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Earl Howe: My Lords, I am grateful to the noble Lord, Lord Carter, once again for his explanations on milk quota matters. We have now considered the question of compensation for milk quota at every stage of the Bill since it received Second Reading in your Lordships' House. I must confess that I was unsure before the noble Lord's explanation whether he wished really to press the amendment or was in fact looking to me to shed further light on the complexities of milk quota legislation. I hope I am right in thinking that the noble Lord desires the latter.

I believe it is common ground between the noble Lord and myself that milk quota is already a fearfully complicated and technical subject. It would only add to those existing complications if tenants who take up a farm business tenancy immediately after a tenancy under the Agricultural Holdings Act has ended were to be given the statutory right to use the current milk quota compensation provisions in the Agriculture Act 1986 in respect of the new tenancy. I should, however, make clear once again that the Bill does not prevent them from agreeing to do so. Such an agreement might be attractive in cases where the tenant occupies no other land than the holding in question. Where the tenant occupies some other land for milk production, he may find that matters begin to get extremely complex.

As I indicated on Report, in response to a question posed by the noble Lord, Lord Carter, because of the operation of EC rules any additional quota acquired during the new tenancy would have to be aggregated with all the existing quota registered in the producer's name. Any subsequent disposal of quota from another part of the tenant's aggregated Euro holding would require the consent of the farm business tenancy landlord, as well as anyone else with an interest in that wider "holding". In that situation, the parties would be well advised to agree as early as possible apportionments of quota to the various areas of land used for milk production. Arbitration is available where parties are unable to reach agreement. Of course, the Bill in no way alters the existing position.

The noble Lord also asked me whether a tenant could transport the value of compensation between farms. The Agriculture Act gives a legal entitlement to payment of compensation at the end of a tenancy which is subject to the Agricultural Holdings Act (including one granted on a statutory succession) but does not provide for roll-over to any other holding. I therefore think that any

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such roll-over would only be possible with the agreement of the parties themselves. I cannot see any obvious way of enabling that to happen by means of a provision in the Bill.

The people best placed to make appropriate arrangements for compensation in respect of milk quota where a 1986 Act tenancy is immediately followed by a farm business tenancy are the parties themselves. It will, of course, be a matter for the tenant's judgment as to whether he wishes to end a current tenancy and take up a farm business tenancy. Milk quota compensation will be one factor—albeit a very weighty factor—among many to be balanced when reaching a decision.

To repeat what I said in Committee on 13th December, Clause 16(3) as drafted in no way prevents parties from agreeing the most appropriate arrangements on compensation to meet their own particular needs. The noble Lord asked whether the tenant might be able to crystallise the value of the milk quota under a 1986 Act tenancy before embarking on a new tenancy. A tenant can indeed do so; and should do so. Certainly, the Bill does not prevent him from so doing. However, the central point is still the value. After a decade or so of milk quotas, with the price of quota being as high as it is at present, I really cannot believe that parties will forget to deal with the matter before a tenancy ends. I doubt whether the noble Lord will be entirely happy with the fact that I cannot accept the thrust of his amendment. Nevertheless, on reflection, I hope that he will feel able to withdraw the amendment.

Lord Carter: My Lords, the Minister is correct. However, one never ceases to be amazed at what landlords and tenants do forget to deal with when they are rearranging their affairs. The Minister's response was most helpful. An interesting point has emerged from this last discussion. The fear was that if the value of the quota was crystallised, payment would actually have to be made under the Act when, in a sense, neither side wanted that to happen.

However, it is to be hoped that the noble Earl is correct and that the parties can agree to roll over the value of the quota from one holding to another. That meets the point, and is a most helpful explanation of the problem with which we are trying to deal. I agree that anything one attempts to do with milk quota will add to existing complications. In that respect, I must remind the noble Earl that he said that he did not wish to add to such complications but then went on to suggest the apportionment of quota and the possible referral to arbitration.

The point is, indeed, complicated but has been well aired during our debates. Anyone who reads the Hansard reports of the debates during the various stages of the Bill will soon realise the thrust of the arguments. I entirely agree with the Minister that the landlord and tenant should be extremely careful in such a situation and that applies especially to the tenant: he must not lose the value of the quota that he assumes is his. That fact needs to be spelt out in any agreement between the two parties. I beg leave to withdraw the amendment.

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Amendment, by leave, withdrawn.

3.30 p.m.

Clause 17 [Consent of landlord as condition of compensation for tenant's improvement]:

Lord Gallacher moved Amendment No. 4:

Page 9, line 6, at end insert:
("( ) This section does not apply in any case where the tenant's improvement consists of one or more of the following—
(a) growing annual crops;
(b) pasturing;
(c) beneficial acts of husbandry;
(d) liming of land; or
(e) application to the land of purchased manure or fertiliser,
unless there is provision to the contrary in an agreement in writing between the landlord and the tenant.").

The noble Lord said: My Lords, the Bill as drafted provides that for a tenant's improvement to be eligible for compensation it must have the landlord's written consent. In all cases, except planning permissions, the question of consent is referable to arbitration before the improvement is made. The amendment lists five items of tenant right as specific exceptions to this rule. If approved, no written consent would be needed for these essentially operational matters to be eligible for compensation. The parties' freedom is preserved by allowing them to contract otherwise in a written agreement.

Under English common law, anything that is fixed to land becomes the property of the landowner. It is the peculiar position of the farm tenant that many of his day-to-day actions fix value to the landowner's land. Tenant right grew up to address this problem creating a customary claim to compensation which the law steadily consolidated until custom was finally abolished in 1947. The custom of tenant right reflected the fact that the agricultural year has no absolute end, neither has it a beginning. Something will always be left at the end of the tenancy and has the desirability of encouraging the tenant to farm as though he were the incoming tenant.

The Bill removes the legal basis for tenant right by insisting absolutely on the consent of either the landlord or the arbitrator. Nonetheless, it seems possible that over time the courts would intervene to recreate some customary claim to tenant right. Rather than face the cost and uncertainty of that process—and the denial of fair treatment to some outgoing tenants along the way—we feel it is best to tackle the question as part of the Bill. In contrast to this amendment, it is impossible to foresee how far-reaching might be the consequences of court intervention.

The approach taken in the amendment to Clause 17 is to identify five specific exceptions to the general rule requiring consent for compensation. This list has been prepared after discussion with valuers and farmers from all parts of the country and the items have been selected on the basis that they are operational rather than policy items. They should be significant enough to warrant statutory reference. The specific areas are, first, the growing of annual crops. This would not cover trees or orchards but would protect, say, a cereals crop on a tenancy which ends in late March. It would also protect

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crops that should have been harvested before the end of the tenancy but for difficulties of the season—a situation where it could be too late to apply for arbitration.

In the case of pastures, this would allow the tenant to be paid for pastures he has established on arable ground as might be required by a livestock enterprise meeting official stocking limit or extensification requirements. Beneficial acts of husbandry would cover the normal operations and cultivations of the farming year so that they are performed when the time is right and so unlock profit for the incomer or save him effort. The liming of land can be important to the status of some soils and has a significant cost, but the benefit carries forward for several seasons. Provision of tenant right for liming encourages the tenant to take the longer-term view. Finally, under this head, there is the application to land of purchased manures and fertilisers. Again, these are important to the fertility of the land and, particularly in root crop areas, can amount to significant expenditure which we believe should be recognised.

Most written agreements could be expected to cover these items, but there will be some tenancies with only a sketchy written basis and others that are purely oral. In those cases, the Bill's present form would require the tenant to seek the landlord's written consent—perhaps every year in a tenancy from year to year. This is likely to feel unnatural to both parties. The tenant may feel awkward about taking the matter to arbitration and sometimes may not even have the time: the requirement is for the arbitrator's prior consent. Most tenants will simply assume that the matter is covered and be badly surprised should they find the landlord making it clear that he is not required to pay. Without some cover as proposed in the amendment, other tenants will clearly feel more cautious about committing themselves to normal operations on the farm in the last years of the tenancy. That would not be in the interests of the incomer, the owner or the industry and would be bad for the reputation of the legislation. The amendment provides a general rule which would operate as a default, but does not give the parties the opportunity to make other provision in a written agreement, so honouring the approach of the Bill. It will be for valuers to address the claim in these circumstances.

At the Report stage the noble Earl expressed some sympathy with the intention of the amendment then before us but was concerned that there could be later pressures to add non-agricultural tenant right clauses. There is no evidence of such examples being found under business tenancy law and such diversification would almost always be by written tenancy agreement. It is the particular problem of farming that its operations almost inevitably fix value to the land. The tenant farmer is putting his money into the landlord's land to earn his income in a way that the factory, office or shop tenant does not.

The noble Earl said that the listed items needed further definition. Our view is that our terms are all of very long-standing familiarity to valuers—tenant right has a longer history than statute law in these matters. If this is really a key objection it can be addressed by practical discussion between the Ministry, industry and professional organisations rather than lose an important

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issue on a point of phrasing or definition. In practice, the introduction of new definitions may add to the problems rather than help them. We are agreed that we want sensible definitions and not excessive detail. It has been suggested that some items might be long term. The items listed capture the significant normal farming operations. Policy matters are indeed best addressed between the parties. If the landlord wants a lower level of fertility as a matter of policy—as some might for conservation reasons—that can be covered in the tenancy agreement, as this amendment allows. Otherwise, the tenant should be able to claim the value he has made available to an incomer through these items.

The noble Earl suggested that the tenant has time to secure consents. Our response to that is that he does not if the weather turns against him and crops that should have been harvested before the term date cannot be harvested. It will be too late to secure an arbitrator's prior consent. Finally, it could all be put in a standard clause. We believe that most written agreements may be expected to follow this route but this amendment provides a fall-back with legal force for the oral agreement on the issue of compensation which in our opinion is central to the framework of the Bill. I hope on this occasion for a sympathetic response from the noble Earl. I beg to move.

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