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Lord Gallacher: My Lords, I am disappointed by that reply although it was not unexpected. I plead guilty to the simplicity of the drafting, which accords squarely with the character of the person responsible for the draft—myself. I am disappointed. Despite the complexity of the question, as outlined by the noble Earl, I think that the Bill as drafted will add to that complexity because farm business tenancies will presumably have to be considered in the light of the negotiations that are taking place between the Lord Chancellor's Department, property interests and user interests. I hope that the industry group, about which we have heard so much this afternoon in relation to other amendments, is conscious of the fact that it should be fully conversant with the dangers that might lie ahead and about which, even at this early stage, it should perhaps take some action to protect its members. We should certainly like them to be protected.

Having said that, as I said at the outset I am not in the least surprised, although I am disturbed, by the position that has arisen. However, given the Minister's unwillingness to give any assurances other than to say that the talks are moving forward, I can only beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 [Application of Part II]:

Lord Gallacher moved Amendment No. 13:

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

The noble Lord said: My Lords, Amendment No. 13, with which is grouped Amendment No. 14, relates to the formula for adjusting rent. I believe that the House has a choice as to which of the two amendments, which have the same objective, it wishes to support. Again, we

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raised this matter in Committee. I am advised that the Tenant Farmers' Association supports the amendment, as does the National Farmers Union.

The purpose of the amendment is to prevent the creation of a loophole allowing the introduction of a form of upward-only rent review. The rent review formula in Clause 13 enables an arbitrator to revise the rent according to the circumstances, which may mean an increase or a reduction. We do not want that to be circumvented by the use of the formula for adjusting rent. I am advised that agriculture has not been used to upward-only clauses, which are seen to have been damaging to businesses in the commercial property sector, as can be seen many times over on any walk down any high street these days.

Agriculture is a sector that is widely exposed to government decisions (whether on interest rates or the common agricultural policy) and it should therefore have freedom to adjust to circumstances. The industry organisations that have written to us on this matter believe that our amendment may be slightly better phrased, not involving a double negative, but I am not here to offer a lesson in English grammar to one as distinguished as the noble Earl. Nevertheless, he will no doubt tell me yet again in what respects my Amendment No. 13 is the poorer amendment. I move my amendment in anticipation of listening with rapt attention to what the noble Earl will say in favour of his amendment, Amendment No. 14. I beg to move.

Earl Howe: My Lords, this is an area in which, as I indicated in Committee, we are willing to give effect to the industry's wishes. The noble Lord will have seen my amendment to Clause 9, Amendment No. 14. Although the wording differs from Amendment No. 13, we accept that the effect is exactly the same. In view of that, the noble Lord may be pleasantly surprised to hear that I accept his comments on grammar and that we are prepared to accept his amendment and not to move Amendment No. 14.

Lord Gallacher: My Lords, I am grateful to the noble Earl. If I see him in an appropriate place after the conclusion of business, I shall express my thanks in more tangible form. I commend Amendment No. 13.

On Question, amendment agreed to.

[Amendment No. 14 not moved.]

Clause 11 [Review date where new tenancy of severed part of reversion]:

Earl Howe moved Amendment No. 15:

Page 6, line 20, leave out ("commences") and insert ("arises").

The noble Earl said: My Lords, this is a small clarifying amendment. Clause 11 deals with that complex subject, severance of the reversion. It refers to the situation where a new tenancy commences and then goes on to refer to people's interests under the original tenancy immediately before the date of the beginning of the new tenancy. The use of "commences" in this context is confusing because it suggests that it is intended to identify a particular moment in time. In fact, the clause is merely concerned with the situation where

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one tenancy is followed immediately by another. This amendment replaces the word "commences" with the more appropriate word "arises". I beg to move.

On Question, amendment agreed to.

Clause 13 [Amount of Rent]:

Lord Gallacher moved Amendment No. 16:

Page 7, line 13, at end insert ("and in particular any premium or equivalent").

The noble Lord said: My Lords, in moving Amendment No. 16, I shall speak also to Amendment No. 18 with which it is grouped. These amendments relate to the treatment of premiums and the equivalent tenants' improvements. We discussed this matter in Committee and I hope that this Report stage will give us the opportunity not merely to move the amendments in slightly different form, but to persuade the Minister that they have merit.

The industry working party supports the amendments and has pointed out that the agreement on which the Bill is founded includes a rent review formula that is based on the open market in which the arbitrator shall have regard to the payment of premiums or equivalent. The amendment seeks to give effect to the industry's intention.

Agriculture has only rarely seen the explicit payment of a premium for a tenancy, although it is acknowledged that that may become more common under the new legislation where it suits both parties. It is more common for tenants at the moment to be required to make certain improvements as a term of the tenancy. Those are no more than equivalent to premia. The law should treat such payments equitably so that the tenant does not pay rent where he has already paid capital.

The Bill preserves the wording from the present Act, requiring the arbitrator to disregard tenant's improvements unless they are made under an obligation of a tenancy agreement. When the Minister responded to a debate on that issue in Committee on 12th December, he expressed at col. 1190 the view that that meant that the arbitrator could take the premium nature of the obligation into account in reviewing the rent. We welcomed that statement.

However, the conventional understanding among professionals and arbitrators under the present legislation is that such improvements are treated at rent reviews as though they were the landlord's improvements. It may take a court case to establish that the Minister is right about the advice he gave in Committee. We believe that it is better to avoid the delay, the costs and the uncertainty which a court case would involve by addressing the problem explicitly in the Bill, which is what the amendment proposes. I beg to move.

Earl Howe: My Lords, as the noble Lord explained, the amendment is another attempt to address a concern which we discussed in Committee. Clause 13(2) requires the arbitrator in a rent review to have regard to all relevant factors, subject to certain exceptions. The amendment would then require him to have particular regard to any premium or equivalent. I do not think that

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that can be right. If he must take account of all factors, he should not then be prompted to have particular regard to specially identified particular factors.

If a premium has been paid, then an arbitrator is surely bound to have regard to that fact as a relevant factor. A tenant's improvement which the tenant is obliged to make is in some sense equivalent to a premium. If the tenant's improvement has to be completed at the beginning of the tenancy, it would be almost an exact equivalent to a premium and the arbitrator would certainly give full weight to it in his considerations. If the improvement is completed later on in the tenancy, its equivalence to a premium will be less and one would expect the arbitrator to give less weight to it accordingly. I appreciate that the intention of the amendment is mainly one of clarification, but the question of how much weight the arbitrator should give to a tenant's improvement which the tenant is obliged to make must be a matter of judgment having regard to the circumstances. To give the arbitrator a legislative shove in a particular direction would surely have the effect of promoting bias. In that sense the amendment goes far beyond its aim of clarification and is therefore undesirable.

I realise that this is a complicated and technical question, but I hope that the noble Lord will agree to withdraw his amendment, studying what I have said in Hansard, if necessary.

Lord Gallacher: My Lords, I thank the Minister for that reply which was not unexpected. I shall take his advice and study carefully what he said again on the subject. It is undoubtedly technical in character, although it has echoes of the problem I had as a bookkeeping student in the early days in distinguishing between revenue and capital expenditure. The Minister may be over-simplifying the question of how the arbitrator is being encouraged to review the matter in a distinctive fashion, and to make a distinction, as I have tried to do, between premia on the one hand and tenants' improvements on the other. It is a subject of considerable importance, but, as I say, I acknowledge that the Minister has examined the issue with a degree of thoroughness. All I can do at this stage is to beg leave to withdraw the amendment and consult those who advise me to see whether it is still desired to pursue the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.45 p.m.

Lord Carter moved Amendment No. 17:

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