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The Earl of Kinnoull: I suspect that these kinds of cases, particularly that of the "tele cottage" would be rare. However, I suspect my noble friend might say that the common law, dated 1830, comes into this. I believe it would be exceptional for a tenant not to reach agreement with a landlord on this matter. I thought the noble Lord was thinking of a case where an agreement had been made between a landlord and a tenant, for

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example, as regards altering the rent, if there were some benefit to the landlord. However, I am not happy about that.

Lord Carter: Perhaps this matter I am discussing is not so rare. Perhaps a tenant might replace an old cart shed with a modern tractor shed and the landlord knows that he could turn that building into a building for use by rural industries and it could be used for light industry after the tenant has left. That would not be a rare situation. I am concerned about whether the tenant gets a fair return in that situation. He cannot take the building away and as it is not a tenancy improvement I do not believe it will be caught by the compensation rules in the Bill. In those circumstances the landlord will obtain some value from the fixture or building that is left behind and it will increase the value of his holding. However, the tenant may not receive the compensation that he should receive.

Earl Howe: There is a common law rule in property law that, where a tenant substitutes a non-agricultural trade fixture for one belonging to a landlord, that fixture cannot be removed by the tenant as of right. I am advised that this point of law was decided in 1830 and still holds good today, as my noble friend was kind enough to point out.

Clause 8(2)(b) follows the same common law rule. The central point is that the replaced asset belongs to the landlord and not the tenant. Parties might well provide in their tenancy agreement a clear division of responsibilities for these matters. The simpler rules on a tenant's fixtures and buildings set out in the Bill in effect give a tenant the choice of removal of a fixture which is his, or receiving compensation for it at the end of the tenancy, assuming that written consent to a tenant's improvements has been given. It is clearly equitable to limit that choice only to the tenant's own assets. Nor would it be desirable to enable a tenant to, let us say, demolish a landlord's fixtures or buildings—perhaps as many as he liked—replace them and then have a right to remove those replacements at the end of the tenancy. I do not think that that would be equitable. I hope that that explanation will satisfy the noble Lord as to why this provision is in the Bill.

Lord Carter: I am grateful to the Minister for his response but I believe we may have to return to this matter. He said that it is the non-agricultural fixtures which are picked up by the common law. I gave an example, which I do not believe is unusual, of a tenant who replaces a fairly elderly building —we all have them on our farms—and he erects a pretty good new building as a replacement for that landlord's building. There has been no written consent for this and therefore it is not an improvement. The tenant has just replaced the building. The landlord knows that he can then obtain the planning permission to convert the building for use for light industry, for example. It seems a little unfair that the tenant—if I understand the Bill correctly —will have to leave the building behind and not receive any compensation. I am not talking about an improvement but a tenant's fixture. It seems a little hard that the

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tenant cannot receive any compensation for replacing a landlord's building. We may have to return to this matter.

Earl Howe: There could well be an improvement where, let us say, a dilapidated building is replaced by a new building. It need not necessarily be regarded as a repair, although I dare say that, if it were, that would be covered in the tenancy agreement as regards how it should be treated. If the tenant obtained the landlord's consent, he would be entitled to compensation, assuming that there were a difference in value between one asset and the other. The trap that he should not fall into—if I understand the clause correctly —is replacing the landlord's asset with a new one and failing to get the landlord's consent, because then he renders himself liable to be out of pocket if he is not careful enough with the expenditure that he incurs.

Lord Carter: I am not sure that he needs the landlord's consent for a tenant's fixture. However, I believe we have explored the point enough. I should like to read what the noble Earl has said, and perhaps take some advice on this. Perhaps this is a slightly wider point than I suspected when I first raised it. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 agreed to.

8.30 p.m.

Lord Gallacher moved Amendment No. 35:

After Clause 8, insert the following new clause:

Assignment of a farm business tenancy

(". Where a farm business tenancy is assigned by the tenant in accordance with the terms of his lease the assignee shall assume all of the rights and obligations of the tenant under the lease in relation to the landlord and no claim may be made by the landlord against the tenant for any cause of action arising in respect of the tenancy after the date of the assignment.").

The noble Lord said: The noble Earl will recall that, in speaking on the Second Reading of the Bill, I raised with him the question of privity of contract, pointing out at that time that, although this was a matter much talked about by government, there was no promise in the gracious Speech as regards a Bill dealing with privity of contract, although the pressures for such a Bill are building all the while. The Government have stated that they are sympathetic towards such a Bill, but so far they have not been able to find time to introduce one.

My noble friend Lady Nicol recently received a Written Answer to a Question on the subject which referred only to what we already know: the Government agree that a Bill is desirable and would like to introduce one, but do not know when they will be in a position to do so.

In the light of that situation I decided to table the proposed new clause which appears before the Committee this evening and which I suggest should be inserted after Clause 8 of the Bill. Although I do not anticipate that the Minister will tell me that a Bill is under way, it may be of value in the exploratory examination of this Bill if we expose for the benefit of the Committee and the readers of Hansard the state of play as regards privity of contract.

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Under the law as it stands, a lease is a contract dealing with property. A landlord enters into a contract with a tenant at the beginning of a lease, granting him certain benefits over the land and requiring the tenant to give certain undertakings in respect of the property (called covenants). The contract between the landlord and the tenant is not terminated by the tenant assigning his benefits to an assignee, subject to similar undertakings to those he has made to the landlord. The contractual relationship between himself and the landlord continues and he remains potentially liable for any breach of the covenants, including a failure on the part of the assignee to pay rent.

In legal terms, privity of contract is a relationship which exists between the immediate parties to a contract which is necessary to enable one person to sue the other for a breach or non-performance.

Privity of estate exists between lessor and lessee, lessor and assignee (but not lessor and sub-lessee), tenant for life and a remainderman or reversioner.

An original lessee is always liable under privity of contract to the lessor on the convenants of a lease, but under the privity of estate an assignee is only liable and entitled to the benefit of the covenants so long as he holds and until he further assigns the lease, because at the moment of assignment there ceases to be any privity of estate between him and the lessor.

The present law leads to injustice in so far as the tenant is responsible for the actions of the assignee and subsequent assignees with whom he has no legal relationship and of whom he possibly has no knowledge. From the point of view of the landlord wanting to claim his right against the original tenant, there are all the practical problems of tracing and notification to him of the death of the tenant.

This is a live issue for retailers, as I know. The Government have taken soundings, and a Private Member's Bill was introduced in another place but failed because it ran into stiff opposition from what I would describe as property interests. In placing this particular Bill on the statute book I believe that it is important that privity of contract should be given an airing in this Chamber in order that those who may be affected by it are aware of it and that in practice it raises new complications which are perhaps less well known in the world of agriculture. For that reason, I beg to move.

The Earl of Kinnoull: The noble Lord, Lord Gallacher, always raises interesting points. Privity of contract is a live issue. Certainly in my experience in commercial property it is a live issue. It would be difficult to judge where one could possibly start in order to be fair to both sides when so much has been lost in times of recession.

I believe that its application to farm business tenancies is slender. I should like the assurance of my noble friend that if an agreement is couched in terms

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providing that there should be non-assignment of a lease the tenant could in no circumstances apply to an arbitrator or court to have that changed.

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