Biodiversity net gain: obstacle or opportunity?

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As part of the Government measures to help the UK meet its commitments to combat climate change, the Environment Act 2021 introduced a new 10% biodiversity net gain requirement, which will be imposed on most new planning developments from the date when it comes into force. This is likely to be later this year. We explain what biodiversity net gain is and focus on the opportunities it presents.

What is biodiversity net gain?

Biodiversity net gain (BNG) is a strategy for contributing to the recovery of nature whilst developing land. The Environment Act 2021 requires that development land must be left in a better state for wildlife than before the development. These provisions will come into full force during 2023 and require a minimum 10% increase in biodiversity as a result of any development.

Implementation of BNG is of course significant, as once the legislation takes effect, most developments will need to yield an increase of biodiversity in order for developers to obtain the required planning consents. Accordingly, BNG will be a live issue across most development sites which require any form of planning consent after the implementation date. For more details on the basics on BNG, see our previous article here (https://www.michelmores.com/agriculture-insight/biodiversity-net-gain-basics/).

Obstacle or opportunity?

The need to increase biodiversity will add additional considerations for developers on how they plan their sites and also impact on the profitability of those sites. In this way, BNG may be considered an obstacle. However, beyond this, BNG also offers a range of new opportunities for those willing and able to capitalise on the legislative changes.

One such opportunity is BNG land banking. This is where a landowner takes steps to increase the biodiversity on their land and then sells the benefit of this increased biodiversity to a developer as a “credit” to offset the loss of biodiversity arising from their development. Purchasing these BNG “credits” allows developers to meet the BNG requirements without needing to improve the biodiversity of the actual development site. A land banking arrangement also relieves the developer of the burden of managing the site in a way that ensures the gain of biodiversity is maintained. Selling BNG credits to developers allows landowners to generate income whilst managing land in an environmentally conscious manner.

Form of a BNG deal

A BNG deal typically has two limbs.

First, there will be a commercial agreement between the landowner and the developer. This will be for the purchase of BNG “credits”. The developer will buy these “credits” and the landowner will undertake to manage the land in a way that will protect the habitat and so yield the required increase in biodiversity.

There will then be a further agreement between the landowner, the developer and the local planning authority. This agreement is the mechanism by which the creation and maintenance of the habitat can be enforced. Currently, this is taking the form of a s106 agreement, but in due course this is likely to be replaced by a new legal structure called a conservation covenant. Although technically in force, the practical working of conservation covenants has yet to be finalised by the Government, but this should be completed this year.

For landowners looking to take advantage of BNG and developers needing to meet the requirements, there are some key considerations which need to be taken into account when formulating specific BNG deals.

Key considerations for developers

• Developers need to familiarise themselves with the upcoming changes and consider the steps they need to take to meet the new requirements. We have previously provided an overview of what those steps might entail here (https://www.michelmores.com/real-estate-insight/biodiversity-net-gain-update-developers/).

This may be done through factoring in increased biodiversity on site or looking to make use of BNG land banking with off-site provision. We have considered the use of off-site BNG here (https://www.michelmores.com/agriculture-insight/biodiversity-net-gain-what-site-solutions-are-available-developers/). Developers considering on site provision should consult Natural England’s Biodiversity Matrix, so that they can assess the existing levels of biodiversity at a site and work out how to bring about the required increase.

• Developers also need to consider whether their existing agreements remain suitable in light of the upcoming changes. If not, they may need to approach landowners and seek to vary the terms in light of the additional costs. This might in turn, however, encourage landowners to seek to renegotiate some of the other terms.
• Developers should address in any written documents what will happen if planning consent is refused due to BNG issues; who will carry that risk and what action each party will then take.

Key considerations for landowners

• Landowners need to consider the impact of entering into a BNG deal.

Typically, landowners will be committing to manage their land in a way that protects the credits they have sold for at least 30 years. Being tied in to such a long-term obligation will obviously impact on how landowners can manage their land and its underlying capital value. So, this will need to be considered carefully before signing up.

• Using land for habitat creation will also impact on succession planning for landowners. Landowners need to balance using the land to create habitat, whilst also retaining the required element of agricultural use needed to qualify for agricultural property relief in relation to inheritance tax. This potential issue is compounded by the long-term nature of BNG deals, as landowners will be committing to that use for an extended period of time.
• Another consideration for landowners is the risk of breaching their obligations under the agreement due to factors outside of their control. Creating and maintaining a habitat is dependant on more than just the steps taken by the landowner, including natural and environmental factors such as climate change. Landowners must be careful to protect themselves from the impact of these factors. Suitable steps could include the inclusion of force majeure type clauses, which remove or reduce the obligation if damage is caused by circumstances outside the landowner’s control.

Even where a landowner is not looking for a specific BNG deal, they should be mindful of the BNG potential of their land and its value to prospective developers. This is particularly relevant when developers seek to take on additional land as part of a development. If the pricing mechanism in an existing development agreement does not reflect the BNG potential of the land, there is a risk that it will be undervalued. This is particularly the case if the land does not have development potential in a traditional sense.

Importance of additionality

A key consideration for landowners and developers alike is the requirement that credit can only be claimed in respect of an environmental benefit once. A site can be managed to produce a BNG benefit, as well as perhaps an improvement in nutrient neutrality. Whilst it is possible to claim both in relation to a site, it is not possible to combine this and obtain other benefits, such as carbon credits, without additional measures being implemented. Choosing the appropriate metric for any given change will therefore be important in order to bring about the most profitable outcome whilst meeting all of the required standards.

The additionality requirement is also important in the context of planning a development site. Developers are unlikely to be able to rely on green spaces and “habitat” to meet their BNG requirements, where those features are already required as a condition of planning consent. Developers will need to find other ways to incorporate features aimed at increasing biodiversity on a site and not simply rely on existing features or those that would be present in any event.