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Lord Stanley of Alderley: Since we are referring to rents, perhaps I may raise a parallel problem. It is a matter that I warned my noble friend I would raise.

I am concerned that, under the 1986 Act and the provisions of the Bill, rentals could be artificially inflated. With regard to the debate on Clause 1 stand part and Amendment No. 15, the noble Lord, Lord Carter, stated that the playing field is not level. It is not level; God knows why. More people wish to farm than there is land for them to farm. Perhaps when they reach my age they will realise the folly of their ways. But that is the situation: it is not a level playing field. The reasons why rentals could be inflated relate to the scarcity of land compared with the number of applicants, existing farmers being able to tender high rents for nearby land, and existing farmers being able to tender high rents in order to make economies of scale. Indeed, I have done so.

Those factors have shown themselves in particular in agistment rents and must influence the landlord in asking for, and the tenant in having to accept, higher rents when negotiating rentals under the 1986 Act. With regard to the 1986 Act, I accept that a tenant may take his landlord to arbitration. However, most tenants prefer not to do so and are inclined to accept a higher rent than they can economically justify over the whole holding. Even if the case goes to arbitration, the arbitrator must be guided by Schedule 2 to the 1986 Act. I do not think that I need spell out all the provisions, although my noble friend may do so when replying. However, I do not believe that those provisions have the effect of keeping those artificial rents down to a common economic rent over the whole holding. I hope that I have explained the position clearly.

I hope my noble friend will assure me that my fears are unfounded. I believe that we shall have high rents. I can see my son and myself, being existing farmers, tendering very high rents if it is an area that we specifically want and for all the other reasons that I have outlined. I hope that those high rents that we might be able to afford on a limited piece of land will not have an artificial knock-on effect on further rents under 1995 legislation. But, more important, I hope that they will not encourage even higher pre-1995 rents—that is, 1986 rents—which might have a knock-on effect on the 1986 rents in an arbitration. I do not for one minute grudge

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the landlord the high rents for extra people. Good luck to him if he can get them. But I do not wish to see them reflected across the whole industry because it would not be possible to withstand that.

Lord Carter: A second point arises on this, but before I deal with it I wish to reflect on the remarks of the noble Lord, Lord Stanley. It would be interesting if arbitration were applied to farm business tenancies. We know that there has to be the open market rent which the arbitrator looks at, and we shall come to amendments on it. Will the open market rent which the arbitrator considers include the market in reviews under the 1986 Act? That is a different class of tenant. It is an interesting point to which we may return when we come to rent reviews.

There is another point. We moved the amendment to Clause 9(b) (ii) which concerns the specified formula, but Clause 9(b) (i) refers to,

    "by or to a specified amount",

and if it is greater than the rent for the ingoing tenant, then it is an upwards only review. That is not what people want, and for once we can call in aid the industry agreement.

Earl Howe: Clause 9 provides an option for the parties to agree on a fixed rent, with no reviews during the tenancy, or to agree to adjust the rent by or to a specified amount, or by applying an objective formula to adjust the rent. So the clause in effect implements the provisions of the industry agreement of last year.

The idea behind the provision is that the parties should be free to agree on the level of rent and a method of adjustment, provided it is clear to both sides what they are signing up to. Some people may prefer a fixed rent, just as some house purchasers opt for a fixed mortgage interest rate. Others may favour a stepped rent, for example, with certainty as to what the level of rent will be in any given year. Others may wish to fix the rent by reference to a percentage of turnover of the farm business. These are adjustments which give an unambiguous result by applying the terms of the tenancy agreement.

As I said, the clause effectively implements the industry agreement. As the noble Lord, Lord Gallacher, explained, the industry organisations now wish to clarify the provision in order to ensure that downward variations in rent could not be precluded by whatever formula was used to adjust the rent. They argue that this would help to achieve the underlying objective: namely, that market realities should be better reflected in rents paid under farm business tenancies.

I am sympathetic to the arguments and the Government are willing in principle to give effect to the industry's wishes on the point. However, we should like to consider whether we can improve on the wording proposed in order to achieve that result and, if we can, to table an amendment at Report stage. I hope, therefore, that the noble Lord will be happy with that and will agree to withdraw his amendment in a moment.

My noble friend Lord Stanley raised a general question about rent. I am grateful to him for giving me notice of the points he wished to make. It is, I suppose,

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inevitable that the laws of supply and demand will always be of some significance in agriculture, as elsewhere in the commercial business world. Agriculture continues to be an attractive way of life for many people, despite my noble friend's doubts. The capital costs of buying a farm make that means of entry impractical for all but a few people. Those who get the rare chance of a tenancy under the 1986 Act will bid high to secure the opening, with the knowledge that at worst they will have three years before a rent review pegs back the rent to a realistic level.

When the Bill is enacted, scarcity value will not be a factor with tenancies under the 1986 Act because, save for the few exceptions dealt with in Clause 4, no new tenancies can be granted under it. An arbitrator proceeding under Schedule 2 to the 1986 Act is required to disregard any element of rent which is due to scarcity. Further, he may only consider evidence as to comparable rents from 1986 tenancies alone. To that extent, I do not think that there will be knock-on effects arising from the Bill for rent reviews determined at arbitration.

My noble friend's anxiety lies, I think, with the related earnings capacity aspects of rent where a tenant wishes to acquire nearby land which will be run with his own farm. Paragraph 2(b) of Schedule 2 to the 1986 Act defines the term "related earnings capacity" in respect of paragraph 1 of the schedule. What is being decided is the actual farming potential of the holding and the amount of income that can then be gained from it. Where a tenant acquires land nearby to his holding, paragraph 3(b) of the schedule requires the arbitrator to disregard any element of rent attributable to that factor. So I do not believe that paragraph 2 of the rent schedule has the meaning which my noble friend may fear that it has. The thrust of the second schedule to the Act is to narrow down, so far as possible, the rent which is fair for the actual land comprising the holding itself, setting to one side associated but not directly relevant factors. I hope that those remarks will be helpful to my noble friend.

Lord Gallacher: First, I thank those Members of the Committee who have spoken in favour of the amendment and most of all the noble Earl for what he said about it. In the light of his statement and his willingness to look at the principle underlying the amendment and perhaps bring forward an amendment of his own which may implement that principle in accordance with the representations made to him by the industry organisations, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carter moved Amendment No. 37:

Page 5, line 28, after ("is") insert ("stated").

The noble Lord said: We can deal with this amendment extremely briefly. I am advised that for the avoidance of doubt and for clarity the word "stated" should be introduced into the last line of Clause 9 so that it would read,

    "but otherwise is stated to remain fixed",

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rather than the words in the Bill. Having moved a previous amendment on the ground that something was otiose, I now wish to introduce this amendment for the avoidance of doubt and for clarity. I beg to move.

Earl Howe: I can deal with this briefly. The amendment is unnecessary. Clause 9(b) begins with the words "provides that". If one follows the grammar through, that achieves the result which the amendment seeks. What the amendment would do is to create an ungrammatical sentence because it would effectively state:

    "provides that the rent is ... but otherwise is stated to remain fixed".

The sense of the clause is that it provides that the rent is to remain fixed, not that it is stated to remain fixed. I hope that when the noble Lord comes to read Hansard he will see that the grammar is correct as the Bill stands and does not need to be elaborated.

Lord Carter: It makes a change, instead of being accused of being otiose, to be accused of being ungrammatical. I shall have to refer this to those who thought the point was important and shall repeat to them clearly what the Minister said. Now that I read the wording, I believe he is correct, so I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 agreed to.

Clauses 10 and 11 agreed to.

Clause 12 [Appointment of arbitrator]:

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