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Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006

Volume 685: debated on Monday 16 October 2006

The Minister of State, Department for Environment, Food and Rural Affairs (Lord Rooker) rose to move, That the draft regulatory reform order laid before the House on 5 July be approved[24th Report from the Regulatory Reform Committee].

The noble Lord said: My Lords, the order amends the Agricultural Holdings Act 1986 and the Agricultural Tenancies Act 1995. The amendments will foster tenant farmer diversification; give tenants and landlords greater flexibility to come to their own agreements; ensure decisions on restructuring are business-led; improve the viability of the tenanted sector; maintain the balance between landlord and tenant interests; and enable landlords and tenants to adapt to the agricultural climate of the 21st century. The amendments were developed in collaboration with the Tenancy Reform Industry Group—TRIG—and the proposals have cross-industry support.

Article 5 removes the barrier to tenant farmer participation in diversified activities by amending the criteria for the “livelihood test” for succession to a tenancy. Articles 6 and 8 ensure no loss of compensation or disruption to the rent review cycle when adding to or removing land from a holding, provided that the new holding forms a substantial part of the old holding. Articles 7, 9 and 10 replace the arbitration procedures in the Agricultural Holdings Act 1986 with the procedures in the Arbitration Act 1996 in line with the Agricultural Tenancies Act 1995.

Article 12 also relates to the 1995 Act. It clarifies provisions that have confused industry and professionals since the introduction of the 1995 Act on circumstances in which the 1986 Act continues to apply. It encourages restructuring by introducing new provision to allow parties to agree in writing that, when a tenant holds a 1986 Act tenancy, the 1986 Act will apply, provided that the old holding is a whole or substantial part of the new holding.

Article 13 gives landlords and tenants freedom to set their own maximum notice period for a farm business tenancy and retains the protection of the 12-month minimum notice period. Articles 14 and 15 give landlords and tenants greater freedom to reach agreement on rent reviews. Articles 16 and 17 make it easier for landlords and tenants with farm business tenancies to reach agreement on improvements to a holding by providing an option to agree a maximum limit for the end-of-tenancy compensation.

The order will promote a healthy and competitive tenanted sector without removing tenant protection or disrupting the landlord/tenant balance. The Government have given commitments to monitor the effectiveness of the regulatory reform order, particularly in relation to the impact on tenant farmer diversification, and to keep under review whether future legislative measures might be necessary. I am happy to repeat that commitment here, but I cannot be precise about how it will be done, as changes are always being made to the scope and level of surveys that we undertake. We will carry out this commitment through our close links with industry and the Tenancy Reform Industry Group and through analysis of available statistics and research.

On behalf of the Government, I thank the members of the Delegated Powers and Regulatory Reform Committee for confirming that the present proposals are appropriate to be made under the Regulatory Reform Act 2001, and for recommending them to the House. The committee in another place has also considered these proposals. It concluded that they remove burdens within the meaning of the Regulatory Reform Act 2001 without removing any necessary protections or preventing the exercise of any existing rights or freedoms. Both committees have unanimously recommended that the order be approved. I beg to move.

Moved, That the draft regulatory reform order laid before the House on 5 July be approved [24th Report from the Regulatory Reform Committee]—(Lord Rocher).

My Lords, I thank the Minister for bringing this order before us today. My only disappointment, and I am sure his as well, is that we could not get it in before the Recess. We did try, but I think that time in another place precluded it. One or two of the tenancy agreements have come up, so there has been a delay, but I thank him for explaining it.

I have one query from the point of view of the NFU and then I have one or two directly. The Tenancy Reform Industry Group took its bearing back in November 2002 and reported its recommendations in June 2003. This coincided with the CAP reforms, and the recommendations were made without the benefit of knowing the detailed implication of those reforms. Defra then took a long while to get the RRO drafted, missing, as I have just said, the autumn slot. Although this order is welcome, there may well be some more desirable adjustments to be made in agricultural tenancy law to take account of changes within the CAP. Perhaps the Minister could clarify that. It would be helpful if we could get an assurance that the Government will look sympathetically on any further recommendations that the industry may wish to bring forward in the future. I do not think that that is controversial; it is plain common sense.

We welcome this order. We are particularly pleased that the Government have responded to the way in which farming has changed in recent years, including contracting and other activities that are carried out on the holding. The Minister has, rightly, explained to us tonight that there had been confusion among the industry professionals and practitioners over whether Section 4(1)(f) of the 1995 Act applies only narrowly. I think that I have understood from what he said that that is not true. I hope that I am correct. Hansard records of the debates during the passage of the Agricultural Tenancies Bill suggest that the then Government’s intention was that the provisions would apply narrowly where parties had unwittingly surrendered the status under the 1986 Act.

The effect of the legislation is that when a landlord is asked by a tenant to give his consent to an improvement on the holding, he has no means of knowing the extent of that liability at the end of the tenancy. That could mean that some landlords are reluctant to give their consent to a tenant’s proposals simply because they do not know how much compensation they will be required to pay. Will the Minister comment on that?

I turn to the amendment to the provisions on notices to quit in the 1995 Act. Under that Act, a notice to terminate a farm business tenancy must be given in writing at least 12 months, but not more than 24 months, before the date on which it is to take effect. The current legislation prevents landlords and tenants from agreeing to a longer notice period than 24 months. There is therefore no flexibility to agree a notice period of, say, up to five years, which would give both landlords and tenants greater security and enable long-term planning. That is a small issue, but again I would be grateful for some comment.

On the timing of consent, when the noble Lord, Lord Whitty, was the Minister responsible for these tenancies, he promised to monitor the responses of landlords when faced with requests from tenants for renewed consent. He suggested that if the Government had evidence that landlords were reluctant to grant consent, they would consider what further measures were necessary. It would be enormously helpful if the Minister were to reiterate those comments on the Floor.

Finally, I turn to fiscal change. In order not to perpetuate a disincentive for landlords to grant tenants consent to diversify, all land, including buildings, let by a landlord under the 1986 Agricultural Holdings Act or the 1995 Agricultural Tenancies Act should be added directly to the definition of “agricultural property” for inheritance tax agricultural property relief to the extent that it is used for business purposes under consent from the landlord. Agricultural landlords should be able to defer payment of capital gains tax on gains to the extent that they are used to make improvements that increase the economic value of the land subject to agricultural tenancies that are used for business purposes. The business asset taper relief from capital gains should be available to all let land for business purposes, irrespective of the business of the occupier. Again, I would be grateful if the Minister could clarify that.

While we welcome this order, I have raised one or two specific issues, and would be grateful if the Minister responded to them. We hope that the order will make it much easier for those who have tenancies to get on and diversify and make a little bit more money than they have been able to in the past, and at the same time give landlords a certain amount of security, which they also need.

My Lords, a lot of the ground that I was going to cover has been covered already, and I do not wish to delay the House too much. However, I wish to make one or two points.

As has been said, it was hoped that this regulatory reform order would come to us before Michaelmas, this September. We all know why it did not. I know that the Minister tried very hard to get it in place in time, but the general clogging up of the legislative process seems to have made that impossible.

The work done by the Tenancy Reform Industry Group made an invaluable contribution to this order. It straightened out much tenancy law and policy that was not entirely satisfactory in the previous legislation. I shall consider the livelihood test towards the end of my remarks.

The regulatory reform order introduces amendments to ensure that agricultural work done away from the holding as well as other work can be approved in writing by the landlord. I shall make further points on that. One needs to be an expert in land law to deal with this order. It is complex but it is a very good attempt to overcome some of the anomalies to which the noble Baroness referred, particularly the problem that the original holding must remain a substantial part of a new holding. That appears to have been sorted out in the order, as does compensation, which is a difficult area on which to legislate.

The arbitration procedures in the Agricultural Holdings Act 1986 were very inflexible. The order seems to introduce much more flexibility in settling disputes. That can only be a good thing. The amendment to provisions of rent reviews in the regulatory reform order, which amends Section 9 of the Agricultural Tenancies Act 1995, as the Minister said, and allows parties to opt out of rent review provisions by express agreement, is a good solution to that problem.

As regards notice to quit, the removal by the regulatory reform order of the upper limit of 24 months is a desirable outcome. I hope that I have interpreted that correctly and that the process could go on for much longer than 24 months. If that is the case, it is a good thing.

I refer to one of the concerns of the Tenant Farmers Association and, indeed, of the Tenancy Reform Industry Group. TRIG proposed that non-agricultural income earned on or from the holding should be able to be considered where the landlord had consented to the non-agricultural use at any time, whether before or after the introduction of the regulatory reform order. At a late stage, it was discovered that the provision in the RRO would be able to apply only if the consent from the landlord came after the introduction of the RRO. That means that, even where a tenant is involved in an established non-agricultural use of the holding previously consented by the landlord, he will have to seek the landlord’s consent again if any of the income from that activity is to be eligible to be counted in the livelihood test of the potential successor. There is a risk that landlords may decide not to give that consent and perhaps not to be helpful either. The noble Baroness made the point that the noble Lord, Lord Whitty, had promised to monitor the responses of landlords when faced with requests from tenants for renewed consent. That is an important point on which both the noble Baroness and I agree.

The noble Baroness mentioned the fiscal changes, with which I agree. However, TRIG has raised structural issues. The Government were asked by TRIG to consider various structural issues, including barriers to tenants’ retirement, lack of support for new entrants and the risk of the loss of county council smallholding farms. I know that far too many of those farms have been lost. They provide the first rung on the farming ladder. I have been, and continue to be, very closely associated with the young farmers movement. These are very important issues. As we know from many surveys that have been carried out, in most areas of the country the average age of farmers is between 55 and 60. There are many very good young farmers with plenty of good ideas who are just champing at the bit to get a holding. The Government would find a very good response in the agricultural industry if they paid attention to the structural issues that TRIG highlighted in its evidence to the Government.

On the whole, there is a welcome for the order. It is certainly quite an improvement on what went before, and we only regret that it did not come forward sooner.

My Lords, at the outset, I apologise to the industry about that delay. To be honest, in the summer I would like to have pushed it. With all the other things that the House was doing in that period in July, there was no way that the business managers could slot this in, and one had to weigh up the balance. This was just one of the things that got squeezed. I realise the effect—maybe I did not so much to start with, but I soon had it brought home to me—of the Michaelmas changes.

I will have to write about some of the issues that the noble Baroness asked me about, such as inheritance and capital gains tax. There are Treasury matters there. The other thing is—I do not use this in any way as an excuse—that the order is made under the regulatory reform legislation, so there are certain constraints. It is not a free-for-all where you can do anything that you want; there are constraints about regulatory reform. It has taken an inordinate length of time. My officials apologised to me and said that it had taken a lot longer than was planned when the committee was set up following the foot and mouth outbreak. Nevertheless, we have got the order, and that is crucial.

I am not going to try to second-guess things, because in some ways the order allows for arrangements between tenants and farmers. I have been asked questions about the notice arrangements; I cannot possibly answer those. The order allows, by agreement, changes between the tenants and the landlord to a more flexible degree than in the past. Let us suck it and see. I cannot say what is good or bad in terms of length, because it depends on the individual circumstances. The fact is that they are not now constrained by the previous legislation, so it is up to individual business people, as it were, to make their decisions.

I also accept without any qualification that if you are a young person wanting to get on the land and get into farming and you do not have £3 million or thereabouts, you need to get a tenancy. That is the route in; I fully accept that. I understand that there has been a bit of a comeback in rented holdings. The figure for England is approximately 25,000 to 26,000 wholly rented holdings. There are about 40,000 mixed-tenure holdings and 120,000 wholly owned holdings. There is no doubt that the way in is through getting a tenancy, and I fully accept that.

I have not asked why the order did not cover this, but I am not surprised to find out that it did not. Facilitating the retirement of farmers is almost a contradiction in terms for some people. It is probably outside the scope of regulatory reform. There are other ways in which Defra is trying to assist with that.

The order will be an aid to diversification. I always create a rod for my own back in saying this, but sometimes it pushes the policy along: the biggest barrier to diversification at the moment is planning law at the local district council level. I am not saying that I want to get rid of planning law; far from it. But planning law at that level must take into account changes in farm practices. It is something that I am trying to address. It is a cross-government issue; we are not working in a silo. I have been on enough farms and seen enough examples in the past few months of really barmy barriers to diversification. We are trying to address that, because it is probably the next issue.

It will be fully accepted by Members that although we are bringing the order in late, it cannot be retrospective. That is one of the issues that we cannot deal with. On the key issue of compensation that the noble Baroness asked me about, the change in the order will ensure more certainty in compensation payments and will ensure that the compensation payable is known in advance where the parties have agreed. I reaffirm the commitments given by my noble friend Lord Whitty. I do not think that his name was mentioned in my speaking notes and, as my officials would have found out as they listened to me, I added a paragraph in at the end of the speech in which I was happy to repeat my noble friend’s commitment. What I cannot say though—and I admit this with some difficulty—is exactly how we will do the monitoring. I am trying to cut down the number of surveys on farmers. I have balked at some of them since I have been here. Nevertheless, we have to have some mechanism in place to carry out our commitment to monitor the arrangements. We will do that through our close links with industry, which are important.

I completely take the point raised by the noble Baroness. Yes, we will monitor any CAP reform measures that impact not only on single farm payments, but on other areas, and we will bring forward the necessary changes if required. I am sure that the CAP needs simplifying and we do not need to leave that until the last minute in 2013, but there are constant, ongoing discussions about this and ideas are floating around on reform and simplification. When, as a result of the 2003 changes coming into force, factors emerge that were not able to be taken into account in this order, I give a commitment that we will keep them under review and bring forward the necessary changes.

My Lords, what the Minister has said is extremely important, but we must remember that there is long-standing EU legislation for the retirement of farmers. Perhaps the Minister would investigate whether that could be applied in the UK in specific circumstances, if he can get around his friends in the Treasury.

My Lords, I am happy to go back and take advice on that and I will write to the noble Lord. Although I am speaking from memory, I understand that when this matter was looked at, it was not seen as—I shall not say “value for money”—fit for purpose and another route was taken under Fresh Start. However, I would be happy to confirm that and provide the noble Lord and noble Baroness with a note.

Farm blocking is an issue here. We want young people on the land and they are queuing up to get on the land, as I discovered on a recent visit to Harper Adams. I spent several hours there, including a couple of hours in a lecture theatre full of 150 or so young people who were itching to become farmers—not all of them from a farming background. I always ask when I go to colleges, or to shows where I see a college stand, whether there are people wanting to come in who have no background in farming. There is not a massive number, but they are there and that is fantastic, and we should do what we can to facilitate them. Farm blocking by farmers who do not understand the word “retirement” is a difficulty, but I shall provide a separate note on that.

On Question, Motion agreed to.

My Lords, I beg to move that the House do now adjourn during pleasure until 8.39 pm.

Moved, accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.22 to 8.39 pm.]