Habitat Bankers – a new role for Local Authorities?

The recently-published “State of Nature” report, the result of work by a number of nature bodies, makes grim reading. We continue to lose habitats and species at an alarming rate for a variety of reasons, making the UK one of the most nature depleted countries in the world. New developments inevitably, even on “brownfield” sites, result in felling of trees and the loss of natural features such as vegetation and ponds.

In order to reverse declines in biodiversity, the Government is pressing forward with policies aimed at nature recovery. In its Environmental Improvement Plan published in January 2023, the Government said that halting the decline of biodiversity “so we can achieve thriving plants and wildlife” is its “apex goal”. Key to this is the move from the conservation of the remnants of biodiversity left in the landscape, huddled into statutory protected sites, to a more expansive approach to nature recovery at a landscape scale.

A key component of the Government’s strategy to do this is to make Biodiversity Net Gain (“BNG”) a mandatory requirement for new developments under the Town and Country Planning Act 1990. BNG is a concept which means that developments must leave habitats in a better state for wildlife than they were prior to development. It has already been a part of national planning policy for a number of years and will shortly become a mandatory requirement when provisions under the Environment Act 2021 come into force requiring developers to deliver at least 10% BNG. The original start date for mandatory BNG was November 2023, but in September the Government delayed the start to January 2024.When BNG becomes mandatory developers will have three options. They can deliver their at least 10% gain for nature on site; secure the equivalent biodiversity units they need on habitat banks off-site; or, as a last resort, purchase statutory biodiversity credits as part of a national scheme provided by the Government.

Local Authorities will play an important role in mandatory BNG, both in terms of approving developer Biodiversity Gain Plans when they seek planning permission but also in terms of taking enforcement action over the delivery of biodiversity units on habitat banks off-site (where that BNG is secured by way of a section 106 agreement). However, as major landowners, local authorities are also in a privileged position in terms of making their own land available for the creation and sale of off-site biodiversity units. For example, an old landfill site could be transformed into a grassland or woodland; a traditional local park could be planted with a range of more “wild” flora. Doing this will ensure that at least some of the private investment unleashed by mandatory BNG can be directed into sites under local authority control that are not needed for development or other purposes, but which can be enhanced for nature. Doing this will benefit biodiversity and local residents.

Consequently, some pioneer local authorities are considering creating their own Habitat Banks out of land suitable for biodiversity enhancements in accordance with the BNG habitat “metric”. Once created, these sites can be managed to create biodiversity units for sale to developers. This will allow those local authorities to generate an income whilst conserving and enhancing the natural environment in the areas they serve. It can also help local authorities deliver their new Local Nature Recovery Strategies (required by new duties under the Environment Act 2021) and comply with their new enhanced biodiversity duties under section 40 of the Natural Environment and Rural Communities Act 2006 (“NERC”). This duty requires public authorities to take a strategic approach to determine policies and specific objectives for taking action to further the general biodiversity objective. Local authorities must also report on the action they have taken to comply with their new biodiversity duties. Creating and monitoring habitat banks on their own land will allow local authorities to do this.

What would a Local Authority need to do in order to create a Habitat Bank?

If a local authority is interested in creating a habitat bank it should consider the following:

• It should first ask itself whether it owns land that is suitable for biodiversity enhancement. To understand this, local authorities would need to work with ecologists to map out their land. Many local authorities will already by engaged in this fact-finding work as part of their new duties to provide Local Nature Recovery Strategies and to comply with their enhanced s.40 NERC biodiversity duties. Ecologists should also be commissioned to draw up a Habitat Management and Monitoring Plan for the creation and maintenance of biodiversity units on suitable land.
• Local authorities will need to create a business plan which will consider the local market for off-site biodiversity units and the supply of new development from applicants who may need those biodiversity units. Local authorities will only want to pursue Habitat Banking if there is a good business case for creating a Habitat Bank.
• If a local authority has suitable land and a good business plan then it can create a new company that will act as a Habitat Banking Vehicle (“HBV”) for the land. That HBV will then be responsible for the creation and maintenance of the biodiversity units. By creating a separate legal entity (this might typically be a subsidiary “Teckal” company) the local authority can ensure a degree of separation between it and the entity responsible for the delivery of the off-site biodiversity units.
• Once created, the leasehold interest in the local authority’s land can be transferred to the HBV. This leasehold interest will need to be for at least 30 years. This is because the Environment Act 2021 requires biodiversity enhancements to be maintained for at least 30 years after the completion of the habitat creation works. As part of the work on these leases, searches will need to be carried out to ensure there are no encumbrances on the land which would prevent the biodiversity units being created and maintained.
• The delivery of the biodiversity units created on the habitat bank will need to be legally secured by either a section 106 agreement or a conservation covenant (a new legal mechanism created under the Environment Act 2021). This is necessary before the biodiversity units can be registered with Natural England on a national register of biodiversity units and sold to developers. By creating a separate HBV, the local authority can enter into a section 106 with the HBV over the leasehold land. Alternatively, the HBV could enter into a conservation covenant with a responsible body, which will then ensure that biodiversity units are delivered. That, however, will not be an option until responsible bodies (with whom conservation covenants can be entered into) are designated by the Secretary of State.
• When all these steps have been followed, the HBV can start trading biodiversity units with developers and managing the habitat bank for nature.

Following these steps takes time and resources, however, done well, habitat banking can be a way for local authorities to deliver benefits for both local wildlife and the communities they serve. The Natural Capital team at Freeths can help you on this journey, drawing on its experience carrying out this work with other local authorities.

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If you would like to discuss anything covered in this article please contact Stephen Pearson or Richard Broadbent.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.