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Lord Middleton: I understand and sympathise with the concern that the tenant should not have to pay a premium or provide a fixed equivalent for a tenancy and then pay a higher rent because of its effect on the value of the holding. I should have thought that this is another case where the point is covered in Clause 13(2) which states that "all relevant factors" are to be taken into account.

Earl Howe: I am grateful to the noble Lord for moving this amendment and to my noble friend for his remarks.

I agree that, where a tenant has been obliged to make improvements to the holding under the tenancy agreement and has received no benefit in return, this amounts to the equivalent of a premium. As many noble Lords will know, the industry agreement stated that any premium or equivalent would be taken into account when an arbitrator determined the open market rent at a rent review. I take this to mean that where a tenant had paid a premium or equivalent to obtain a tenancy, he would not then be penalised throughout the tenancy by having to pay a higher rent.

The desired result is achieved by the requirement in subsection (2) of the clause that the arbitrator should take into account all relevant factors, as my noble friend pointed out. Where the tenant has paid an actual premium—in money terms—the arbitrator will have to inquire into what benefit the tenant received on account of the premium. It may be that the tenant received benefits such as grazing rights on other land which account for the premium; or it may be that some, or possibly all, of the premium was reflected in a reduced rent. So where the tenant does not receive a benefit, the arbitrator applying the rent provisions as drafted here will have to determine such a rent as might be expected to be paid at the review date by a tenant paying a premium. He would need to assume that that premium was the equivalent at the review date of whatever premium was in fact paid by the tenant at the outset of the tenancy.

Where, instead of paying a premium in money terms, the tenant undertakes to make an improvement—say, the building of a barn—the same principles will apply. The tenant will in effect be let the land and the barn, but he will be out-of-pocket for the cost of the barn just as if he had paid a premium. At the review date the arbitrator will have to determine what benefits, other than the use of the barn, the tenant received for his outlay. If he can find none, he must assume that the burden of the cost of the barn was reflected in a reduced rent. In such a case the arbitrator will determine a new rent for the land, including the barn, likely to be paid by a tenant taking a lease on terms which include an obligation by him to make these improvements. Again, the arbitrator would take equivalent cost at the review date of whatever the cost of the barn was when it was

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erected. So by looking at all relevant factors the arbitrator will have arrived at the result that is sought by this amendment.

I trust that that somewhat complicated explanation will satisfy the noble Lord that this amendment is not needed in order to achieve the desired result in accordance with the industry agreement.

9.30 p.m.

Lord Gallacher: The Minister said that the matter was somewhat complicated. That is the truest statement he has made this evening. I shall study carefully in the sober cold of morning what he has had to tell me. I shall take what he has had to tell me to those who asked me to put down the amendment. I shall ask them whether they are satisfied, in view of the unstinted testimonial paid to arbitrators by other speakers this evening. If they are, the Minister will hear no more from me. If, on the other hand, they are not, I shall be back to speak to him on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carter moved Amendment No. 43:

Page 7, line 31, at end insert:
("( ) On any reference made in pursuance of a statutory review notice, the costs payable by the tenant to the arbitrator shall not exceed 20 per cent of the annual rent due under the tenancy.").

The noble Lord said: The amendment deals with the vexed question of the costs of arbitration. We all know that as professionals we often have to advise tenants, although they might appear to have a good case, not to go to arbitration because the costs of arbitration will swallow up any benefit they might achieve from the results of the arbitration. There has been a case recently in the North West where the costs of the arbitration were £150,000. That may be exceptional, but I have been involved in arbitrations and it is an expensive business. In some cases it tends to be a bit of a threat in the landlord's hand to imply, "Of course you can go to arbitration, if you like. I can stand the cost, can you?".

That is not fair. The amendment is not perfect by any means. It is an attempt to flush out the point about the cost of arbitration and to ask the Government whether they are happy with the situation. I suppose that the Minister will tell me that there is an open market in arbitration as there is with anything else. That is not the case. Arbitrators are appointed. They work to a fixed scale fee. The arbitration often drags on and the tenant may find himself in for a pretty big bill. Most tenants are poorer than most landlords. That does not apply in every case, but in most.

We suggest that one way around the difficulty—it is not the only one—would be to say that, if the reference is made in pursuance of a statutory review notice, the cost to the tenant should be limited to 20 per cent. of the annual rent. One could perhaps find other ways of doing it. I should like to get on record the Government's view about the costs of arbitration and whether they agree that on the whole the tenant, in terms of costs, is

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at a disadvantage, and whether they are prepared to take any steps to see whether the cost to the tenant could be limited. I beg to move.

Earl Howe: I find what the noble Lord said very interesting. I was rather surprised when I saw the amendment. It seems to stem from the assumption that, where there is a dispute about rent, the tenant is always right and the landlord always wrong. I have to say that I find that implausible.

Everyone knows that arbitration is relatively expensive. It is bound to be, because arbitrators are experienced members of their profession and they have to be paid for the time they spend on a case. Parties, knowing that, should go to arbitration only if it is absolutely necessary. They should always try to reach agreement first. They should also take steps to limit the costs so far as they can. I understand that the RICS has produced guidance on that point.

In an arbitration, the usual practice is for the costs to follow the award. The amendment would not change that. But it may be that the noble Lord intends such a change, so there is a likelihood that whatever the outcome the landlord would have to pay the greater share of the arbitrator's costs. I consider that to be unacceptable. I do not find any attraction in that idea. It would be inherently unfair. I hope that the noble Lord will feel able to withdraw the amendment without further ado.

Lord Carter: I am not surprised that a member of the Conservative Party has to defend the rights of impecunious landlords. It is an important point. As I said, there are weaknesses in the amendment but it was tabled in order to draw attention to the problem. We will look again at the matter to see whether there is another way. Of course, I do not accept that the tenant is always right and I agree with the Minister in that respect. We are anxious to find a way to restrict the costs of arbitration, but perhaps we cannot do that in this Bill. I argue that as regards arbitration the landlord is in a stronger position than the tenant. Normally, his pockets are deeper but perhaps we can think of another way to resolve the issue. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 13 agreed to.

Clause 14 agreed to.

Lord Inglewood: I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

London Local Authorities (No. 2) Bill [H.L.]

Reported from the Unopposed Bill Committee with amendments.

        House adjourned at twenty-five minutes before ten o'clock.

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