In our podcast, we discussed how the publication of the secondary legislation under the Environment Act 2021 has hopefully clarified a few issues relating to deal structuring and documentation.
The major issue remains getting the section 106 agreements completed as this requires the approval of the (often under resourced) local planning authority (LPA). We have moved from drafting on an anticipatory basis to being able to fill in some, if not all, of the blanks.
That is good news because the aim is to get to a position where we have standard documents for these BNG deals. That is not an easy goal to achieve as every LPA and every advisor has a different view on these things. However, if we can simplify and streamline the transactions then the market will work more efficiently.
The Biodiversity Gain Site Register Regulations 2024 (Register Regulations) have clarified issues around registration of sites. Most of that detail is procedural but Regulation 8 of the Register Regulations confirms that your Section 106 agreement/conservation covenant must specify the last date on which anyone will be obliged to carry out habitat enhancement works.
That means you do need to know how you’re going to manage your site and when you’re going to create the habitat because you need to then work out your 30 years from the completion of those habitat establishment works. As regards this end date the Register Regulations do caveat the requirement by stating “(if any)” when referring to the date. However, landowners are already carefully considering the implications of a 30 year commitment and it seems unlikely that they would sign up to a Section 106 agreement which does not have a finite termination date and which would therefore burden the land indefinitely.
The practical consequence of this requirement is that larger sites might be split so that, at least initially, only part is committed to habitat creation so that the establishment works are known and scheduled so the 30 year run off can be calculated. If those units are sold then more land on the site can be committed at a future date and a Section 106 agreement entered into accordingly.
The first phase of habitat establishment can be further split into allocations of units for separate developments but another reason for splitting the overall site as set out above is that the costs of habitat monitoring are already looking very high. As with legal or other professional costs, this market will only get going if the economics stack up. Monitoring habitat on a site with different commencement dates will add an unwelcome layer of complexity and cost.
The high monitoring costs are part of the price of the credit that the developer pays so it’s a key part of the sort of the economic equation. If it’s not assessed properly at the start and the developer is undercharged the landowner loses. If it’s too expensive and the credits are overpriced the developer goes elsewhere.
The list of responsible bodies has grown but not by much and that shortage is leading to an inertia in the uptake of conservation covenants. That seems a shame because they are tailor-made for this sort of project. They also have the advantage of removing the burden from the LPA of approving the drafting. Of course, the LPA will have to be happy with the conservation covenant but if it ticks the relevant boxes then approval should be straightforward.
What’s holding people back is the fear of the costs of having to enforce a breach of covenant against a defaulting landowner. That is what is worrying the trustees of wildlife trusts and commercial organizations alike.
Turning to nutrient neutrality, the mainstream creation of wetlands or cessation of agricultural use to produce phosphate and nitrate credits is well known but credits can be created by upgrading infrastructure such as replacing faulty septic tanks with decent package treatment plants. This could be an option for rural estates to upgrade infrastructure and derive a benefit at the same time.
The impact of the Levelling Up and Regeneration Act 2023 is considerable as that places an obligation on water companies to upgrade wastewater treatment works by 2030. The critical point here is that the calculations for working out the nutrient neutrality requirements on any particular project have to assume that those upgrades have taken place. This means that a developer will require far fewer phosphate and nitrate credits after 2030 than before because the upgrades are deemed to have taken place and those wastewater treatment plants are much more efficient at stopping the pollutants going into a river.
What that means is that there’s an interim market for short-term mitigation from now until 2030 because if you’re building houses now you might need, for example, 100 phosphate units for the period from now until 2030, but only 50 thereafter. As such, you might opt to purchase 50 long term credits for the post 2030 period and look for short term mitigation based credits in the interim. That short term solution is a far easier decision for a landowner to make when compared to a 80-125 year commitment.
Michelmores are looking forward to putting on another Agriculture Roadshow, between 3-7 February 2025. Following the success of our tour last year, we are going...
