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Lord Stanley of Alderley: I should like to follow those remarks with a simple point that I hope my noble friend will be able to answer.

As I understand it, one could enter into a 10 year tenancy, for example. Perhaps for health reasons one might wish to surrender that tenancy after, say five years. I want to know what happens then. Would I, as the tenant, be obliged to continue paying rent and fulfilling the terms of the contract I had entered into until the end of the 10 years? I hope that that ties in with the idea of privity. Could I get out of that agreement with my landlord if he did not want me to? It might well be that he would be only too glad to see the back of me, but if he wanted to keep me as tenant could he make me continue to pay the rent and, what is more, continue to farm when I might not be capable of doing so?

Lord Carter: Another point arises, which occurred to me as my noble friend moved the amendment. I believe I am right in saying that unwritten agreements have the power of assignment under the 1986 Act, and when they are reduced to writing that power of assignment is usually removed. I believe that that is the case. I have known situations where an unwritten agreement under the existing law assumed the power of assignment which was removed when the tenancy was reduced to writing.

That may not be a correct point in law. However, I believe that the Government have said that they accept unwritten agreements as coming within the farm business tenancy. Would the same rules concerning assignment apply to unwritten agreements under the farm business tenancy as I believe apply under the existing law? If that is the case then privity of contract with assignment could be important.

Earl Howe: I should like to thank the noble Lord, Lord Gallacher, for introducing this complex subject so clearly. It is an underlying principle of the law of landlord and tenant generally that, unless the parties to a lease agree otherwise, when they enter into covenants under a lease such as the covenant to pay rent they are undertaking to perform those covenants for the whole term of the lease and may therefore be called upon to do so in the event of default by an assignee. That principle applies to all tenants who assign their tenancies, whether those are agricultural, commercial or residential.

We have all heard of unfortunate cases where elderly people find themselves responsible for the rent which the current tenant, some way down the chain of assignment, has failed to pay. However, while I sympathise with the motives behind the amendment, and I believe that it is good that we should air the subject, I do not consider it appropriate to try to tackle a highly technical subject in legislation dealing with just one type of tenancy. The Government intend to introduce reforms in relation to privity of contract and estate but in doing so would wish to cover all tenancies.

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There are also some difficulties with the noble Lord's amendment in respect of policy and technical detail. As it stands, the amendment does not reflect the policy of the Law Commission accepted by the Government; namely, that the parties to a lease should, in general, cease to have any rights of liabilities under the lease once they have parted with their respective interests except where it is objectively reasonable for some degree of liability to continue.

In particular, the Law Commission recommended that it should be possible for a condition of assignment that the assigning tenant should guarantee performance of the lease covenants by his assignee. With all due respect to the noble Lord, the amendment does not address that issue. Nor does it recognise that landlords also may be bound by privity of contract in the event of assignment of the reversion.

On a technical point, the amendment makes no provision for the consequential effects of abolishing the privity doctrine on the wider law of property; for example, the far from simple issue of its interface with the Law of Property Act 1925.

I should also stress that continuing liability under the privity doctrine is not inevitable. Tenancies under this Bill will, of course, be new tenancies whose terms will be open to negotiation. It will be open to any prospective tenant to seek to exclude the effect of the privity doctrine by express provision in the lease, or to include provisions such as break clauses to allow flexibility to terminate the tenancy early and with it any continuing liability, although that will require at least 12 months notice. It will also be open to tenants to sublet rather than assign, and thereby retain control should the subtenant run into difficulties, or to negotiate surrender of the lease rather than assignment when the time comes to part company with the landlord. A number of those ideas might be helpful to my noble friend in the context of the question that he put to me. I hope that, in the light of that explanation, the noble Lord will agree to withdraw the amendment.

To be absolutely clear, as drafted, the Bill leaves the question of assignment to the tenancy agreement. The tenant has the right to assign unless the tenancy agreement forbids that. Therefore an arbitrator would not be expected to override such a prohibition unless there were a provision that consent should not be unreasonably withheld, as is proposed in Amendment No. 91.

If that is not too complex an explanation, I hope that the noble Lord will be content.

Lord Carter: I should be grateful if the noble Earl will write to me on the point that I raised, as it were on the hoof, about the unwritten agreement with an implied right to assign; and how that will be caught.

Earl Howe: Yes, I shall gladly do so.

Lord Gallacher: I am grateful to the noble Earl for his reply. It offers some consolation to the wary and a warning to the unwary. That was one of the considerations that I had in mind when I tabled the amendment.

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With a Law Commission Bill available for legislation, it is a great pity that the Government cannot find time to take that Bill on to the statute book in what is a relatively uncrowded parliamentary Session. Quite apart from the immediate farming interests, as the noble Earl said, there is a strong property interest. The noble Earl, Lord Kinnoull, confirmed that with regard to retailing in a recessionary situation. While we are not over the moon, as the noble Earl has observed, as to what the Bill will do for agriculture, we have no wish to see it producing casualties on a grand scale, with even more serious situations developing because tenants had not been wary enough when first agreeing to a lease to make appropriate provision in the event of difficult times being encountered.

As the noble Earl would expect me to say, I shall study carefully what he said. I shall bring it to the attention of the parties which have been in touch with us on the point. Although we may not return to it, I am not without hope, given the undoubted influence of the four industry organisations which are behind the Bill, that additional pressures may be placed on Her Majesty's Government to take in hand the Law Commission Bill on the subject. The sooner that legislation is on the statute book, the better it will be for traders everywhere. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 [Application of Part II]:

8.45 p.m.

Lord Gallacher moved Amendment No. 36:

Page 5, line 24, after ("which") insert ("does not preclude a reduction and which").

The noble Lord said: The amendment provides unequivocally that agreed variations of rent in a farm business tenancy may not incorporate formulae which produce upward only changes in rent. It was agreed in the joint industry agreement that it should not be possible to insert upward only rent reviews into farm business tenancies under the legislation. The amendment ensures that downward variations in rent could not be precluded from farm business tenancies. For example, a formula which linked rent to an objective index of costs would be admissible, since costs and prices may fall as well as rise. However, a formula which determined that any variation of rent will be based on the existing rent plus a charge upwards would not be permissible.

The amendment helps to achieve the industry's objective of market realities and that those market realities should be more faithfully reflected in future tenancy arrangements. I am sure that that step towards market realities will commend itself without reserve to the noble Earl. I hasten to sit down in order to hear what he says in response. I beg to move.

Lord Middleton: As the noble Lord, Lord Gallacher, reminded us, the industry is agreed that under a farm business tenancy rents should be able to be lowered as well as raised at a rent review. That can occur under current legislation and by Clause 13(1) of the Bill, which gives the right of an appeal to an arbitrator who can decrease as well as increase a proposed rent review.

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If I have worked the matter out correctly, the amendment works like this. As the Bill stands, arbitration can be sought under Clause 10 unless the provisions of Clause 9 apply. Clause 9(b) (ii) provides for agreement where rent can be varied by a specific formula. That would preclude reference to an arbitrator because Clause 10 could not apply. The noble Lord's amendment seeks to ensure that such a formula can provide for a reduction and that there must not be an upwards only review. If such a review provides for increase only, then Clause 10 would apply and arbitration could be sought.

I agree with what the noble Lord seeks to do. If the amendment achieves that objective, as I believe it does, I support it, even though to some extent it limits the freedom of choice enshrined in the Bill.

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