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Page 7, line 13, at end insert:
("( ) In arriving at the rent payable under subsection (2) above, the arbitrator shall also take into account the earning capacity of the holding to ensure that the rent payable is one which can be generated from the farming of the holding in question.").

The noble Lord said: My Lords, with the amendment we return —it is important that we do so—to the important question of the fixing of the rent, and the difference between the Government, who believe in the open market, and our suggestion that there should be some reference at least by the arbitrator to the earning

23 Jan 1995 : Column 904

capacity of the holding to ensure that the rent payable is one which can be generated from the farming of the holding in question.

That depends upon what one means by the open market, earning capacity, and so forth. There is an assumption as to the concept of the open market, and according to the economic textbooks—I must be careful, as I see that my noble friend Lord Eatwell has joined us—there should be equality of power and information between the buyer and seller to make an open market.

We know that that is not the case in agriculture. In fact, it is the case in very few markets. The land market is a difficult one. There are the wider environmental aspects, the concept of the stewardship of land, and what the economists call the externalities and access, together with a number of other things. The land market is not the normal market where there is equality between buyer and seller if, indeed, that can be found in any market.

I suspect that the Minister will give much the same reply as he did in Committee when he said that it was all right because all the arbitrator has to do is to take into account all the relevant factors. The Government studiously avoided any attempt to define what they meant by the relevant factors, but they say in Clause 13(2),

    "all the relevant factors, including (in every case) the terms of the tenancy".

It is interesting to compare and contrast what they say about the arbitrator in Clause 13(2) with what is said in Clause 19(4) which relates to a reference to arbitration of a refusal or failure to give consent for a tenant's improvement. It states:

    "The arbitrator shall consider whether, having regard to the terms of the tenancy and any other relevant circumstances"—

we change from "factors" to "circumstances"—

    "(including the circumstances of the tenant and the landlord)".

Presumably we have to infer that in Clause 13(4), where the circumstances of the tenant and the landlord are specifically excluded, the Government intend that all the relevant factors that the arbitrator shall take into account shall exclude the circumstances of the tenant and the landlord, because had they wanted to include those matters presumably they would have put the words in as they have done in Clause 19(4). I expect that the Minister will tell me that the use of the words,

    "the earning capacity of the holding"

raises the problem of removing the earnings out of the equation of the non-farming activities and diversification activities. Of course, that is covered because, if the farm meets the business condition in Clause 1(2), where the word "farmed" is used,

    "all or part of the land comprised in the tenancy is farmed for the purposes of the trade or business".

The Government are happy that that phrase should include all the non-farming activities. So that point can be dealt with easily.

While we are on the subject of arbitration, it would be helpful if the Minister would clarify a misunderstanding which has arisen in discussions outside the House. We referred in Committee to "pendulum arbitration" which occurs in Clause 19(5)—in other words, the arbitrator can only unconditionally approve the provision of the

23 Jan 1995 : Column 905

proposed tenant's improvement or may withhold his approval. That unconditional approval or refusal (the pendulum arbitration, as it has been called) relates only to the provision or otherwise of the tenant's improvement before it is provided.

The idea has grown up that that applies also to arbitration on all the other matters. I hope that the Minister will confirm that it is intended that the normal arbitration procedure will apply to matters such as rent fixing, the value of tenants' improvements and so forth, and that the arbitrator's unconditional power—we shall be coming to that in a later amendment, but it is helpful to raise it now —applies only to that specific circumstance, and not to the general run of arbitration which, as I say, deals with rent, the value of tenants' improvements and other matters.

I return to the weaknesses, as I see them, of the open market. There is supposed to be an open market in the purchase, sale and leasing of milk quotas. Of course, that is an entirely artificial market and artificial situation that produces artificial prices. With the advent of the farm business tenancy, that is likely to happen in respect of the land market. Under the Bill, the same could happen to rents.

Acceptance of the amendment would help to overcome the problem that will undoubtedly arise for arbitrators. They will have to arbitrate on rents, effectively, under two Acts of Parliament—those tenancies which fall under the 1986 Act and those which fall under the new Act. The arbitrators must separate their thinking when considering such problems. I believe that however hard they try they will find that extremely difficult. Acceptance of my amendment will help to overcome the problem.

I hope that in the light of those comments the Government will reconsider the matter. I know that the wording of the amendment is not perfect but I hope that the Government will introduce an amendment indicating that not only the open market is involved. There should be some minimal direction to the arbitrator regarding the earning capacity of the holding. I beg to move.

Earl Howe: My Lords, the amendment tabled by the noble Lord is identical to Amendment No. 41, which we considered in Committee. As I explained at that time, the amendment has the effect of restricting the list of factors to be taken into account by an arbitrator at a rent review. Judging from the noble Lord's remarks, he has misunderstood the weight attached to the word "farming" in Clause 1. It would not embrace any non-agricultural enterprises. I shall deal with that matter in a moment.

The noble Lord elaborated further his fears about tender rents at open market levels. There is a natural tendency for people to bid high in order to secure a tenancy and, if the agreement permits a rent review at the customary three-year interval, they will not have long before what might be described as the "true" rental level can be assessed by an arbitrator. There is no particular difficulty there.

If a holding is being used for non-agricultural enterprises within the terms of the tenancy agreement that must be a "relevant factor" for the arbitrator to take

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into account. I recollect that the examples I gave in Committee were caravan sites and pony trekking enterprises. I might add the example of a farm shop selling the produce of a horticultural holding. Many other examples spring readily to mind. Why should the rent for holdings used in that way be determined solely on the basis of actual farming activities carried out? The inevitable consequence will be that landlords let land only on condition that agriculture will be the sole user.

The noble Lord asked about pendulum arbitration and rent reviews. As he said, a later amendment more naturally embraces the subject. Arbitration under Clause 19 is a simple yes or no to consent for an improvement. But the arbitration in respect of a rent review requires the exercise of judgment as to the rent that is properly payable. I hope that that answers the noble Lord's question.

I do not believe that the noble Lord has made his case; indeed, I see some grave disadvantages in it. I hope that my explanation will enable him to consider withdrawing the amendment.

Lord Carter: My Lords, I do not believe that I shall convince the Minister. I would have been happy to take the amendment away and redraft it or allow the Government to redraft it. The principle was accepted and that could easily have been achieved, taking into account the point the Minister made, if I had referred to the "occupation" of the holding in question rather than to the "farming" of the holding in question. I would have been willing to consider that change in order to meet the Minister's point. It is only a matter of detail, although I appreciate that it is an important detail. It could have been corrected in the drafting.

It is clear that the Government are intent that the open market shall hold sway, even though no one in the industry believes that there is a true open market on the letting of land. It is important that the industry outside this House realises where, in this regard, the Government are coming from and where we are coming from. The easiest way to make that clear is to ask for the opinion of the House.

5.55 p.m.

On Question, Whether the said amendment (No. 17) shall be agreed to?

Their Lordships divided: Contents, 78; Not-Contents, 117.

Division No. 3


Addington, L.
Archer of Sandwell, L.
Ashley of Stoke, L.
Barnett, L.
Beaumont of Whitley, L.
Callaghan of Cardiff, L.
Carmichael of Kelvingrove, L.
Carter, L.
Castle of Blackburn, B.
Cledwyn of Penrhos, L.
Clinton-Davis, L.
David, B.
Dean of Thornton-le-Fylde, B.
Desai, L.
Donaldson of Kingsbridge, L.
Donoughue, L.
Dormand of Easington, L.
Eatwell, L.
Ennals, L.
Ewing of Kirkford, L.
Falkender, B.
Falkland, V.
Farrington of Ribbleton, B.
Gallacher, L.
Geraint, L.
Gladwin of Clee, L.
Gould of Potternewton, B.
Graham of Edmonton, L. [Teller.]
Greene of Harrow Weald, L.
Gregson, L.
Harris of Greenwich, L.
Haskel, L.
Hilton of Eggardon, B.
Hollis of Heigham, B.
Howell, L. [Teller.]
Hughes, L.
Irvine of Lairg, L.
Jay of Paddington, B.
Jeger, B.
Jenkins of Hillhead, L.
Jenkins of Putney, L.
Judd, L.
Kennet, L.
Kilbracken, L.
Kirkhill, L.
Listowel, E.
Lockwood, B.
Longford, E.
Lovell-Davis, L.
Mallalieu, B.
Mason of Barnsley, L.
Mayhew, L.
McIntosh of Haringey, L.
Merlyn-Rees, L.
Meston, L.
Milner of Leeds, L.
Monkswell, L.
Morris of Castle Morris, L.
Mulley, L.
Murray of Epping Forest, L.
Nicol, B.
Ogmore, L.
Parry, L.
Prys-Davies, L.
Rea, L.
Redesdale, L.
Richard, L.
Rodgers of Quarry Bank, L.
Seear, B.
Sefton of Garston, L.
Stoddart of Swindon, L.
Strabolgi, L.
Thomson of Monifieth, L.
Tordoff, L.
Varley, L.
Wedderburn of Charlton, L.
White, B.
Williams of Mostyn, L.


Addison, V.
Ailsa, M.
Aldington, L.
Allenby of Megiddo, V.
Astor of Hever, L.
Astor, V.
Balfour, E.
Beloff, L.
Blaker, L.
Blatch, B.
Bledisloe, V.
Boardman, L.
Borthwick, L.
Brabazon of Tara, L.
Braine of Wheatley, L.
Brookes, L.
Butterfield, L.
Butterworth, L.
Cadman, L.
Caithness, E.
Campbell of Alloway, L.
Campbell of Croy, L.
Carnegy of Lour, B.
Chalker of Wallasey, B.
Clanwilliam, E.
Clark of Kempston, L.
Coleraine, L.
Courtown, E.
Craigavon, V.
Cranborne, V. [Lord Privy Seal.]
Crickhowell, L.
Cumberlege, B.
Dacre of Glanton, L.
Dean of Harptree, L.
Elton, L.
Faithfull, B.
Finsberg, L.
Flather, B.
Gardner of Parkes, B.
Gilmour of Craigmillar, L.
Goschen, V.
Halsbury, E.
Hardinge, V.
Harmar-Nicholls, L.
Harmsworth, L.
Hayhoe, L.
Henley, L.
Hertford, M.
Holderness, L.
HolmPatrick, L.
Hooper, B.
Howe, E.
Hylton-Foster, B.
Inglewood, L. [Teller.]
Jeffreys, L.
Kimball, L.
Kingsland, L.
Kinnoull, E.
Lawrence, L.
Layton, L.
Leigh, L.
Lindsay, E.
Liverpool, E.
Long, V.
Lucas of Chilworth, L.
Lucas, L.
Lyell, L.
Mackay of Ardbrecknish, L.
Mackay of Clashfern, L. [Lord Chancellor.]
Mancroft, L.
Marlesford, L.
McColl of Dulwich, L.
Mersey, V.
Miller of Hendon, B.
Milverton, L.
Monk Bretton, L.
Mottistone, L.
Munster, E.
Murton of Lindisfarne, L.
Napier and Ettrick, L.
Newall, L.
Northesk, E.
Orkney, E.
Orr-Ewing, L.
Palmer, L.
Park of Monmouth, B.
Pender, L.
Prior, L.
Quinton, L.
Rankeillour, L.
Rawlings, B.
Renton, L.
Renwick, L.
Rodger of Earlsferry, L.
Rodney, L.
Saltoun of Abernethy, Ly.
Savile, L.
Seccombe, B.
Selborne, E.
Skelmersdale, L.
Slim, V.
Somerset, D.
Stanley of Alderley, L.
Stewartby, L.
Strange, B.
Strathclyde, L. [Teller.]
Strathcona and Mount Royal, L.
Sudeley, L.
Swinfen, L.
Tebbit, L.
Thomas of Gwydir, L.
Trumpington, B.
Ullswater, V.
Vivian, L.
Wade of Chorlton, L.
Wakeham, L.
Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.

23 Jan 1995 : Column 908

6.3 p.m.

[Amendment No. 18 not moved.]

Clause 16 [Tenant's right to compensation for tenant's improvement]:

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