Landowner collaboration agreements on environmental schemes

A lot of landowners are used to working with their neighbours. In the rural context in particular, neighbours are often willing to recognise their land is interdependent with, not independent from, the wider landscape. Hence it was interesting to see a form of words being by the Chancery Lane Project suggested for collaboration agreements on environmental schemes. See link here:

Heads of Terms for Landowner Collaboration on Environmental Schemes | The Chancery Lane Project;

The notes with the draft wording state:

“Privately-funded projects which seek to provide a means for businesses to offset greenhouse gas emissions are becoming more prevalent, but can be limited in their scope and ambition by a fragmented ownership structure. This drafting sets out a framework by which multiple landowners can collaborate in putting forward and utilising their land for public and private environmental schemes and projects.”

Collaboration agreements are fairly common in real estate transactions. Most often they are used between groups of owners bringing forward housing developments. However that does not have to be the only use of this type of legal tool. The big benefit of collaboration agreements is to streamline the interactions between the owners so as to maximise the benefits overall. It is interesting to see examples of how that might work in sustainable and environmental schemes.

Some of the key take aways are:

Drafting objectives: It is also important to define the goal. The notes to the draft wording suggested both with words and hard data, to set out the environmental benefits of the proposed. This could be the potential outcomes in a local area or landscape and, longer term, whole ecosystem recovery at scale. The examples noted are climate change mitigation and the promotion of carbon sinks, as well as biodiversity and nature based solutions.

It also makes sense to set out what potential schemes the landowners are aiming to come under. Potential schemes for landowners include: the Biodiversity Gain Site Register (created by the Environment Act 2021); the new ELM Scheme (including the Sustainable Farming Incentive, Local Nature Recovery and Landscape Recovery schemes), the Countryside Stewardship Scheme (until replaced by ELM); and The Woodland Carbon Guarantee (among others, as they are brought forward).

Time scales: These steps can require long term commitment. It was interesting to see minimum and maximum durations as a key point to agreed. Contractual certainty and long stop dates are important parts of drafting any property agreement.

Agreed responsibilities: It can be important to agree not only on what is done on the land but what will not be done. It was interesting to see a mutual agreement to restrict the land use, in the suggested wording and a suggested list of prohibited activities. The legal position with enforcing this is something that requires careful consideration,

Dealing with the land: The transmission of land is something to think about and the legal means for securing the obligations. This is especially over the longer term. The draft wording talks about not disposing of land during the period of a scheme except to a person who promises (via a deed of covenant) to comply with the terms of the collaboration agreement. The notes to the suggested wording had an interesting example, that the desired environmental impact could be lost if sequestered carbon becomes re-emitted once land is used for agriculture again. It might be worth thinking if there should be some first refusal or pre-emption procedure, in case plans change.

Division of profits: It is always worth thinking about the divvy up. It is interesting to see the comments and wording proposed, which is aimed at how to share the receipts of the scheme and coming up with an agreed division. This may be on a pro rata basis but there is the potential for it to be more site specific.  For example, what if one party controls land essential to the core delivery of the scheme? It might also be worth thinking about a third party or expert determination process in the legal wording.  This would be in case of disagreement or dispute, to work out a fair return.

Division of liabilities: It can avoid future dispute risk to set up a framework for liabilities. This could be if one party does something which is in breach of the agreement or a proposed scheme/grant regime. So, what if one ruins it for the others? There could also be loss or damage flowing from the activities undertaken and how the risk of this is allocated can be considered and specified in the legal drafting.

Ongoing funding and management: It will reduce friction and is normal in collaboration contracts to set out how decision will be taken. This can cover how costs are occurred and the discussion before they are taken. A mechanism to deal with this and drafting to cover how potential disagreements can be dealt with are common in dispute resolution clauses in collaboration contracts. This is a sensible and easy import into a new context.