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Lord Gallacher moved Amendment No. 38:

Page 7, line 2, at end insert:
("(2) The list of arbitrators from which the President of the RICS makes his selection under subsection (1) above shall not include land agents in the full time employment of land-owning persons, corporations and trusts.").

The noble Lord said: I hasten to say that the amendment is not intended to reflect on the impartiality of the professionals. It is meant to ensure that no suggestion of professional experience or interest could cloud or cast doubt on the fairness of any award. We see that as something which is worthy of consideration in such a Bill and I look forward to hearing what the Minister has to say about a limitation of the kind which is included in Amendment No. 38. I beg to move.

The Earl of Kinnoull: The noble Lord, Lord Gallacher, is always so charming in the way that he puts amendments. When I first read it, I thought that it was possibly a serious slur on the fairness of arbitrators. As a surveyor, I spring immediately to the defence of the President of the Royal Institution of Chartered Surveyors. The system under which arbitrators are chosen is very careful. The president produces his list, which is approved by the Lord Chancellor. Each year the arbitrators go through training courses. There is no question but that they are very well qualified. I have never known a case that has been referred either to the Lands Tribunal or the courts for judicial review on the basis that an arbitrator has been incompetent. I believe that arbitrators do a tremendous job, which is very technical, for farming and agriculture and for landlord and tenant. I for one am proud of what they have been

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able to do. I believe that to put in this provision, even with the gentle wording of the noble Lord, Lord Gallacher, is bound to cause an awful upset within the profession. It is a slur on those who act for one side of farming and who apparently will not be able to detach themselves in the appropriate manner as they do.

The Earl of Courtown: I agree with what my noble friend has just said. One could just as easily say that agents who acted only for tenants should not be included.

Earl Howe: I should like to associate myself with the remarks of both my noble friends. I too am tempted to be beguiled by the way that the noble Lord, Lord Gallacher, moved this amendment. But the way it reads suggests that there are those who are under the misconception that land agents, particularly those employed by landowners, corporations and similar bodies, are bound to be landlords' men in some sense. That is not the case. No doubt many of them are experienced members of their profession, and that is likely to be a very good qualification for an arbitrator. Anyone who accepts an appointment as arbitrator is well aware that he must act impartially. If he fails to do so not only will he be guilty of professional misconduct but his award can be set aside by order of the court.

If this amendment were to be pursued, it would bar from acting as arbitrators a number of experienced and well qualified people who might be members of the Lord Chancellor's panel. I do not believe that that is in the interests of landlords or tenants, and I hope that the noble Lord will feel able to withdraw the amendment.

Lord Gallacher: I note what has been said about the amendment. I accept that it is a somewhat difficult amendment to table, and perhaps an even more difficult amendment to move. At times I have been an arbitrator, and I hope that in spite of a professional qualification I have always discharged my duties in the interests of both parties. I cannot say that they have always felt that, but nevertheless I have tried to do it. In the light of what has been said, I accept the assurances that have been given. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9 p.m.

Clause 12 agreed to.

Clause 13 [Amount of rent]:

Lord Carter moved Amendment No. 39:

Page 7, line 10, leave out from ("let") to ("taking") in line 11 and insert ("by a prudent and willing landlord to a prudent and willing tenant").

The noble Lord said: In moving Amendment No. 39, I wish to speak also to Amendments Nos. 40 and 41. On reading the amendments, your Lordships will appreciate that they deal with the fixing of rent. I do not think that the noble Earl will be enthusiastic about them, and I expect the industry agreement to be quoted at me. The wording has been adapted from Schedule 2 to the 1986 Act. We have omitted the more precise definitions. It seems that the Government and industry organisations in agreeing the package are firmly committed to the open market principle. I believe that we should take a

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little time to see why they have reached that conclusion, what they mean by the open market and what is likely to happen.

We feel that neither the Government nor the industry group should be able to push this through without having to justify their position to Parliament and to the many farmers outside Parliament who will be interested in our deliberations. The wording of Clause 13 of the Bill has been taken from Section 2 of the Agriculture Act 1958. The main purpose of that section was to place a sitting tenant in exactly the same bargaining position vis-o-vis the level of rent determined in arbitration as a new tenant of the holding, with account being taken of the sitting tenant's improvements. We know that after only a few years of operation the open market approach was totally discredited and rejected by both landowners and tenants. We understand that the industry group argue that the circumstances are now different from those that applied after the 1958 Act. For the life of me, I cannot see why. I wonder whether this is another of the trade-offs that we have already seen. We shall be coming to the trade-offs on tenant compensation. Perhaps this is the other trade-off, which is a return to the open market concept.

For many years landowners have complained that they are not getting a fair return on capital and that rents have not risen in line with increases in farm profits. It is not entirely clear how they arrive at that conclusion or how a fair return may be estimated. In the past the shortcomings of the notion of a fair return have been analysed by, for example, the NFU, who have used the following arguments. Owners of farmland here and in Europe expect to receive a lower return on their capital than for an equivalent amount of money invested elsewhere in the economy. That is partly because history has shown that agricultural land is a useful hedge against inflation, and the analogy often used is that of gilt-edged securities. The dividend paid is low but the investor has the security and the prospect of future gains on sale. Another argument advanced in the past by the NFU and others is that the ownership of rural land is seen to carry a social prestige. Rural landowning is a bundle of human attributes, including the amenity value of a house in the country and a role and recognition in the rural community.

It is also well known that substantial capital gains are to be made if a development value can be realised. Often hope value is built into the investment. This is particularly strong in the purchase of farmland on the urban fringe. Another argument advanced by the NFU for the low return on agricultural land is that valuable sporting, timber and mineral rights are attached to many purchases of farmland. Therefore, income is not purely a matter of what can be extracted from agricultural letting.

These factors account for the difference between the capitalisation value of farmland and the higher value that that land will achieve on the open market. I suppose that, when the rental return is described as unfair, the question to ask is: unfair in relation to what? Other investments do not seem to bring with them the same range of benefits.

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During the passage through Parliament of the 1958 Act, the CLA was far from happy about the use of the "open market" test without the discounting of "scarcity value", as referred to in earlier amendments. This practice was first advocated by the CLA in a booklet on agricultural rents published in 1957. The effect of the 1958 Act was to give rise to a steep increase in rents demanded.

The farming organisations—not the CLA, but the others—were then united behind the principle that rents should relate to the amount that a reasonably efficient farmer, making full use of the land and fixed equipment, could be expected to pay—that is, that the rent should be an economic one. It is interesting to know why there has been a change, and what are the trade-offs which have been achieved to make it worthwhile. It is important that those outside this Chamber who, if they do not read Hansard, will read reports in the agricultural press, should be clear exactly why the industry group reached its conclusion and accepted the "open market" yardstick which in the past it deplored.

We know that there is not an open market in tenanted farms. We know about the level playing field or its absence between landlord and tenant and we do not need to repeat it. We know the way in which the scales are weighted. As I said before, there is a curiosity in the market in farmland: if a commercial property is let on a good covenant to a substantial tenant over a long period of years, it has a higher value than a vacant property. Exactly the reverse happens with agricultural land: land which is let on the long term will have a lower value. The famous vacant possession premium has a lower value than the vacant land. That is partly a factor of legislation and taxation.

As I said at Second Reading, I understand why the landowning interests in the group are interested in the Bill. It will mean an increase in the value of the land which they let. I can understand why the Government are interested in the open market. It is a part of their ideology and it is understandable that they want to apply it. In fact, I do not believe that there is an open market. The tenants who apply for farms will quickly find that out. The demand will exceed the supply and rents will go up. We are not talking about shirts and socks or office buildings; we are talking about our rural landmass and the way in which it is handled; we are talking about people's homes and livings which are attached to farm tenancies.

For all those reasons, we feel that it is important that when the rent is considered by the arbitrator—we have put together a number of amendments and if the Government were minded to accept them I should be happy for them to redraft them, although I do not believe that they will accept them —there should be emphasis on the prudent and willing landlord and the prudent and willing tenant, as opposed to the willing landlord and the willing tenant. I do not believe that anyone could object to the insertion of the word "prudent", unless the Minister will tell me that it is otiose. We have emphasised the character and the situation of the holding, including the locality in which it is situated; the productive capacity and all the things

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which one would expect to be taken into account, such as its related earning capacity; and the current level of rents for comparable lettings, excluding any consideration of scarcity; also, the earning capacity of the holding—this is the crucial point—to ensure that the rent payable is one which can be generated from the farming of the holding in question.

We are coming to the end of today's proceedings, and I do not wish to detain the Committee. But this is a crucial debate, which goes to the heart of the system that the Government propose. I entirely understand why the Government take the line that they are pursuing. They have persuaded the industry group that the open market is the way to deal with the matter. I am surprised that the three members of the group have fallen for that approach. I wonder whether those members realise what they have agreed to, just to have an Agricultural Tenancies Bill in front of Parliament with the provisions that it contains. We shall have to think about this matter very hard.

To save the Minister time, let me say that I expect him to reject these amendments. I should be surprised if he did not do so. We shall certainly wish to return to the matter and make it absolutely clear outside this Chamber what "open market" means. It means higher rents—I am quite certain of that, because of the situation; the landlords will not mind that. It means under this Bill that let land will start to claw back on the vacant possession premium; the landlords will not mind that, either. I want to be absolutely sure that everyone understands the meaning of those simple words "a willing landlord to a willing tenant" in the "open market" (which I do not believe exists) and what the effect will be on farm rents. Everyone must understand the cost to farmers who are facing the policies that we all support in relation to the reform of the CAP and who wish to bring the farm gate prices down to more realistic levels related to world prices. If that happens, we are told that there will be a knock-on effect, with pressure on farm costs. Working against that will be the results of this Bill, which will drive up that most crucial cost for the farmer; namely, the rent of the land that he hires from the landlord.

For all those reasons, this is an important subject. We shall wish to return to it both inside and outside this Chamber. I beg to move.

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