the tenancy agreement is signed". Once the agreement is signed, the terms are laid down.

For all those reasons, I do not think that the Minister's reply was satisfactory. I am disappointed because I had hoped that the noble Earl might be prepared either to accept our argument or to take it away for consideration. As he is not prepared to do so, I must ask the opinion of the House.

3.29 p.m.

On Question, Whether the said amendment (No. 1) shall be agreed to?

*Their Lordships divided: Contents, 71; Not-Contents, 127.

Division No. 1
Acton, L. Dormand of Easington, L.
Ashley of Stoke, L. Ewing of Kirkford, L.
Barnett, L. Ezra, L.
Blackstone, B. Falkland, V.
Brooks of Tremorfa, L. Farrington of Ribbleton, B.
Bruce of Donington, L. Gallacher, L.
Carmichael of Kelvingrove, L. Geraint, L.
Carter, L. Gladwin of Clee, L.
Castle of Blackburn, B. Gould of Potternewton, B.
Cledwyn of Penrhos, L. Graham of Edmonton, L. [Teller.]s
Clinton-Davis, L.
Cocks of Hartcliffe, L. Greene of Harrow Weald, L.
David, B. Gregson, L.
Dean of Thornton-le-Fylde, B. Grey, E.
Desai, L. Harris of Greenwich, L.
Donaldson of Kingsbridge, L. Haskel, L.
Hilton of Eggardon, B. Nicol, B.
Hollis of Heigham, B. Ogmore, L.
Hutchinson of Lullington, L. Plant of Highfield, L.
Irvine of Lairg, L. Richard, L.
Jay of Paddington, B. Rodgers of Quarry Bank, L.
Jenkins of Hillhead, L. Russell, E.
Jenkins of Putney, L. Sainsbury, L.
Kilbracken, L. Seear, B.
Lockwood, B. Sefton of Garston, L.
Lovell-Davis, L. Stallard, L.
Mason of Barnsley, L. Stoddart of Swindon, L.
Mayhew, L. Strabolgi, L.
McCarthy, L. Taylor of Blackburn, L.
McIntosh of Haringey, L. Tordoff, L.
Merlyn-Rees, L. Turner of Camden, B.
Milner of Leeds, L. Wallace of Coslany, L.
Molloy, L. Wedderburn of Charlton, L.
Monkswell, L. White, B.
Morris of Castle Morris, L. [Teller.] Wigoder, L.
Williams of Elvel, L.
Williams of Mostyn, L.
Addison, V. Harlech, L.
Ailsa, M. Harvington, L.
Alexander of Tunis, E. Hayhoe, L.
Allenby of Megiddo, V. Hayter, L.
Astor of Hever, L. Hooper, B.
Balfour of Inchrye, L. Howe, E.
Balfour, E. Hylton-Foster, B.
Barnard, L. Inglewood, L. [Teller.]
Belhaven and Stenton, L. Ironside, L.
Blaker, L. Johnston of Rockport, L.
Blatch, B. Knollys, V.
Bledisloe, V. Lauderdale, E.
Brabazon of Tara, L. Lindsay, E.
Braine of Wheatley, L. Liverpool, E.
Brougham and Vaux, L. Long, V.
Burnham, L. Lucas, L.
Butterworth, L. Lyell, L.
Cadman, L. Mackay of Ardbrecknish, L.
Caithness, E. Mackay of Clashfern, L. [Lord Chancellor.]
Campbell of Alloway, L.
Campbell of Croy, L. Manchester, D.
Carnarvon, E. Manton, L.
Carnegy of Lour, B. Merrivale, L.
Carnock, L. Mersey, V.
Chalker of Wallasey, B. Miller of Hendon, B.
Charteris of Amisfield, L. Milverton, L.
Chelmsford, V. Monk Bretton, L.
Clanwilliam, E. Morris, L.
Colnbrook, L. Mowbray and Stourton, L.
Constantine of Stanmore, L. Moyne, L.
Courtown, E. Munster, E.
Cranborne, V. [Lord Privy Seal.] Murton of Lindisfarne, L.
Cranworth, L. Noel-Buxton, L.
Cumberlege, B. Northesk, E.
Dacre of Glanton, L. O'Brien of Lothbury, L.
Davidson, V. Orkney, E.
De Freyne, L. Oxfuird, V.
Dean of Harptree, L. Palmer, L.
Ellenborough, L. Park of Monmouth, B.
Elles, B. Pender, L.
Elton, L. Platt of Writtle, B.
Erroll of Hale, L. Polwarth, L.
Faithfull, B. Pym, L.
Finsberg, L. Rankeillour, L.
Gainford, L. Rawlings, B.
Gardner of Parkes, B. Renwick, L.
Geddes, L. Rodger of Earlsferry, L.
Gisborough, L. Rodney, L.
Goschen, V. Saltoun of Abernethy, Ly.
Gray of Contin, L. Savile, L.
Gridley, L. Seccombe, B.
Hailsham of Saint Marylebone, L. Shannon, E.
Halsbury, E. Simon, V.
Harding of Petherton, L. Simon of Glaisdale, L.
Somerset, D. Teviot, L.
Southwark, Bp. Teynham, L.
St. Davids, V. Trumpington, B.
St. John of Bletso, L. Ullswater, V.
Stanley of Alderley, L. Vivian, L.
Strange, B. Wakeham, L.
Strathclyde, L. [Teller.] Westbury, L.
Swansea, L. Wharton, B.
Terrington, L. Wise, L.
Wynford, L.

[*The Tellers for the Not-Contents reported 127 names. The Clerks recorded 126 names.]

Resolved in the negative, and amendment disagreed to accordingly.

[Amendments Nos. 2 and 3 not moved.]

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