Now that Biodiversity Net Gain is live a question is clearly forming around the BNG requirements and use of a Section 106 or Conservation Covenant.
The Environment Act 2021 introduced an across-the-board requirement that the development of land should result, as a condition of planning permission, in a 10% biodiversity net gain (BNG). This requirement now having gone live with effect from 12th February 2024 https://www.gov.uk/government/collections/biodiversity-net-gain.
As the early BNG requirements and projects begin to make their way through the planning and delivery process we, at CSX, believe that it’s likely they’ll be formalised by way of s.106 agreements. These agreements entered into between developers and local planning authorities (LPAs) setting out conditions upon which planning permission has been granted.
Although an alternative route by way of enforcement of “conservation covenants has been proposed, at CSX, we doubt that this will be the preferred method of compliance with a developers BNG obligations under the Act.
The s.106 regime is an established function of the LPA, whereas the conservation covenants are newly introduced and likely to involve an additional requirement for legal input.
Moreover, the Conservation Covenant route requires a Responsible Body to be in place, and at the time of writing the only such Body is Natural England. Whilst further Responsible Body organisations are anticipated to be in place in due course they would for the foreseeable future be new organisations working to deliver a new and untested legal mechanism.
The benefit of the covenant is that it attaches to the land are binding on future owners (due to the terms of the legislation), and is registerable against the title at the Land Registry to ensure future owners are on notice that the land is subject to conservation commitments. We can see the attraction, and it may well be that in time LPAs decide that the requirement they impose within the s.106 agreement is that the freehold owner/long leaseholder of the land enters into a conservation covenant deed with a responsible body.
We believe that for the time being stakeholders will gravitate towards tried and tested section 106 obligations rather than dabble in the unknown of conservation covenants. Moreover, the practical usability of conservation covenants will depend on the necessary Responsible Bodies being successfully established.
A NEW MARKETPLACE
The primary focus in delivering BNG was intended to be enhancement of biodiversity on the development site itself; it is recognised within the legislation, however, that this is unlikely to always be feasible, and hence the developer is able to arrange improvement of land offsite to meet its statutory commitment. There has been discussion that developers might improve land directly adjacent to, or at least nearby to the development site. The third option for the developer is to meet its BNG obligation by purchasing BNG units from third party land owners, who have committed to improving their own land and sell the BNG units to developers within this new marketplace.
This is likely, in CSX’s view, to represent the main method by which developers will deal with any shortfall in their BNG obligation, once onsite improvements have been taken into account. Certainly the message from government is that the private sector will be the source of BNG units rather than reliance on statutory biodiversity units purchased from the Secretary of State.
CREDITS OF LAST RESORT
DEFRA published prices for the statutory biodiversity credits in July 2023, with prices ranging from £42,000.00 for Grassland to £650,000.00 for Peat Lakes. The prices are intended to be penal to emphasise the requirement that developers sort this out themselves by delivering onsite BNG or offsite BNG or sourcing BNG units (not credits) in the private marketplace. The developer will need to provide evidence to the LPA that they have been unable to achieve BNG through on-site and off-site options; only then may they buy a statutory biodiversity credit from the Secretary of State.
PRACTICAL DELIVERY OF BNG
Landowners can create biodiversity units before they are offered for sale, for which Government guidance requires four criteria to be met:
- The use of the land must be secured by a legal agreement;
- There must be a commitment to managing the habitat for at least 30 years;
- There must be agreement of a planning obligation (section 106 agreement) with an LPA; and
- A habitat management and monitoring plan (HMMP) with the LPA must be adhered to
DELIVERY
Habitats enhanced or created for BNG must be secured, managed and maintained for at least 30 years and must achieve the distinctiveness and condition as intended.
Natural England suggest that “land used to deliver BNG off-site will need to be secured for a minimum of 30 years” – raising the issue of what does “secured” mean in that context – will a contractual obligation directly with a landowner be sufficient? We consider that it is.
It is recognised that there may be a number of methods of delivering developer compliance with their BNG obligations under the Act, when onsite biodiversity enhancement is insufficient.
- Landowners enter into an agreement with a habitat bank provider in return for rent and management payments. This will usually involve a formal farming business tenancy between landowner and bank and a leaseback to the landowner to deliver the habitat enhancement.
- Landowners to create their own BNG units and deal directly with a developer in relation to the sale of BNG units. Landowners create their own habitat management and maintenance plan (HMMP) and register their land as a source of BNG units.
- Landowners create the habitat bank, but use a broker to act on their behalf to line up deals with developers.
Several organisations have commented on their preferred method of delivery, with some driving towards, for example a requirement for use of adjacent land to the development, or for the entry into formal farming business tenancies, neither or which, in CSX’s view are required under the legislation and both of which represent overcomplicated models of delivery.
The suggestion has been that the developer should be able to exert direct control over the habitat land producing the units and to that end should have a formal interest in the land, including rights to step in, in the event of a failure by the landowner/farmer to live up to the obligations imposed by the HMMP. That suggestion has led some landowners and developers to head down the pathway of entering into Farming Business Tenancies of the land set aside for habitat improvement, however, at CSX we have view that option as onerous and complex, preferring instead to look at a binding commercial contract, with mutually enforceable obligations, and the ability for both parties to assign responsibilities under the contracts to take into account, for example, any changes of ownership of land or developer over the course of the 30 year obligation.
Accordingly CSX’s preference is very much to keep things as simple and as cost effective as possible, assisting landowners with delivery under the second and third options listed.
CSX’s is satisfied that landowners are prepared to accept the risk of a direct contractual commitment with the a developer and the responsibility for delivery of those BNG units purchased, including being required to offer alternate projects in the event of habitat failure, and monitoring progress and compliance over the lifetime of the project. The costs of complying with a 30 year commitment will need to be carefully assessed when pricing the BNG units themselves.
MAINTENANCE PLAN – MONITORING
There have been calls for a worldwide policing of BNG markets to ensure we avoid similar issues as have been encountered with unscrupulous offerings in the voluntary carbon credit sector; we doubt there will be a political will to implement anything of the sort, leaving monitoring in the United Kingdom with the actual parties to the s.106 agreement, the local authority and the developer.
Where the BNG commitment is for a mandatory 30 year period, there are obvious concerns relating to ability of either local authority or developer to police compliance with Habitat Management and Maintenance Plans over such an extended period, given the resources of both and the likelihood of monitoring compliance with a contract entered into decades ago remaining a priority throughout.
There is a real risk that projects, particularly those where units have been fully paid for upfront, show a flurry of activity in years one to five but are left to go to seed thereafter; some improvement will have been achieved but not to the extent envisaged or required by the LPA in granting its planning permission.
As mentioned previously, CSX considers that fully assignable binding contractual commitments between landowner and developer for the duration of the project will be a sufficient manner in which to secure the delivery of off-site BNG or offsite BNG units.
OPPORTUNITY NOT TO BE MISSED
The coming into force of the requirement of biodiversity net gain in relation to obtaining planning permission is brand new opportunity to landowners to generate income from their land. CSX are here to hold their hand every step of the way, including answering the question of whether BNG requirements are best met through a Section 106 or Conservation Covenant.