Biodiversity Net Gain: Dealing with Biodiversity Net Gain in Land Acquisition Agreements

Biodiversity Net Gain (BNG) delivery will become mandatory for the majority of housebuilders and developers in November 2023, and a growing number of local authorities are already imposing it as a planning requirement.

Please see two articles we recently published on this topic below:

• Overview of the basics: Biodiversity Net Gain: the basics | Michelmores
• Steps developers can take before November 2023:  Biodiversity Net Gain : An update for developers | Michelmores

Achieving BNG – the mitigation hierarchy

Developers will be required to demonstrate that they will deliver a minimum 10% net gain from the pre-development bio-diversity value of new developments.

To achieve net gain in a way that is consistent with the mitigation hierarchy, developers will be required to follow these steps in order:

1. aim to avoid or reduce biodiversity impacts through site selection and layout

2. enhance and restore biodiversity on-site

3. create or enhance off-site habitats, either on their own land or by purchasing biodiversity units on the market, and

4. as a last resort to prevent undue delays, purchase statutory biodiversity credits from the UK Government where on-site and off-site options are not available.

In practice, delivery of BNG on-site may not be viable or attractive and developers may need to turn to the off-site options. These are essentially the developer buying off-site land to deliver BNG itself, or securing an agreement or conservation covenant from a third party who will then deliver off-site BNG, or buying biodiversity units on the newly emerging market, for example, from a habitat bank.

Future proofing acquisition contracts, options and promotion agreements

These delivery requirements will need to be reflected in land acquisition agreements. Some examples of the provisions that we expect to see built into acquisition contracts, options and promotion agreements to address BNG requirements are:

• Clauses which set out a route map of options for satisfying BNG requirements, for example, by the landowner agreeing to make nearby land available under a conservation covenant at low cost on agreed terms.
• Clauses which provide checks and balances and address the respective parties interests, for example, landowners may want to incentivise developers to go down the off-site route despite the attendant ongoing management obligations and costs, whereas developers may prefer purchasing biodiversity units which may be more costly but will be a one-off payment.
• Price calculations which expressly allow for the deduction from the price of BNG acquisition costs, potentially subject to approval of the costs by the landowner acting reasonably. Landowners will want to incentivise developers to minimise these costs and therefore BNG cost-sharing provisions may emerge.
• Contracts which are conditional not only on the grant of planning permission but potentially on the securing of off-site BNG land where relevant. A planning permission will only become implementable when the BNG plan has been approved by the LPA, and this means that the developer will want to have secured any necessary third party interests before buying a development site.
• Long stop provisions which recognise that additional time may be needed to secure not only the planning permission but also any third party land interest that is required for BNG. Potentially we may see extensions of time which are triggered by ongoing BNG negotiations.
• Flexibility in requirements for a minimum number of units to be achieved, since developers will be concerned that on-site BNG may reduce the number of units that can be built. A scheme which falls below a specific number of units or value may not however be viable to the seller.
• Overage clauses are being agreed upon more widely to address landowner’s concerns over the developer getting a “second bite of the cherry” when the 30 year biodiversity maintenance period has expired, with provision for future enhancements in value to be shared.

The involvement of any third party land outside the development site may cause delay and uncertainty and we are already seeing the structure of transactions changing to address these risks.