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As Biodiversity Net Gain (BNG) became mandatory in England in February 2024, landowners are increasingly recognising the opportunity to diversify by creating habitat banks, providing BNG units to meet the growing demand from developers. Habitat banks are areas of land where biodiversity is created, enhanced and legally secured for a minimum of 30 years, generating biodiversity units that developers can purchase from the landowner to offset the environmental impact of their development project and meet the 10% minimum mandatory BNG requirement (if this cannot be achieved onsite).
Legal mechanisms for securing habitat banks
There are two primary legal mechanisms under the Environment Act 2021 to secure habitat banks for the long-term: Section 106 agreements and conservation covenants.
Section 106 agreements
Section 106 agreements are planning obligations that bind the land with positive environmental commitments which run for at least 30 years from completion of the habitat enhancements. Section 106 agreements are familiar to local planning authorities (LPAs) and developers. Our experience is that increasingly, more LPAs are becoming willing to engage and enter into Section 106 agreements in relation to habitat banks. Key aspects include:
- The main obligation is for the landowner to perform actions for habitat creation, management, and enhancement.
- LPAs can monitor progress through regular reports on achieving the Habitat Management and Monitoring Plan (HMMP) objectives.
Conservation covenants
Conservation covenants are an alternative to Section 106 agreements, involving a legal agreement with a responsible body registered with DEFRA. At the time of writing, there are currently 24 registered responsible bodies and these are listed on the GOV.UK website. The obligations in a conservation covenant are similar to those in a Section 106 Agreement and a landowner may find:
- A responsible body might be willing to be more flexible on the terms or take a view on a higher risk or complex project when an LPA will not.
- A direct agreement with an environmental organisation could offer more support in terms of delivery and ongoing compliance.
- A conservation covenant could be used when Section 106 agreements are not feasible or when LPAs lack resources to process them quickly.
Choosing between Section 106 and conservation covenants
The choice between these mechanisms often depends on several factors:
- Capacity: If LPAs are awaiting additional resourcing or guidance, conservation covenants may be a faster alternative, if a responsible body can be found that is willing to enter into a conservation covenant.
- Cost: Whether the habitat bank is secured by conservation covenant or a Section 106 agreement, there will be a fee payable to the LPA or responsible body for monitoring the HMMP. As more LPAs are entering into Section 106 agreements and more responsible bodies are being registered with DEFRA, the market is becoming increasingly competitive. The financial implications of the ongoing monitoring costs and the timing of payment of those costs will play a crucial role in determining the most suitable mechanism for a landowner and should be explored at the outset, where possible.
- Flexibility: Conservation covenants may provide greater flexibility in some cases, especially for larger or more complex habitat banks.
- Timing: Some LPAs are introducing a “call for BNG sites” process and applications will only be considered through this mechanism, early communication with the LPA is key.
Conclusion
Both Section 106 agreements and conservation covenants play vital roles in securing habitat banks for BNG. As the BNG market continues to evolve, it is likely that both mechanisms will coexist and the choice between these mechanisms should be based on specific project needs, commerciality, and the timing of securing biodiversity units.
If you are considering entering into a Section 106 agreement to set up a Habitat Bank and would like advice, please contact Harriet Grimes, Helen Hutton or Fergus Charlton.
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