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11.38 pm

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Richard Ryder) : I congratulate my hon. Friend the Member for Newark (Mr. Alexander), who is a distinguished member of the Select Committee on Agriculture, on his success in the ballot. I do, of course, appreciate the concern about the future of the agricultural landlord-tenant system. It is an important issue and I am grateful to him for raising it.

As I see it, there are two interrelated issues which need to be considered. First, there is the continuing decline in the tenanted sector which affects potential new tenants and established tenants who, for one reason or another, need additional land. Secondly, there are the difficulties that some existing farmers face.

As my hon. Friend knows, at the end of the last century about 90 per cent. of the agricultural land was tenanted, but, according to the 1987 June census, the figure is now about 37 per cent. There have been a number of contributory factors, but an increase in the size of the owner-occupied sector was probably inevitable. It echoes the pattern in the residential sector. However, it is clear that some landowners who do not want to farm the land themselves have been disinclined to let and have opted for other forms of contractual arrangements to maintain value and income. If the tenanted sector is to be revitalised, we must find ways of making the letting of land more attractive to landowners. I shall return to this issue a little later. First, I shall refer to those farmers who already rent a holding.

In recent years, the movement in average farm incomes showed a similar pattern for all types of tenure with declines in 1985-86 followed by a recovery in 1986-87. However, in 1987-88, the latest year for which data are available, wholly tenanted farms in the farm business survey in England recorded a small increase--nearly 5 per cent.--in average income, while their owner-occupied and mixed tenure counterparts showed falls. Incomes on particular types of farm--for example, dairying--moved in the same direction for tenanted as for other farms. Figures are not yet available for 1988-89, the year in which the sharp fall in farm incomes has been the subject of concern in the farming community.

Assets tend to be lower on tenanted than on owner-occupied farms, but borrowings are also lower. On average, the borrowings of tenanted farms in 1987-88 were only about two thirds of those of owner-occupied farms and less than half those of mixed tenure farms. In addition, about 40 per cent. of tenanted farms in the survey recorded no bank borrowing at all at the close of 1987-88. For the small business size group, about half recorded no bank borrowings. As I have said, our 1987-88 survey showed that tenanted farms in England recorded an increase in average income of nearly 5 per cent. The annual rent inquiry for 1988 showed that in all English farms in the inquiry due a rent review between 1987 and 1988 there was an average increase in rent of 3.5 per cent. On about half the farms due a rent review there was no change in the rent. In Wales on farms due a rent review there was an average increase of 7.75 per cent. On about one quarter of the farms due a rent review there was no change.

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There is, therefore, no evidence to suggest that rents are not coming down as quickly as profits. On the contrary, it appears that the new rent formula introduced in 1984 is working satisfactorily. My hon. Friend has drawn attention to some recent arbitrations in which tenants have been faced with high costs. Under the Agricultural Holdings Act 1986, the arbitrator determines who should pay the costs. He must take into consideration, first, the reasonableness or otherwise of the claim of either party ; secondly, any unreasonable demand for particulars or refusal to supply particulars ; and, thirdly, generally all the circumstances of the case.

The usual advice to arbitrators in legal text books, as my hon. Friend, as a lawyer, will know, is that they should follow the general working principle adopted by the courts that costs should follow the award unless the particular circumstances dictate otherwise. Therefore, each party must remember that the award may go against him, in which case he is likely to have to pay the costs. He should consider carefully with his professional adviser whether it is sensible to go to arbitration or whether it would be more prudent to reach an agreement.

Arbitration costs can, of course, be reduced if parties reach agreement on as many issues as possible before the hearing. If complex legal issues are raised or parties produce a mass of evidence, an arbitration can prove expensive.

The Royal Institute of Chartered Surveyors has published a booklet entitled "Minimising the Costs of Agricultural Arbitration". It is a step-by-step guide through the arbitration process, showing the correct procedures and how to avoid protracted proceedings and expensive consequences. We hope that parties to an arbitration will find it a useful guide.

I note my hon. Friend's suggestion that each party should bear his own costs, unless the arbitrator considers one side to have acted unreasonably, in which case he could be required to pay the other party's costs. The Tenant Farmers Association may wish to discuss that proposal with the Royal Institution of Chartered Surveyors and other organisations representing landlords and tenants. If it is felt that this approach is practical and it attracts a reasonable degree of support from the industry, we would be prepared to consider proposals for changing the legislation when an opportunity arises. We would, however, need to be satisfied that there is a genuine need for change which could not be met in some other way.

It is suggested that tenants may be unable to diversify into non- agricultural activities or to take up the opportunity of alternative land uses, but I am pleased to say that there are signs that landlords are allowing their tenants to do so. A tenant who wants to establish an enterprise must consider the terms of his tenancy agreement, and he may need to negotiate a variation with his landlord. For that reason, he will be wise to discuss his ideas with the landlord. A business study, for which a grant can be obtained under a farm diversification grant scheme, may prove invaluable in this context, as I would expect a landlord to be reluctant to give approval to a scheme of doubtful viability or which is ill conceived.

I understand that some tenancy agreements--particularly those of local authority tenants--prohibit the tenant from earning income from non- agricultural

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sources. However, I believe that some local authorities are now being more flexible in their approach to diversification, and I find that encouraging.

More generally, I make it clear that, when we are devising new schemes, we take considerable trouble to ensure that tenants and owner-occupiers alike can participate. I am pleased to say that this is bearing fruit. For example, in the set-aside scheme nearly one third of all applications came from tenants.

My hon. Friend intimated that a tenant should be able to apply to the agricultural lands tribunal if his landlord will not agree to his diversification plans. However, in many cases an amendment to the tenancy agreement is required, and, at present, ALTs do not have the power to do that. Without fairly fundamental changes to the Agricultural Holdings Act 1986, it is doubtful whether a tribunal could give a tenant permission to engage in a non-agricultural activity if a clause in the tenancy agreement specifically prohibits the use of the land for non-agricultural purposes.

The agricultural holdings legislation aims to strike a fair balance between the often conflicting interests of landlords and tenants. The satisfactory tenant farmer is given security of tenure, but the legislation recognises that there are circumstances in which the landlord should be able to regain possession. They include the situation in which he has obtained planning permission to use the tenanted land for a non-agricultural purpose. It should be remembered that the landlord is the owner of the capital asset and should, in common with other owners of property, be entitled to any increase in value that may accrue from possible development. He has elected to enter the land market with all the risks that that involves, which, in some cases, can mean a low return and falling land values, where there is no development potential, or the land is of poor quality. My hon. Friend said that some landlords are using the incontestable notice to quit provisions as a means of regaining vacant possession of the holdings and are not proceeding with the development for which they had obtained planning permission. I have not received any representations on this issue, and if my hon. Friend wishes me to examine this issue I would need to have further information on the scale of the problem.

The appropriate level of compensation to be paid to a tenant when his land is taken for development is clearly a contentious issue. No formula will satisfy everyone, but the current provisions in the legislation entitle the tenant to compensation for disturbance equal to up to six years' rent, plus compensation for improvements and tenant

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right matters. The level of compensation for disturbance was last increased in 1968 at a time when loss of land to development was increasing. The rate of land lost to development--and this is not generally known--is now only about one third of what it was in the 1960s. A major difficulty noted in 1968, which is as valid today, is the shortage of land to rent. This often makes it difficult for tenant farmers who lose land to development to find other land to rent. Increasing the level of compensation paid to tenants for disturbance could be a further disincentive to landlords to let land.

That brings me back to a point that I made at the outset of my speech concerning the decline in the amount of tenanted land. Various interests in the industry are rightly considering ways of revitalising the tenanted sector. These include provision of fixed-term tenancies, retirement tenancies and complete freedom of contract. I welcome these initiatives and look forward to hearing the views of the Tenant Farmers Association on the way forward when I meet its representatives in the middle of May.

My right hon. Friend the Minister and I have made it clear that if the Government were presented with practical ways of making tenancies easier to create, we would be prepared to consider them. However, if we are to contemplate legislation--and I should stress that there are always difficulties in securing a slot in the legislative programme--there must be not only some signs of agreement in the industry but, even more important, a clear prospect of the legislation being of worthwhile practical effect.

Finally, my hon. Friend mentioned the attachment of milk quotas to land. The Government's position is clear. It would be in the industry's interest for the link between quotas and land to be broken. That would make it easier for normal structural development to take place. That requires changes in Community rules, so immediate action is in any event unlikely. The Government would certainly wish to protect the legitimate interest of landlords and tenants alike. I thank my hon. Friend for initiating the debate and for setting out his case so clearly and cogently. If, for reasons of time, I have not been able to deal with each of his points, he can be sure that I will write to him later. This is an issue of great importance, as he stressed, and my hon. Friend has done a great service to the House and to tenant farmers by raising the subject so well.

Question put and agreed to.

Adjourned accordingly at seven minutes to Twelve o'clock.

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