§ 3.4 p.m.
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe)
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Earl Howe.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The CHAIRMAN OF COMMITTEES in the Chair.]
§ Clause 1 [Meaning of 'farm business tenancy']:
Lord Carter moved Amendment No. 1:
Page 1, line 11, leave out ("or the notice conditions").
§ The noble Lord said: In moving Amendment No. 1, I should like to speak also to Amendment No. 8, which is consequential upon it. The purpose of the first group of amendments is to discover what the Government intend by the phrase "farm business tenancy" and what they see as the true nature of such a tenancy. We believe that the notice procedure that is set out in the Bill opens the way for so-called "farm business tenancies" to be used for lettings of farmland which may be non-agricultural in character.
§ Assuming that Clause 1(2) (a) is not amended—we shall come to that later—a farm business tenancy may be created when "part" of the land is farmed. There is no qualification as to how large or small that part of the land should be, although we have tabled an amendment to deal with the definition of "small" as mentioned in the Bill. Presumably in court it would be argued that that part of the land should be sufficiently large to ensure that the property retains the character of an agricultural holding, but that is not stated in the Bill.
We shall deal later with the definition of "farming of land" that is given in Clause 36(2). That subsection states:
References in this Act to the farming of land include references to the carrying on in relation to land of any agricultural activity".
Presumably that means that "farming of land" is not exclusively an agricultural activity. It would be left to the courts to decide whether "estate management" in a broader sense is part of farming. Our concern is that the provisions might allow commercial leisure activities and developments, sporting facilities, timber growing, turf cutting, set-aside and, at the outer limits, sand and gravel extraction.
§ The question that we have to consider is whether it is intended that the creation of a farm business tenancy is a means of avoiding the creation of a business tenancy under the Landlord and Tenant Act 1954. We think that that is the Government's intention. If that is the case, it is important to have it on the record.
§ Let us consider the example of a tenant who is anxious to build a golf course. He negotiates a farm business tenancy at the insistence of the landowner for the acreage that he needs, with 20 acres of adjacent land being included in the letting. Both serve Clause 1 formal notices on each other. At the beginning of the tenancy, the farm is primarily agricultural in its use, but once the tenancy is up and running that is no longer a requirement. I understand that the Government's intention is, "Once a farm business tenancy, always a farm business tenancy". In the hypothetical case that I have just quoted, to keep himself within bounds, the tenant continues to use the 20 acres for agricultural purposes. He thus satisfies the business conditions although it is arguable that he may not even need to do that. The tenant then gets planning permission and develops a golf course and leisure complex on the land.
§ I am sure that the Committee will understand that our amendments seek to discover the Government's intention behind the words "farm business tenancy" and the true nature of such a tenancy. Once both landlord and tenant have agreed that such a tenancy should exist, can anything change the tenancy or will it always be termed a "farm business tenancy"? I beg to move.
§ The Chairman of Committees
As the noble Lord, Lord Carter, has spoken also to Amendment No. 8, it might be for the convenience of the Committee if I were to indicate to your Lordships at this stage that, if Amendment No. 8 is agreed to, I cannot call Amendments Nos. 9 to 11 inclusive.
Clause 1 defines two possible types of farm business tenancy, a tenancy which allows for the possibility of farm diversification through an exchange of written notices between the parties, and a tenancy which does not because such notices are not exchanged. In the first case, it is the written notices which guarantee that, provided the tenancy begins its life as at least a mainly agricultural business and provided that at least some of the land is farmed, in the conventional sense, for a trade or business throughout the term of the tenancy, no matter what the balance of farming and non-farming activity is on the holding as time goes on, the tenancy will remain a farm business tenancy in law, with all that that implies in terms of the safeguards and other provisions that are contained in the Bill.
If, on the other hand, whether through inadvertence or otherwise, the parties fail to exchange notices at the outset, the tenancy may still qualify as a farm business tenancy but both parties run the risk that at some point a substantial diversification on the farm would render the tenancy subject to legislation other than this if ever its status were challenged.
I appreciate that this is intended as a probing amendment and I trust that what I have said clarifies the points of uncertainty which the noble Lord raised. We regard the notice conditions as important for providing 1091 the parties with the necessary option to ensure that, providing the tenancy continues to satisfy the business conditions, it will remain a farm business tenancy throughout its duration even though there may be major diversification into non-agricultural enterprises. The industry organisations have all along attached great importance to such a provision so that the parties will know where they stand.
If the provision were deleted, the tenancy might at some unpredictable point during its life become subject to other legislation, most probably the Landlord and Tenant Act 1954. That could result in, for example, the tenant losing his right to compensation for improvements made, or the landlord losing his right to regain possession at the end of the term. It is clearly unsatisfactory for such a change to occur accidentally. The likely effect of that would be that landlords would seek to safeguard their legal position against that happening in some other way.
Unfortunately the most obvious way would be to impose many more restrictions in tenancy agreements which would prevent tenants from diversifying their enterprises and thereby ensure that the holding remained agricultural in character. That would clearly act as an obstacle to the diversification that we wish to encourage. Were the amendment to be carried, which I know is not the noble Lord's intention, that would be undesirable. I hope that what I have said has been of help to the noble Lord.
§ Lord Carter
I am grateful to the Minister. He must not assume that I am not going to divide on the amendments. It was more than a probing amendment"- The Minister referred to the industry group. We shall be referring to it on a number of later amendments. I shall deal with the views of the industry group when we come to the debate on Clause 1 stand part.
It is important that we now have on the record that the Government—I understand the Government's philosophy on the Bill—believe that the exchange of written notices is crucial so as to give certainty to the parties. The point that I have been trying to explore—we have now flushed out the argument—relates to the surrounding rural community. The Minister said that so long as some of the land remains agricultural—whatever the balance between the farming and non-farming activity—then, as I said, once a farm business tenancy, always a farm business tenancy. I should be interested to know what groups outside the House such as those interested in conservation and rural structure, for instance, feel about that.
The Minister said that a failure to exchange notices puts the business at risk. The parties would have to go to court to see whether it is a farm business tenancy or is caught by the Landlord and Tenant Act 1954. I understand the reasoning behind the Government's philosophy. The industry group is concerned about diversification, but in the Government's anxiety to achieve that effect, I wonder whether they have thought about what would happen were a farm to change its nature substantially and affect the surrounding rural community. The two parties could then sit back and say, "It is OK. The law says we have a farm business 1092 tenancy, even though not much farming is going on. There is a bit of farming but lots of other things as well. The Government have said that they intended to encourage diversification and so long as the parties to the contract are happy. That is enough". We do not believe that it is enough. We shall wish to return to this matter on Report. I felt it important at the outset to get on record—perhaps the Minister wants to intervene.
I am grateful to the noble Lord. Perhaps I may clarify one or two further points. He said that our position was that once a tenancy became a farm business tenancy it would always remain so. That is the case, of course, provided that notices were exchanged in the first instance. If they were not exchanged, then, as I said, the parties run the risk that the tenancy falls out of this legislation into some other legislation.
With regard to the point that the noble Lord was just making, of course nothing in the Bill overrides planning legislation. It is up to the local community to put its stamp of approval on any diversification proposals should those proposals require planning consent. That is an important point that I should make.
§ Lord Carter
That is helpful. It means that the Government are relying on the lawyers to get the notices right in the first place and then the planners to look after the rural community. I understand the point that the Government make. I understand why they have it in the Bill. As I said, it is important to get on record the philosophy lying behind it. I shall read with great care what the Minister said. At this stage, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 3.15 p.m.
Lord Carter moved Amendment No. 2:
Page 1, line 15, after ("or") insert ("the main").
§ The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendments Nos. 3, 4, 5, 6 and 7, which deal with the same point. We turn now to the business conditions as opposed to the notice conditions. As presently worded, the business condition requires that part only of the land need be farmed. The arguments on these amendments will sound repetitive because the same argument will occur on all of them. Technically, as I said on the previous group of amendments, that could be a small area of a substantial acreage, the remainder of which is used perhaps by a golf course.
§ The main part would probably be interpreted by the courts as meaning more than half the land. There should be no problem with the change proposed in Amendment No. 2 for those who are coupling the business conditions with the agriculture conditions because the character of the holding must, as the Bill provides, be primarily agricultural.
§ If the amendment were to be accepted there is a problem which I shall reveal to save the Minister telling me about it. The problem will come when the business conditions are coupled with the notice conditions, because under those, while the tenancy must be 1093 primarily agricultural at the beginning of the tenancy, it need not remain so, as the Minister confirmed on the previous amendment.
§ There is an argument that if, say, more than half the land area is put to a use other than farming, a separate business tenancy should be created to cover that activity, which will then be subject to the Landlord and Tenant Act 1954. It would be undesirable were the farm business tenancy to be used in rural areas as a cloak to avoid the consequences of affording the tenant the protection of the 1954 Act. That is the important point that lies behind the wording of the Bill and the amendment. Throughout all our amendments, we shall be seeking to improve security and protection for the tenant.
§ At present it is possible for a business tenant to waive some of the protections, as we know, but only on a joint application by both parties to the county court or the High Court under Section 38(4) of the Landlord and Tenant Act 1954. That facility was added to the business tenancy legislation following a recommendation from the Law Commission.
§ We then turn to the problem of using the word "land" as opposed to "holding". Amendment No. 3 proposes to leave out "land" and insert "holding". Under the Agricultural Holdings Act 1986, as I understand it, non-agricultural activities—those which do not affect the character of the tenancy—need have no connection with the agricultural business carried on by the same person; for example, bed and breakfast or farm shops which sell produce other than that grown on the farm in question.
§ In the latest version of the MAFF proposals for consultation, No. 4 mentions bed and breakfast but then emphasises activities on the holding. That has led to some confusion as to whether we should be talking about the land or the holding. There is need for clarification to discover which non-agricultural activities would come within the business tenancy and which would fall outside. If they fall outside, does the Landlord and Tenant Act 1954 then come into play?
§ We have discussed already the effect of a change in the non-agricultural activity, the shift of emphasis in the tenant's enterprise, and so forth. In Amendment No.3 we seek to find out whether it would be better to say "holding" instead of "land".
§ Amendment No. 4 proposes that the word "farmed" should be left out and that "occupied" should be inserted. That is a point I discussed with the Minister when we had a helpful meeting between Second Reading and Committee. It is important to get on the record what is the Government's thinking on this point, because we are informed that if the word "farmed" is used rather than "occupied", horsiculture and the keeping of horses are excluded from a farm business tenancy. Opinions on that vary, but I am told that if we were to say "occupied" rather than "farmed" the confusion that exists on that point would be dealt with.
§ Amendments Nos. 5 and 6 are in the name of the noble Lord, Lord Stanley of Alderley, and I shall leave him to speak to them. As I understand it, those amendments redefine the business condition which 1094 forms part of the definition of the new concept. The amendments provide that so long as the land was farmed immediately after the commencement of the tenancy it does not matter if the business ceases subsequently to be agricultural. These amendments have been grouped together because they are related. However, the Committee will understand our anxiety about the change in the nature of the tenancy after it has been agreed by the landlord and tenant that the farm business tenancy exists.
§ Amendment No. 7 deals with the problem of "farmed" and "occupied". The three central issues are to insert "the main" part of the holding; the preference for "holding" instead of "land"; and the preference for "occupied" instead of "farmed". Perhaps the Minister can explain why the Government have adopted their wording, which we are advised is, to say the least, ambiguous. I beg to move.
§ The Chairman of Committees
The noble Lord, Lord Carter, has spoken to Amendments Nos. 6 and 7. I wish to indicate to the Committee that if Amendment No. 6 is agreed to I cannot call Amendment No. 7.
§ Lord Stanley of Alderley
Amendments Nos. 5 and 6, which stand in my name, are similar to others in the group. Their intention is to clarify the position and I begin by referring to what was said by my noble friend Lord Howe in respect of Amendment No. 1. He referred to "some of the land", which immediately raises a query. What does that phrase mean? In my opinion it creates an ambiguity. Secondly, if the tenant oversteps his mark there is a case that his tenancy might become invalid. My amendment is proposed in order to clear up that matter.
If, when the tenant takes on the tenancy, he wishes to diversify outside the terms of the farm business tenancy my amendment proposes that he should be allowed to do so. As the Bill stands, the tenants must continue to farm as laid down in Clause 1(2), which states that all or part of the land must be farmed. Unless my amendment is accepted there will be a muddle, as has been pointed out. That could cause problems for a tenant who found a successful form of diversification, which is exactly what we have been implored to do by every party for the past five or six years. If the tenant found something that was successful he might be in trouble. The key principle of the Bill is to allow tenants to diversify when they get the chance.
I accept that in order to remain within a farm business tenancy a tenant could perhaps keep a small part of the land in agriculture. However, that too creates an ambiguity and is apocryphal. The farmer could act bogusly and have four chickens, which would be ridiculous and a cause for litigation.
Finally, the noble Lord, Lord Carter, referred to the 1954 Act. My amendment would solve that problem. The 1954 Act would not apply because a farm business tenancy would apply throughout, however much a farmer would wish to diversify.
1095 My amendments are supported by the CLA, the NFU, the Young Farmers, the RICS and CAAV.
§ Lord Middleton
It is desirable that a farm business tenant should be able to diversify into other lines of rural businesses. As we have heard, such a business might take up part of his land. If that is the case, under the Bill the farm business tenancy persists under the agreed terms. If, however, the business takes up the whole of the land, as might be the case, under Clause 1(2) it ceases to be a farm business tenancy. The rights of the parties would then be governed by a code of rules which were not contemplated nor intended to apply to a tenancy agreement.
I support my noble friend Lord Stanley, whose amendment I prefer. It would allow full diversification and still maintain intact the terms of the original tenancy agreement.
I am grateful to Members of the Committee who have spoken in support of one or other set of amendments. In particular, I was interested in the arguments put forward by my noble friend Lord Stanley in support of his amendments. I can see that where the farming element of the business had become small, it would give landlords and tenants greater certainty that the tenancy would not accidentally fall out of the farm business tenancies legislation. I also recognise the logic in allowing a tenant whose non-agricultural activities are thriving but whose farming enterprise may, perhaps, be failing to diversify completely, provided that that is permissible under his tenancy agreement.
At the same time, there are arguments against that. It could be argued that the present condition in Clause 1(2) is hardly onerous; it simply requires at least part of the land to be farmed for the purposes of a trade or business. I can see nothing wrong in principle about that. It seems somewhat difficult to justify a farm business tenancy continuing to be treated as such when there is, in fact, no farming.
Nevertheless, Members of the Committee have indicated a measure of support for the principle behind these amendments and therefore, with the agreement of the Committee, I ask for a little more time to reflect on the implications of what my noble friend in particular has proposed.
Perhaps I may address a couple of the queries posed by the noble Lord, Lord Carter. He asked whether it would be better to refer to "holding" as opposed to "land". I am advised that there is no substantive difference in the context of the Bill. "Holding" is defined later in the Bill as the land comprised in the tenancy and "land" in law includes the buildings on the land.
The noble Lord also asked about the meaning of "farmed" and whether it excludes horsiculture. I am advised that "farmed" may include horse grazing but not horse keeping. Perhaps that distinction will be followed up at a later stage. Any activities outside farming that could be undertaken on a farm business tenancy could include any non-agricultural activity; for example, food processing or bed and breakfast. It includes any form of diversification. On the other hand, the use of the word "occupied" would allow the tenant to go 100 per cent. non-agricultural instead of keeping four chickens, as my noble friend put it. That is precisely why we do not want 1096 a farm business tenancy to act as a cloak for a business tenancy. It is also why we have insisted in the Bill that at the outset a farm business tenancy should be wholly or mainly agricultural in character and that as a minimum condition farming must continue on part of the holding throughout.
Between now and the Report stage the Government will consider whether an amendment along the lines proposed either by the noble Lord, Lord Carter, or by my noble friend Lord Stanley is likely to be helpful to business enterprises and, if so, what precise change to the business conditions in Clause 1(2) would best achieve that result. I hope that in the light of that explanation the noble Lords will feel content not to press their amendments.
§ Lord Carter
I am sure that the equine community will feel an immense sense of relief at the connoisseur's distinction between horse grazing and horse keeping. We look forward to discussing the matter at a later stage and I am sure that I shall have to seek advice on it.
The discussion has been helpful; we now understand that the Government are anxious to promote diversification. However, when the Bill refers to part of the land being farmed the crucial question is: how much? I suspect that in the end that may well be an area on which the courts will have to decide as to the meaning. As the noble Lord, Lord Stanley, said, you may keep a few chickens and sheep and then you can do what you like with the rest of the farm, subject to planning. I believe that 80 per cent. of our land mass is rural. I am sure that the Government expect that an increasing proportion of it will be let under farm business tenancies. It seems that they are extremely relaxed about the matter. Many people outside are not relaxed and we may wish to return to the subject on Report.
If the Government refuse to define what they mean by "part of the land"—and again we shall return to this point—there are no criteria in the Bill as to what will constitute a good farm business tenancy other than the definition of rent, the period of notice and compensation. They are all important matters, but during our farming lives we are used to Acts of Parliament defining the matters which should be included in an agricultural tenancy and the areas that a good agricultural tenancy should deal with. We shall return to those issues on later amendments. As I say, at a later stage too we may try again to define what is meant by "part of the land" because we believe that that could open the door to all kinds of abuse.
It is helpful to hear the Minister confirm with regard to holding of land that there is no need to make the change which we suggest. As I say, we may have to explore those matters again on Report.
§ 3.30 p.m.
§ The Earl of Kinnoull
Would not the tenancy agreement spell out how the land would be used? When one talks about "part of the land", surely that gives a very welcome flexibility, which the industry wants. Surely the written tenancy agreement would spell out those matters.
§ Lord Carter
It would be nice to think that that was the case. It would be helpful were the Bill to require that. When I move amendments to that effect later on, I shall 1097 look to the noble Earl to support our amendments because that is what we propose but is not at present a requirement of the Bill. It is entirely up to the landlord and the tenant. There may even be an unwritten agreement, which is another point with which we must deal. It will be an extremely interesting situation where there is an unwritten agreement and only part of the land is used for farming. That could lead to a great deal of litigation. However, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 5 to 8 not moved.]
Lord Gallacher moved Amendment No. 9:
Page 2, line 1, at end insert ("which may be a statement included in an instrument signed by the landlord and the tenant confirming the terms of the tenancy and which takes effect from the same date.").
§ The noble Lord said: In moving Amendment No. 9, I shall speak also to Amendment No. 88 with which it is grouped. Amendment No. 88 is further on in the Bill in Clause 36 but I shall refer to it in dealing with this amendment.
§ The purpose of the amendment to Clause 1 is to clarify aspects of the notice conditions. First, it would confirm that the written notices referred to in the subsection could form part of the tenancy agreement, thus reducing any risk of doubt about the parties' later intentions.
§ Secondly, it is not infrequently the case that the drawing up of a tenancy agreement may follow some time after the tenancy has commenced. The amendment allows the parties to contract in to the notice conditions in those circumstances.
The third purpose of the amendment is to probe the question of when the tenancy is deemed to have. commenced. Clause 36(3) states that:
A tenancy granted pursuant to a contract shall be taken … to have been granted when the contract was entered into".
However, as it is not necessary for tenancies to be in written form—a point that has already emerged in the course of our discussions—does the tenancy commence from the time at which the oral agreement may have been made?
§ The four industry organisations, which will figure prominently in our deliberations both today and tomorrow, believe that it is desirable to have as much Certainty as possible about those matters and, therefore, it should be made clear that the provision in Clause 36(3) concerning tenancies granted pursuant to a contract applies to a written contract. The second amendment achieves that. I beg to move.
As the noble Lord, Lord Gallacher, has explained, the two amendments are concerned primarily with the notice conditions. The first amendment to Clause 1(4), as I understand it, is intended to enable parties to incorporate the notice in the tenancy agreement itself. Although I see the attractions of that approach, the purpose of the notice is to draw attention to the type of agreement into which the parties will enter. We have adopted that approach both to protect the tenant and to protect the landlord. If a tenant is unsure what is meant by a farm business tenancy, he has the opportunity to take advice and find out what the implications are. I am not 1098 convinced that that would be achieved by a clause in the tenancy agreement. We feel that it is important that the parties should both state their intentions clearly and do so explicitly for the avoidance of doubt.
Neither am I convinced that the parties should be able to contract in to the notice conditions at some later date. The whole idea is that the notice conditions must be complied with before the tenancy is granted. That is what the Bill provides. Again that is necessary for the avoidance of doubt as to the nature of the tenancy entered into.
I see no need to amend Clause 36(3) to refer to "written" contracts. Under the subsection as drafted, where a tenancy is granted pursuant to a written or oral contract, the tenancy is taken to have been granted when the contract was entered into. That reflects the fact that both written and oral contracts to grant a lease are enforceable in law. I hope that in the light of that explanation, the noble Lord will agree to withdraw the amendment.
§ Lord Gallacher
I am grateful to the noble Earl for his response. He wishes to draw the attention of the parties to what is in the agreement. For that reason, he says that the tenant can seek advice. It may be that in the light of his remarks on this side of the Committee we shall have to do the same.
The noble Earl does not like the prospect of the parties not contracting in until later. That also is something which we shall need to discuss.
Although the noble Earl's reply was adequate, I confess that I am still puzzled with regard to the necessity or otherwise of the agreements to be in writing either at the time or subsequently. Nevertheless, I shall read his remarks and in so doing I shall take account of his observation that there is no need for Clause 36(3) to take note. That may affect our attitude on Report, but in the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Inglewood
I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.