Opportunities and implications for developers and landowners arising from the enforced Biodiversity Net Gain under the Environment Act

What is Biodiversity Net Gain (BNG)?

Brought into effect by the Environment Act 2021, Biodiversity Net Gain is a new obligation that will apply to all planning permissions (with exceptions including householder applications, some self-build developments and development authorised by permitted development) and Development Consent Orders. The obligation will apply from 12 February 2024, and for small sites (less than 10 residential units or less than 1000 sq.nm. commercial floorspace), from 2 April 2024.

Developers will be required to improve the bio-diversity value of habitat wildlife. This improvement should, as a first preference, be required on site, but if this is not possible then via the purchase of Off-site BNG Units or if all else fails, by the purchase of statutory credits which are likely to be significantly more than the price of Off-site Units.

The BNG increase must be not less than 10% compared with the situation before development and that BNG must be maintained for a period of 30 years. Some Local Planning Authorities may require more than 10% BNG.

The BNG improvements will be secured as a pre-commencement condition on a relevant granted planning permission and will require a developer to submit a BNG plan to the Local Planning Authority and have that plan approved. Local Planning Authorities will have authority to issue enforcement proceedings against developers where the BNG requirements are not discharged.

What are the opportunities for landowners?

The Environment Act legislation permits BNG improvements to be delivered:

1. onsite;
2. offsite; or
3. by purchasing BNG ‘units’ from the government at significantly more that the market price. Whilst unattractive this would permit development to proceed where on or offsite BNG opportunities are not possible.

The Act requires that the BNG designated land be maintained for a period of not less than 30 years. After 30 years the land is no longer bound to remain as BNG land. Options to the landowner at the end of the 30 year period will include enhancing the BNG further and selling further credits (indeed, if the planned BNG habitat enhancements for the first 30 year period are achieved early, you need not wait until the first 30 year period has expired before having an updated agreement relating to new BNG goals relating to the next 30 year period), and to utilise income streams from other nature markets which are maturing. The Government has tried to reassure landowners that it would be rare that their BNG improved land would be designated for protection at the end of the 30 year period.

With the ongoing uncertainty surrounding payments pursuant to Environmental Land Management Schemes, this legislation provides landowners with a welcome opportunity to consider diversifying their land holdings to create a useful new income stream or indeed create greater income through the enhancement or creation of bio-diverse habitats resulting in saleable ‘biodiversity units’ through private sector investment.

Developers are encouraged to create BNG improvements local to a development by a BNG requirement calculation called the ‘spatial risk multiplier’, which means that the further away from the development the BNG is made the more units are required for it to be secured. (If the development requiring BNG is within the same local planning authority or National Character Area as the off-site BNG credits then no increase is required, meaning land providing the off-site BNG improvements may attract a premium where there is demand from developers within those areas).

What are BNG ‘Units’?

BNG Units are tradeable ‘tokens’ created by the implementation of a BNG scheme on land. The units are created by the implementation of a BNG scheme approved by the Local Planning Authority and delivered by landowners themselves or by third party BNG businesses employing ecologists and pursuant to legal agreements.

How can landowners improve the BNG on their land and create tradeable Units?

There are currently two methods by which landowners can improve their land and create tradeable units. 

DIY

The first route is by establishing BNG improvements themselves on site. To do this a landowner would need to survey their land and have an ecologist advise on the different options for BNG improvement on it (and the costs for carrying out and maintaining those improvements and the likely sale price of the BNG units created). Once the landowner has chosen what BNG improvements he wants to make an ecologist can produce a Habitat Maintenance and Monitoring Report. The BNG credits created can then be added to the national BNG register and when the BNG units are sold the money can be used to start the improvements (there will be no requirement to re-secure the units for another 30 years with another legal obligation if remaining BNG units are sold when not all BNG units are initially sold – the original creation date applies). 

It’s important to note that the Natural England national register of BNG units is separate to any other private or local planning authority databases which will be matching services to help developers in need of offsite BNG units find local landowners who have the BNG units to sell to them.

Ongoing maintenance and monitoring is required throughout the 30 year period of the BNG scheme and annual reports must be submitted to the Local Planning Authority. Of note is that the liability for delivery of BNG throughout the 30 year period remains with the Landowner and consequently also the reporting requirements. 

Offset Broker

An Offset Broker provides a Landowner with the ability to delegate the liability of the BNG obligations to that broker as a third party (it will be for the parties to decide who delivers the BNG on site – often the landowner will want to carry them out themselves). As the BNG plan requires the creation and maintenance of the habitat for a period of 30 years it is expected that brokers will require a legal interest in the land, probably in the form of a lease, for not less than 30 years.

The anticipated benefits of a landowner partnering with a broker are the broker:

1. will manage the creation of the BNG through ecologists;
2. will monitor and report on the progress of the habitat creation or improvement to discharge the landowner’s obligation in the BNG plan;
3. will register the land with Natural England;
4. will legally contract with the landowner and pay a creation capital payment, a rent for the land, a yearly maintenance payment, interest payment and profit share for 30 years from a payment made by the developer to the broker in escrow; and
5. should provide the landowner with an indemnity in respect of compliance with the BNG plan.

Note that it is expected that the broker will be permitted to sell the BNG units on the open market and will make profit from those sales. Each arrangement between a landowner and broker should be advised upon legally and commercially and each broker is likely to offer different terms to the next hence the importance of landowners taking their own legal advice on the terms offered by the broker.

What are the legal agreements required?

Planning

Landowners that want to create BNG

Lender’s consent

Agricultural Tenancy considerations

If the obligations are to last 30 years it is likely that the party entering the agreement should be able to demonstrate an interest in the land for that period. Few fixed term farm business tenancy agreements under the Agricultural Tenancies Act 1995 have been granted for periods that would cover the obligations but there are some (other originally granted as an incentive for a tenant to surrender an Agricultural Holdings Act tenancy often with succession rights). Until recently, long term FBTs did not incorporate a ban on entering such schemes so some tenants may be able to trade units. The ability to trade will doubtless be checked by the broker but it would be prudent for a landlord to check the tenancy agreements.

Tax Implications – Capital Gains Tax and the availability of APR and BPR

Agricultural Property Relief (APR) is available only where land or buildings are used for agricultural purposes which essentially means for the production of food. Whether land can be used for the production of food and for the delivery of BNG remains to be seen but if it cannot, then it is likely that APR will not be available.

Business Property Relief (BPR) will also need to be a consideration but only to the extent that the land is not held as an investment or where it qualifies under the farmer case as part of the wider activity of an estate. Unless the farmer case or the provision of a BNG can properly be called a business activity for profit it may also be difficult to claim BPR.

Tax considerations should always form part of commercial decision making and in such circumstances tax advice should be sought on a case by case basis.

‘Stacking’

There are a number of schemes providing environmental benefits in relation to land management. Guidance confirms that BNG land can be used for BNG but also Basic Payment Scheme claims (whilst they remain), nutrient neutrality measures but not carbon credits. Other schemes may also be ‘stacked’ with BNG but we anticipate that conditionality will be applied and guidance is awaited. As a result ‘stacking’ is likely to be attractive.  It is still unclear at the time of writing whether a mixture of public and private finance schemes can be stacked.

How can the real estate, planning and construction team help you

Our planning team are able to provide advice and assist you in your discussions with the Local Planning Authority on the terms of s106 agreement and completion of the s106 agreements/conservation covenants with the council.

We can also provide you with advice as to the consequences of a conservation covenant on your land and where possible assist you to find the best terms in the wording of the covenant.

Our rural and agri-business team will provide you with advice and guidance in respect of the legal agreements when dealing with a BNG broker (and more generally). We will work with our planning team and your tax advisers to deliver the best outcome for you.