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Personal Bills: Select Committee

3.23 p.m.

The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.

Moved, That a Select Committee be appointed to consider personal bills and that, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees be named of the Committee--

B. Hilton of Eggardon,

L. Hooson,

B. Seccombe,

L. Templeman,

L. Wilberforce.--(The Chairman of Committees.)

On Question, Motion agreed to.

Standing Orders (Private Bills): Select Committee

The Chairman of Committees My Lords, I beg to move the third Motion standing in my name on the Order Paper.

Moved, That a Select Committee on the Standing Orders relating to private bills be appointed and that, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees be named of the Committee--

V. Falkland,

L. Gallacher,

V. Hood,

L. Renton,

L. Strabolgi,

L. Thurlow,

L. Wade of Chorlton.--(The Chairman of Committees.)

On Question, Motion agreed to.

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Agricultural Tenancies Bill [H.L.]

3.24 p.m.

The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe): My Lords, I beg to move that this Bill be now read a second time. In doing so, I must declare an interest as both a tenant and an owner occupier of agricultural land.

It is with more than the usual nervousness that I rise to open the debate in your Lordships' House this afternoon. That is not, I hasten to say, because I lack confidence in any way in the worthwhile Bill which I shall be commending to your Lordships. Rather, it is because I am conscious of the particular wealth of expertise on this subject, even more than on many others, which exists among noble Lords from all sides of the House who will follow me in the debate. I therefore hope that they will bear with me if, in describing the background to the Bill, I appear to be guilty of oversimplifying or omitting some important points.

The present tangle of agricultural holdings legislation has grown up largely over the last 120 years or so. Before then the relationship between the landlord and tenant of agricultural land was a much simpler one, governed principally by the terms of the tenancy agreement itself. In the middle of the last century, freedom of contract was held in high esteem, both in society and in legal circles. For example, in a case before the Court of Appeal in 1875 the Master of the Rolls made the following pronouncement:

    "If there is one thing which more than any other public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice".

However, from that time onwards a further argument began to be put forward; namely, that in order for freedom of contract to work satisfactorily, there must be a genuinely free and open market in which there was equality of bargaining power. In the case of the economic relationship between landlord and tenant, it was pointed out that the market was not entirely free because the supply of land could not expand rapidly in response to demand. Nor was there usually an equality of bargaining power, because the landlord's purse was generally deeper and his access to advice much readier than the tenant's. It was partly in order to address those perceived problems that the law, in the shape of the agricultural holdings legislation, began to intervene to modify the freedom of contract between landlord and tenant and was thereafter added to at regular intervals for the next 100 years.

Before the first Agricultural Holdings Act in 1875, the relations between the parties were governed principally by common law, which meant that the terms of the tenancy agreement were given effect but that where these were insufficient the gap would be filled by referring to local custom or by applying case law developed by the courts. However, because the tenant's legal position was perceived by Parliament to be somewhat precarious, there began a long process of statutory intervention to improve it.

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Since 1875 there have been over 20 pieces of primary legislation which have affected or modified the operation of the agreement reached between an agricultural landlord and his tenant. Of those, the most important provisions have related to security of tenure. In particular, the Agriculture Act 1947 was passed at a time when food rationing was still in existence and Parliament regarded it as essential that the level of production of our farms should be improved. Thus it was that in that year a major change in security of tenure was introduced. The landlord's notice to quit was made subject to consent being given by the Minister. That was subsequently amended to require consent by the agricultural land tribunal. The effect of the change in reality was to give all tenant farmers, who farmed their land efficiently, complete security of tenure save in most exceptional circumstances. At the time it was believed that that would contribute to improving agricultural output.

In relation to security of tenure, the zenith--or perhaps the nadir--of the whole process was reached with the passage of the Agriculture (Miscellaneous Provisions) Act 1976. This provided security of tenure for two further generations of successors to an existing tenant, provided that they were close relatives who could prove themselves eligible and suitable to take on the tenancy. By taking the land out of the landlord's control for three generations, this went almost as far as it was possible to go in the direction of security short of actually transferring the title from the landlord to the tenant. These succession provisions were subsequently repealed in 1984 in relation to new tenancies, but the effective lifetime security of tenure first conferred by the 1947 Act still applies, having been carried through into subsequent legislation, most recently the Agricultural Holdings Act 1986.

One argument advanced in favour of security of tenure is that tenant farmers are encouraged to put their energy and resources into the land by the knowledge that only in very special circumstances can they lose their occupancy. However, in parallel with the movement over the last century or so from complete freedom of contract to virtually complete security of tenure, there has occurred an equally massive shift in the pattern of agricultural land ownership and tenure. The percentage of land that is rented fell from about 90 per cent. at the turn of the century to less than 35 per cent. in 1993. The tenanted sector has thus been in chronic decline for several decades, though the introduction of security of tenure undoubtedly hastened this trend.

Although one-third of agricultural land is still rented, much of this is now rented on short-term arrangements such as Gladstone v. Bower tenancies which do not have security of tenure. Thus the proportion of land that is let on protected tenancies is small and diminishing, and where such tenancies terminate it is known that only about 10 per cent. of landlords choose to re-let on a similar basis.

There is broad agreement within the industry on the reasons for this decline. Principal among them is the maze of restrictive tenancy legislation, and the security of tenure provisions in particular. These represent a

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major disincentive to any landowners who might otherwise consider letting their land. The supply of new full tenancies has slowed to the merest trickle, while the existing stock continues to ebb away. What was a prolonged dry spell is now a definite drought.

We must ask ourselves: does this matter? In order to answer that question, I should like, with permission, to give two quotations. First,

    "Many people believe that agriculture, like any other industry, needs a continuous infusion of 'new blood' from outside the industry to provide a fresh and innovative outlook, energy and drive".


    "Letting represents a relatively low-cost route into the industry and one which prevents agriculture becoming a closed shop. A healthy let sector allows good young farmers to extend and develop their potential, with benefits for the industry as a whole".

Wise words indeed! They are taken from the report of the committee of inquiry into the acquisition and occupancy of agricultural land, published a full 15 years ago. And they remain just as true today. I am sure that the noble Lord, Lord Northfield, who was chairman of the committee, and the noble Lord, Lord Carter, who was a member of it, still subscribe to them.

Almost everyone in the industry--except for a few die-hards who seem impervious to reason and oblivious to the evidence--has come to see that corrective action has to be taken, and soon. Landowners, tenants, young farmers, land agents, valuers and others connected with the industry have all been pressing upon us the need for legislation. And last December, an even more remarkable thing happened: they all agreed on what changes were needed to the present system.

It is now 11 years since we made the last substantive changes to agricultural tenancy law. The Second Reading debate of the Agricultural Holdings Bill in your Lordships' House took place on 8th November 1983. There were a number of noble Lords on that occasion who criticised the Bill for not going far enough to achieve the desired increase in new lettings. I fear that we must all now concede that they were right. With hindsight we can all see--or at least I believe most of us can--that such a heavily regulatory system as is provided by the Agricultural Holdings Act will not create the right climate for landowners to be encouraged to offer more land for letting. That is one reason why today we are debating a much more streamlined Bill which offers a simpler framework allowing room for the parties to reach sensible agreements between themselves.

Perhaps your Lordships will hear later in today's debate whether the party responsible for introducing, with retrospective effect, the statutory succession provisions in 1976 now acknowledges the damage that was then done to the agricultural tenanted sector. If not, I am sure that there are many in your Lordships' House and elsewhere who would be more than willing to tell it. I would like to believe that members of that party now understand--as the industry itself has come to do--that reform is the key to revitalising the tenanted sector. Yet the Opposition spokesman on agriculture in another place has made clear that Labour will oppose this Bill because it ends security of tenure for tenant farmers. Unless we take action there will be no tenant farmers

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left. It is this reform that we are being urged from all sides of the industry to implement in order to offer hope to aspiring tenants and to offer prospects to the young people who are so important as the source of new ideas, new techniques and new perspectives. Is this not an objective which noble Lords opposite can wholeheartedly share? I very much hope so.

The Government do not plan to repeat the mistake of the Labour Party in 1976 by legislating with retrospective effect. Existing tenancies will be unaffected by the new legislation which will apply only to agricultural tenancies granted after it comes into force.

I want now to pick out some of the main points in the Bill and describe them in more detail. Clause 1 introduces and defines the concept of farm business tenancies, which is how the new tenancies will be known. The clause sets out the conditions that a tenancy must meet in order to come within the ambit of the Bill. In all cases, at least part of the land comprised in the tenancy must be farmed for the purposes of a trade or business throughout the life of the tenancy. This is a minimum test, known as the business conditions, which all farm business tenancies must satisfy. Besides that, the tenancy must meet one of two alternative conditions. The first alternative is that the parties must have exchanged notices, before the tenancy is granted, confirming their intention that the tenancy is to be and will remain a farm business tenancy; also, the tenancy must be primarily or wholly agricultural in character at the beginning of the tenancy. If this is the case, the tenancy will remain a farm business tenancy as long as the business condition is met. The effect will be to allow much more flexibility for tenants, with the permission of their landlords, to extend their enterprises into non-agricultural areas without this calling into question the nature of the tenancy. In this way, diversification will be made easier and the rural economy as a whole will benefit.

The alternative scenario is where the parties have not exchanged notices before the grant of the tenancy. In those cases, the test, if the status of the tenancy is brought into question, will be whether the character of the tenancy is primarily or wholly agricultural. The test is described in Clause 1(3). In such cases there is, of course, a risk that any significant changes in the character of the tenancy could take it outside the scope of the Bill. For that reason, we would expect that most landlords and tenants will wish to exchange notices beforehand in the interests of certainty. But we have to cater for the situation in which, either deliberately or accidentally, they do not do so.

Clause 2 provides that a tenancy cannot be subject to the new legislation if it was granted before the Bill comes into force. Clause 4, which might be described as a mirror image of that provision, makes clear that the Agicrultural Holdings Act 1986 does not apply to new tenancies granted after the Bill comes in to force. Tenancies created under the statutory succession provisions of the 1986 Act will continue to be subject to that Act.

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Clauses 5 to 7 concern the provisions for giving of written notice when either party wishes to end a tenancy. Under the Bill, landlords and tenants will be free to agree how long a tenancy should last. This is a major change from the present legislation, which gives tenants virtual lifetime security of tenure. This provision of the Bill is the key to encouraging more letting of land. It is also the focus of most criticism from those who are opposed to reform. But I am afraid the logic of this opposition defeats me. I can only conclude that those concerned cannot understand that the letting of land is a wholly voluntary activity on the part of the landlord. The landlord will let land only if he is convinced it is in his best interest to do so. We have to create the right conditions for this. The most important of these is to allow the parties freedom to agree on the length of term for their own tenancies. I am encouraged that there is now a broad consensus on this point within the industry as a whole.

For tenancies of a fixed term of more than two years, at least one year's notice but less than two years' notice is required to be given when either party wishes the tenancy to end on the agreed date. Otherwise, the tenancy continues as a tenancy from year to year. The same period of notice is required to end a tenancy from year to year. Unlike the present legislation, there will be no grounds on which tenancies can be terminated with shorter periods of notice except when both sides agree terms for the surrender of the tenancy. Also, there will in future be no grounds for issuing notices to terminate the tenancy before the agreed date or to recover possession of part of the holding unless the tenancy agreement contains provisions which allow for the exercise of such options. Even in such cases, the mandatory period of notice will still be at least 12 months. Tenancies which are for fixed terms of two years or less and periodic tenancies which run for periods of less than a year are not covered by these provisions and are therefore subject to common law rules.

Clause 8 of the Bill sets out the tenant's right to remove fixtures and buildings, subject to certain conditions. This represents a simpler version of the corresponding provision in the Agricultural Holdings Act 1986.

Part II of the Bill contains provisions on rent. Again, those will give parties more freedom than the present legislation to agree their own provisions both in relation to the level of rent and in relation to the frequency of rent reviews. On the level of rent, the parties will be able to agree that the rent should be fixed for the whole of the tenancy by stating explicitly that there will be no rent reviews at all. Alternatively, they will be able to agree that the rent should be adjusted according to some objective criterion. In both cases, the parties will be clear from the outset as to the intended result. If they do not agree such arrangements, they will be able to provide for rent reviews at a frequency of their own choosing. And if they make no such provision, either party will be able to demand a rent review every three years.

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An important point concerns the method of determining rent at a review. When a review takes place, the parties may of course agree on the new level of rent between themselves. Alternatively, they may agree the basis on which it is to be set and jointly ask a third party to determine it for them. However, if the question is referred to an arbitrator then the Bill requires that he must set the new rent on an open market basis. This basis is described in more detail in Clause 13.

Part III contains mandatory provisions on compensation for tenants' improvements. The definition of an improvement is a general one which goes somewhat wider than that in the present legislation. Broadly speaking, a tenant's improvement is defined as any physical improvement made on the holding or any intangible advantage obtained for the holding by the tenant which is capable of increasing the value of the holding. This will allow the tenant to be compensated when he has contributed to securing intangible advantages, which will include planning permission, for example, and other items, some of which may not yet have been thought of. Provided that the landlord's written consent has been obtained for the making of improvements, the landlord will be required to pay full compensation at the end of the tenancy for all improvements remaining attached to the holding that have been provided by the tenant through his own effort or at his own expense. Unlike the present legislation, these provisions will override any agreement to the contrary and so there will be no scope for the value of the compensation to be written down. Also, a tenant will be able to demand arbitration if the landlord refuses consent for an improvement or if there is disagreement after the end of the tenancy on the amount of compensation to be paid.

In Part IV of the Bill, Clauses 28 to 30 set out the procedure to be followed for resolution of disputes arising under the Bill or under the terms of a farm business tenancy. There are three main points to note about these provisions: first, they provide unilateral access to independent arbitration, which will guarantee a simpler and cheaper alternative to the lengthy procedures of the courts. Secondly, they leave room for the parties to make use of some alternative disputes resolution procedure of their own choosing, if they wish. Thirdly, the arbitration procedures to be used will be those of the Arbitration Act 1950, which are the procedures used in other sectors and which are widely regarded as less cumbersome than those of the present agricultural holdings legislation.

The remainder of Part IV contains various provisions on a number of matters, of which I shall only mention that the proposed commencement date for the Bill is 1st September 1995.

I trust that this brief explanation of the main points of the Bill will be sufficient to introduce today's debate. In concluding, I should like to make clear that this is not a measure that has been dreamt up overnight by the Government and foisted on an unwilling industry. We began consultation on possible reform nearly four years ago, and we have developed these proposals in close consultation with the industry. It is true that the resulting package is fully consistent with wider government

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policies in terms of deregulation, greater market orientation, as well as with giving individuals greater freedom to manage their own affairs and the responsibility that goes with it. But the reason that we are bringing forward this Bill is not primarily a political or a philosophical one: it is that there is general agreement that action to boost the tenanted sector is long overdue, and this is the best way that we and others have identified in which to do that.

We regard it as of the utmost importance that the package of reforms contained in the Bill is fully supported by the main agricultural organisations representing both tenants and landlords. The changes that it will bring about will help to create opportunities, encourage investment and benefit the rural economy. By giving British agriculture an infusion of new blood, it will put it in a stronger position to adapt to future changes. With those aims in mind, I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Earl Howe.)

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