Mandatory Biodiversity Net Gain is an approach for development in England to contribute to the recovery of nature. Originally anticipated to come into effect in November of this year, DEFRA has since (on 27 September) announced a delay to its implementation until January 2024. When it eventually comes into force, most new developments1 applying for planning consent will have to demonstrate that they will deliver a minimum 10% uplift in biodiversity value, through land management obligations to be secured for a minimum of 30 years, on-site, off-site, or through a statutory credits scheme as a last resort.
This is a major change in the regulatory framework for developers applying for planning consent, and has significant implications for all market participants in both the built and natural environment (although it is acknowledged that some LPAs already have existing BNG requirements). Despite the requirement for most developments coming into effect in just over two months and DEFRA's commitment to publish all guidance and regulations by the end of November, uncertainties relating to how the scheme will work have left developers, local authorities and landowners with challenges as to how to prepare. These include (but are not limited to):
Liability and enforcement
Given the length of time for which underlying habitat creation / land management obligations have to be secured for, who is liable in the event of breach of those obligations, and what happens if no one is at fault (for example, vandalism)? This will be influenced by the legal instrument used to secure the gain – in some examples, LPAs are requiring third parties delivering the gain to sign up to section 106 agreements.
Financial value of Biodiversity Units and development viability
How much will a biodiversity unit cost a developer if off-site gain is intended? How will this value change over time, and how will this impact the method of gain (on-site, off-site and statutory scheme)? How will this impact development viability? Standard approaches to cost BNG designs have been developed in recent months, but the question is whether the LPAs will have a standard BNG unit cost for off-site provision so that developers can budget for BNG ahead of time, or whether this will be left to local market forces.
Legal instrument to secure biodiversity gain
Although there is some level of understanding and discussion as to the relative merits of securing BNG through planning condition, s106 planning obligation or conservation covenant it remains to be seen the proportions in which each of these will be used in practice, particularly as we are not (at present) aware of any entities having applied and received specific designation as a responsible body (a key ingredient to the conservation covenant agreement).
Taxation
How will the tax system treat the production, maintenance and sale of biodiversity units? In particular, farmers and landowners will be keen to understand the scope for agricultural property relief if their land use changes from agricultural to environmental. HMRC has confirmed that it will issue guidance on the treatment of BNG for inheritance tax purposes when more details are available. It may be of encouragement that the Inheritance Tax Manual confirms that land used to generate carbon credits under the Woodland Carbon Code and the Peatland Code will, in principle, qualify for business relief.
Working with clients, government and industry experts, we have developed the following overview and recommendations, as the market prepares for the new rules to come into force.
How will Biodiversity Net Gain work?
Biodiversity baselines, losses or gains will be calculated by reference to a standardised metric developed by DEFRA: The "Biodiversity Metric".
Natural England has recently published Biodiversity Metric version 4.0. This version is expected to form the basis (subject to further minor changes) of the statutory metric. It is important to note that both the statutory metric and its user guide are expected to be legislated for in the form of statutory instruments and therefore must be complied with. A "Small Sites Metric" will be available for use for smaller sites if the developer chooses to do so, from April 2024. These metrics focus on habitats, not species, and assign a 'unit value' to each habitat on a site. The Metric is used to calculate the baseline biodiversity value of a site and forecast its future ("post-development") biodiversity value under the scheme.
Biodiversity Value
When mandatory BNG comes into force, biodiversity value in respect of planning applications will have to be calculated using the statutory metric, and comply with all requirements of both the statutory metric and its user guide. The metric takes into account a number of factors including:
- the type of habitat;
- whether the gain is being achieved on-site or off-site;
- the size of each habitat parcel;
- the condition of each habitat parcel; and
- whether the sites are in locations identified as local nature priorities
How will BNG work in practice?
The Environment Act ('EA') 2021 introduces the following requirements in respect of BNG, including but not limited to the following:
- A minimum value of 10% BNG in respect of development, calculated using a 'mitigation hierarchy' in the "Biodiversity Metric" above;
- It is expected that government will formalise (through secondary legislation) the requirement for a "Biodiversity Gain Statement" (containing biodiversity information) to be submitted as part of the planning application package;
- Developers will be required to submit a biodiversity gain plan for LPA approval, prior to commencement;
- The underlying land management obligations will need to be secured for up to 30 years by planning condition, s106 obligation or conservation covenants (the range of options is also dependent on whether the gain will be achieved on site or offsite).
The minimum 10% requirement set out in legislation is mandatory and therefore there is no anticipated scope for the LPA to reduce the requirement based on viability or other issues (to the contrary, some LPAs are stipulating a higher % requirement for BNG). As BNG will be a legislative requirement, there will be no need for LPAs to repeat it in local policy, although they are being encouraged to develop specific BNG policies for additional compliance.
How to approach the four major uncertainties:
Liability and Enforcement
From a developer perspective, the main underlying BNG requirements are expected to include a Biodiversity Gain Statement to be submitted with a planning application, and for a compliant biodiversity gain plan, which sets out how a development will deliver biodiversity net gain, to be approved prior to commencement of development in order to formally discharge the condition.
If the gain is to be achieved on-site, it is anticipated that the Local Planning Authority will have a direct recourse against the developer through the enforcement against breach of planning condition / planning obligation. Pre-application advice could also be sought as part of the process to further clarify any relevant considerations.
If a separate land manager breaches their obligations in respect of off-site gain secured by planning obligation, and the land is outside the originally consenting LPA's administrative area, the authority may only be able to enforce the provisions of the s106 agreement (if at all) in their capacity as a third party contract rights beneficiary.
Liability could be allocated between Developer and Landowner through the contracts governing the sale and purchase of the biodiversity units. The risk could equally be mitigated in some way through indemnity insurance (although this would depend on the availability of policies). Finally, this issue may be further clarified in secondary legislation or guidance published between now and the end of November.
Financial value and impact on development viability
The market price of a biodiversity unit is expected to depend on a number of factors, including the availability of off-site supply, but also needs to reflect (from a landowner perspective) a value that is higher than the opportunity cost of using the same land for traditional agricultural or other purposes.
On 27 July 2023 the Government published guide prices on statutory biodiversity credits. As statutory credits are intended to be priced so as to reflect their being a measure of last resort, the published prices could be seen as an indicative ceiling price for market-based off-site units.
The best way for developers to prepare is to incorporate biodiversity considerations as early as possible, into the design stage for projects.
Legal instrument to secure biodiversity gain
Planning conditions can only be used to secure the biodiversity gain if it is being achieved on-site.
Conservation Covenant Agreements have to be entered into by a responsible body, and currently there is no designated responsible body other than the Secretary of State. Unless government produces template Conservation Covenant Agreements and entities apply for (and obtain approval for) designation as a responsible body in the next 6 months, it is expected that Local Planning Authorities and Developers will "default" to the instruments they are familiar with – that is, section 106 agreements.
Taxation
The Government ran a consultation process from 15 March to 9 June 2023. The consultation invited views on the tax treatment of the production and sale of ecosystem service units (including biodiversity units). The consultation also explored the availability of existing agricultural property relief and its applicability to land allocated for environmental use (for example, the creation of habitat banks for BNG purposes). The industry is concerned that the current scope of the relief is a potential barrier to farmers and landowners changing land use from agricultural to environmental use.
It is hoped that the awaited publication of the response will go some way to addressing this uncertainty.
In respect of all four uncertainties (as well as others not included in the list), it is expected that Government will afford some flexibility for issues and uncertainties that arise once the requirements come into effect in January 2024. As an example, DEFRA have already announced a delay in the implementation of these requirements for small sites until April 2024 (and subsequently extended the delay of the requirement to all schemes until January 2024).
Other considerations
Existing gaps/issues
The below is a non-exhaustive list of current industry knowledge gaps:
- Skills gap – many local authorities do not have a single ecologist on their team. Ecologists are necessary to assess the veracity and credibility of biodiversity gain plans.
- Enforcement of obligations – the planning requirement in respect of BNG is expected take shape in the form of the submission of a Biodiversity Gain Statement at application stage, with the subsequent imposition (on grant of a permission) of a pre-commencement condition for approval of a biodiversity gain plan, and approval of that plan. The underlying land management obligations also have to be secured for a minimum period of 30 years. How effectively will it be enforced and by whom over the course of that period?
- Responsible bodies – as far as we are aware no bodies have been approved as a responsible body other than the Secretary of State in default. Responsible bodies are required parties to Conservation Covenant Agreements and it is therefore unclear whether, in the absence of responsible bodies, whether they will be used at all in the initial stages.
- Supply/Demand of Biodiversity Units – there are questions as to whether small to medium sized developers will be disadvantaged in buying biodiversity units, as suppliers may have a preference to sell to larger developers who have financial resources to bulk-buy and therefore reduce administrative and legal costs involved in the sale of biodiversity units. Ironically, small to medium sized developers may have a greater need for the offset market, and connecting these developers with available supply will therefore be an important consideration.
- Climate change resilience – the UK has climate projection data globally, and there is a information on climate resilience measures for habitats. Both mean that it is essential to factor-in climate resilience measures into the design, immediate aftercare and long-term management of BNG.
- Net gain or no net loss? From a nature recovery perspective, the 10% net gain requirement may be within a sufficiently wide margin of error such that in practice, it would only lead to no net loss rather than actual net gain.
- Disparities in requirements – whilst the statutory requirement is a minimum of 10%, some local authorities are aiming for higher targets in their emerging local plans (for example, Cambridge City Council and South Cambridgeshire District Council are aiming for 20% in the adopted Cambridge Shared Planning Biodiversity SPD). It is unclear how differing requirements may affect investment decisions.
To conclude, mandatory BNG may hold significant economic and financial opportunities to developers, landowners, investors and other stakeholders to collaborate to improve the quality and quantity of England's biodiversity. Those who wish to seize these opportunities will need to be well prepared to address the challenges of this emerging market.
Join our programme of work
We continue to engage and advise various stakeholders in this process through organising panel and roundtable events including Incorporating Biodiversity into Business and The Role of Law in Driving Sustainability – Biodiversity and Natural Capital. Equally, we are advising landowners (estate owners and farmers) on the legal framework required to shift land use from agricultural to environmental land management.
Our offering
Advisory
- Advising on the current and emerging primary and secondary legislation relating to BNG matters and various potential commercial impacts from a developer, landowner and covenanting party perspective
- Undertaking a legal health check of biodiversity gain plans prior to submission of planning application or for approval of details pursuant to pre-commencement condition
Transactional
- Negotiating section 106 agreements with Local Planning Authorities to secure land management obligations (statute requires this to be for a minimum period of 30 years)
- Negotiating Conservation Covenant Agreements
Thank you to Dr Julia Baker, Nature Services Lead at Mott MacDonald, who provided comments and insights into this article.