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Lord Carter: Before the noble Earl decides what to do with the amendment, perhaps I may say that we have had a lot of discussion about the impecunious landlord; we now have the nervous landlord as well.

The Earl of Kinnoull: I am somewhat nervous about what to do because the noble Lord, Lord Northbourne, is not present and I feel that he had a good point. I am not privy to the discussions which the Government have had with the arbitrators, the Royal Institution of Chartered Surveyors and all those who know a great deal about the subject. Although I shall be happy to withdraw the amendment, I should like to feel that the matter may be reconsidered. I should also like to take advice from outside before we reach another stage. I beg leave to withdraw the amendment.

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Amendment, by leave, withdrawn.

[Amendment No. 70 not moved.]

Clause 19 agreed to.

5 p.m.

Clause 20 [Amount of compensation for tenant's improvement not consisting of planning permission]:

The Earl of Kinnoull moved Amendment No. 71:

Page 9, leave out line 45 and insert ("landlord's reversion").

The noble Earl said: In moving Amendment No. 71, I should like to speak also to Amendments Nos. 72 and 73. This is an important amendment as Clauses 20 and 21 deal with compensation.

The provisions relating to compensation for tenants' improvements are spelt out in Clause 20(1). The compensation is to be,

    "an amount equal to the increase attributable to the improvement in the value of the holding at the termination of the tenancy as land comprised in a tenancy".

I understand that that compensation has been agreed by the industry, but I am nevertheless advised that it could prove to be extremely unfair because when a valuer sees a very specialised improvement, which is suitable for the tenant and his business but which may not be at all suitable for another tenant or, indeed, for the holding, the landlord will be subject to paying compensation for something that will be worthless to him in the future. I say that because the valuer will look at the improvement and say, "That improvement is worth £x per acre in addition to the existing rent". That will be a notional rented figure. The valuer will then take another notional figure, the year's purchase, and will come to a compensation figure. The valuer will not look at what I think he should look at, which is the question of the value of the improvement to the landlord's interest upon the termination of the tenancy.

That is why I have tabled this amendment which seeks to substitute the basis of the compensation to the "landlord's reversion". It is an important amendment. It is not just a landlord's amendment. It is intended to seek parity between the parties. In a way, it is a technical point about valuation. It endeavours to encourage the furtherance of the Bill because compensation for improvements is a very important feature of the Bill. I beg to move.

Lord Carter: I can see the point that the noble Earl is making. It is a fair point, but presumably the landlord will have given his consent to the improvement otherwise it would not be up for compensation. Having given his consent in the knowledge of what the improvement was likely to do to the farm, the landlord cannot really then turn round and say, "It isn't worth what I thought it was, so it isn't worth as much as the tenant thinks because of the increase in the value of the holding". As I have said, I can see the point that the noble Earl is making, but if the landlord has given his consent, does he not ultimately have to accept what the valuer says?

Earl Howe: I am grateful to my noble friend Lord Kinnoull for his explanation of the amendment. I am not persuaded that this amendment would set a more

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appropriate basis for compensation. Clauses 20 and 21 as drafted refer to the increase in the value of the holding as land comprised in a tenancy. This is based on the assumption that the holding is re-let to another tenant, which seems the most reasonable assumption. I have to confess that I have not had time to consider in detail precisely what effect the amendment would have, but I am advised that in practice it might have two effects. First, if the landlord was intending to use the land for non-agricultural purposes when the tenancy terminated, there is a risk that the tenant's improvements would be assessed as having no value to the landlord's reversion. The tenant would then get no compensation, which is clearly unacceptable. The second effect would be that in the case of compensation for planning permission, the landlord might be the loser. This is because the amendment would appear to require him to pay the full increase in the value of the landlord's reversion, instead of the increase due to planning permission for the specific improvement that the tenant was intending to make. This is not an easy issue, but I can say that we consulted the industry organisations, including the Central Association of Agricultural Valuers, on this specific point and none of them saw any difficulty with the wording that we used.

With regard to my noble friend's opening remarks, I think he was addressing a separate point when he tried to suggest that there might be circumstances in which a landlord found himself paying over the odds for improvements at the end of the tenancy. If my noble friend will allow me to do so, I should like to discuss that matter when we reach Amendment No. 72. Therefore, if he will forgive me, I shall not cover that very important point now although I believe that I can deal with it satisfactorily. I hope that my noble friend will feel sufficiently reassured to withdraw his amendment.

The Earl of Kinnoull: I am grateful to my noble friend, although I cannot say that I am reassured because the subject is quite technical. Therefore, I should like to take his answer away and to consult outside advisers. Perhaps I shall be able to meet my noble friend before the next stage of the Bill.

The noble Lord, Lord Carter, referred to the landlord giving consent. Despite the fact that the landlord has the material right not to give consent, the tenant can refer the matter to arbitration and the arbitrator may rule in his favour.

Lord Carter: Before the noble Earl sits down, if the tenant has gone to arbitration and the arbitrator has ruled in his favour, surely the noble Earl is not suggesting that the improvements should be down-valued. After all, although consent has been given via the arbitrator rather than directly, it has still been given and the landlord cannot really expect some change in the basis of the value.

The Earl of Kinnoull: It is perhaps easier if one describes a case. Growing crops such as cauliflowers or brussel sprouts can be intensive, and to maximise the crop value one has to erect certain buildings and to buy certain equipment. It could well be that both the tenant and the landlord see that as a good thing, but the tenant

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may, sadly, suddenly die and the landlord will be left with a massive operation for which he cannot find a subsequent tenant. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Kinnoull moved Amendment No. 72:

Page 9, line 45, at end insert ("let to a tenant of average skill and competence in the agricultural systems commonly practiced on similar land in the district.").

The noble Earl said: I shall move the amendment briefly, because I believe that my noble friend wishes to make an important statement on the point. So that I do not misconstrue the purpose, I beg to move.

Lord Carter: We can only wait with bated breath to hear what the Minister is going to say.

Earl Howe: I am grateful to my noble friend for giving me the opportunity to speak to the amendment, which raises an important point.

I am sure we all agree that a landlord should not have to pay a large amount of compensation on an improvement which will be of no use to an incoming tenant. I am advised that that is already achieved under Clause 20(1) as drafted and that this amendment is therefore unnecessary. The amendment as drafted is in any case somewhat narrow because it refers only to the competence of the incoming tenant in matters of farming, whereas, of course, some of the improvements on a diversified agricultural holding will be non-agricultural.

It may help if I explain how Clause 20(1) will work in that respect. It requires the value of the improvement (and hence the compensation) to be based on the extent to which the improvement increases the value of the holding, on the assumption that the holding is relet. If an improvement were of a highly specialised nature there would be little or no demand for it and it would not increase the value of the holding to any great extent. Therefore it would not attract an over-large amount of compensation.

There is, of course, the additional safeguard that the landlord or an arbitrator—as the noble Lord, Lord Carter, pointed out on a previous amendment—must give consent to the improvement if the tenant is to be eligible for compensation. An arbitrator, who must have regard to the circumstances of the landlord as well as those of the tenant, is unlikely to consent to an improvement that would be of no use either to the landlord or to future tenants of merely average competence.

In the light of that explanation, I hope that my noble friend will agree to withdraw his amendment.

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