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The Earl of Kinnoull: This is an important debate and the noble Lord, Lord Carter, is very experienced in this field. However, I am not sure that he recognises one point. He seems automatically to assume that the open market system will increase rents dramatically, irrespective of the returns in farming. I am not sure whether that is realistic. I am sure we all hope that the Bill will work because it has many very good points. Fundamentally, it is good for farming. If the Bill works, then under the arbitration system there will be open market rents. There will be plenty of examples which the arbitrator can use. It will not be artificial; it will be real. Whatever one might say, farmers are not fools. Young farmers, particularly, are not fools. They will not bid for something in the open market in order to start

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on the ladder knowing that they are buying real trouble. I do not share the noble Lord's automatic fear. I respect it, but I do not share it.

9.15 p.m.

Lord Carter: It may be helpful if I respond to that point immediately. Let us look at what happens when one is preparing a budget to help someone to tender for a farm. I have prepared many such budgets as I am sure have other Members of the Committee. One works out what the applicant can afford to pay and then one asks him how much more he is prepared to pay in order to get the farm. Often the figure will be perhaps one-third above what one has shown on the budget is the economic rent for the farm. I can see noble Lords opposite nodding. They know what goes on. That is exactly what happens. Under the 1986 Act at least there are these other factors to be taken into account. But that will not happen under the Bill. The open market will be the open market. I ask the noble Earl whether he knows of a market where demand exceeds supply and the price goes down.

Lord Stanley of Alderley: I wonder whether my noble friend can answer one question on this amendment. It is a simple point. Perhaps I should know the answer. Will the open market take into account variation in land? I can see a situation whereby land is let in an area for X rent and then another piece of lower quality land becomes available. Will the fact that it is not of the same quality be taken into account? I am not sure whether that point is taken into account.

Earl Howe: I have listened very carefully to the noble Lord, Lord Carter, on all three of the amendments. Amendment No. 39 would in its main effect require an arbitrator to determine rent on a basis very little different from that set out in the 1986 Act. At the risk of boring the noble Lord, I would remind him that the industry agreement on tenancy law reform is quite clear that the arbitrator must assess the rent on the basis of the open market value which would be agreed between willing parties. That is what we have given effect to in the Bill.

Clause 13 requires the arbitrator to assume a willing landlord and a willing tenant. It is true that the word "prudent" is omitted. However, the vital test in determining the rent at which a holding might reasonably be expected to be let is that all relevant factors must be taken into account. The Bill quite rightly leaves it to professional judgment as to which factors are relevant to a particular rent review and to what extent a holding can generate sufficient income to enable the rent to be met. Prudence is a great virtue; virtue is a grace; and I am confident that arbitrators are fully seized of the need for prudence in running a sustainable business. Equally—I think this answers the noble Lord's anxiety on the amendment —Clause 13(2) already implicitly provides the means for prudence to be a relevant factor, among many others, in the arbitrator's task.

Many of the same arguments apply to Amendment No. 40 with all the various factors that it lists. It is professional judgment which should determine what factors are relevant to a particular rent review, not a

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predetermined list such as this one. The Government have sought to put the prescriptive approach of the 1986 Act into the past and to provide leaner, fitter legislation which will best serve the long-term interests of the agricultural industry. Noble Lords opposite sometimes appear determined to change only a few words in the 1986 Act and call that the Agricultural Tenancies Bill. Such an over-prescriptive approach will simply not do. How can any professional arbitrator fail to take account of the character and situation of a holding or its productive capacity if required by Clause 13(2) to take into account all relevant factors? The simpler, deregulatory provisions of Clause 13 provide what the industry itself has told us that it wants to have as regards rent. The professional interests clearly support the Bill's approach to rent and see no particular difficulty in carrying out their responsibilities under it.

Finally, turning to Amendment No. 41, Members of the Committee will not be surprised to hear me say once again that rent arbitration should not be subject to prescription. Again, there is nothing in this amendment which is not covered by the requirement in Clause 13(2) that all relevant factors must be taken into account, including in every case the terms of the tenancy agreement. The clause as drafted reinforces the point that in every rent review the arbitrator must take into account the terms of the tenancy, with the exception of any terms about the manner in which the rent is determined as these are over-ridden by Part II of the Bill.

Amendment No. 41, tabled by the noble Lord, in fact has the effect of restricting rather than extending the list of factors to be taken into account because the amendment requires rent to be generated by the farming of the holding and omits any reference to non-farming activities. To take an obvious example, the noble Lord's amendment would not allow the arbitrator to take into account any revenue generated by a caravan site, by a pony trekking enterprise, or by something of that sort. Clause 13 as drafted does do that. One of the advantages of the clause, as drafted, is that it gives an arbitrator the flexibility to take into account both the earning potential of farming and also of any non-agricultural activities which the tenant is permitted to carry out and on which he is engaged at the time of the rent review.

With that, I hope that the noble Lord will recognise that Amendment No. 41 is inherently unsatisfactory, quite apart from its broader demerits, and that these amendments will not find favour on this side of the Committee.

The Earl of Kinnoull: Before the noble Lord responds, perhaps I may refer to his question about advising a young farmer to go into a farm, work out all the calculations and then add another third in order to get the farm. That may be so for someone coming into the industry, but here we are dealing with an arbitrator with a landlord and tenant in an existing place. With all his experience, I do not believe that the noble Lord can point to an example where a farm had gone for an extraordinary price in order for that young farmer to get into the farm and that an arbitrator would be swayed by

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that. That would not really be the open market price, but an exceptional one. Arbitrators are very experienced people.

Lord Carter: I am extremely grateful to the Minister and other Members of the Committee. I am reminded of a remark which was made, when I was on the Northfield Committee, by the senior partner in a well-known firm of land agents. He pointed out that the arbitrator is extremely sophisticated, expensive, and has the ability to divide by two.

I expected the response which I received and I was grateful for it. The Minister has a point about all the relevant factors. It will be interesting to read Hansard because we know from the Minister what all departments say in the course of the Bill, which can be looked at. I believe that arbitrators and those who advise, will be looking to see what the Government believe are relevant factors such as earning capacity and the local situation.

I still remain of the view that there will be plenty of willing landlords because there usually are if Christmas comes early. I am still concerned that arbitrators will be looking at what is described as the "open market rent". What they regard as a relevant factor would be a matter of argument between the two sides, between the landlord and the tenant and the arbitrator.

I believe that there will be upward pressure on rents, as there is already, in regard to farming in certain sectors. That may well change. I still believe that the scarcity of farms will be such that it will mean that the need for some form of prescription will be necessary if the tenant is to be protected.

I am not surprised that the Government do not like this approach. All their concern is for simplification and I am a little anxious that the tenant is being thrown out with the bath water. We shall read with care what the Minister has said and we may wish to return to this in a different way at a later stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 40 and 41 not moved.]

Lord Gallacher moved Amendment No. 42:

Page 7, line 18, at end insert ("and did not amount to a premium or equivalent,").

The noble Lord said: One of the intentions of the industry agreement in relation to rent-setting is to ensure that any premium that may have been paid by the tenant, whether as a straightforward payment or by some other means of investment and improvement, should not lead to an increase in the rent. In other words, the tenant should not be subject to double taxation, which means paying a premium for an improvement to the holding and subsequently having to pay a higher rent which reflects the increased rental value which the improved holding commands.

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It is essential for tenants' confidence in the new law that they should be safeguarded on this point. It is in order to give tenants that confidence that we have tabled the amendment. I beg to move.

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