Challenges for developers and opportunities for landowners: Biodiversity Net Gain and the Natural Capital Economy

What is the emerging Natural Capital Economy?

Developers and commercial operators are increasingly reliant upon the emerging “natural capital economy” to obtain consent for activities with potentially adverse environmental impacts. In this economy, landowners create and sell natural environment enhancements to developers and operators who are required to offset (and even create overall gain from) the natural environment impacts of their activities. Examples of this in action are landowners creating and selling biodiversity units (see below), nutrient credits or carbon credits from their land to allow developers and operators to comply with various environmental regulatory or voluntary frameworks.

New legal duty on developers in England to deliver an “at least 10% Biodiversity Net Gain” from their developments

The Government's most ambitious example of kick-starting the new natural capital economy is through the new “Biodiversity Net Gain” (“BNG”) legal duty on developers.

Under the adopted Environment Act 2021, developers across England will have to deliver a mandatory “at least 10%” BNG from every development which receives Town and Country Planning Act 1990 planning permission from November 2023. A similar requirement will come into force for Planning Act 2008 consents (Nationally Significant Infrastructure Projects) from 2025. The 10% BNG must be measured, using Defra's BNG metric (spreadsheet) v3.1, from the pre-development biodiversity baseline of the redline boundary site.

Delivering a 10% gain in biodiversity, compared with a site's pre-development baseline will be a serious challenge. A developer will be expected to deliver the “at least 10% Biodiversity Net Gain (BNG)” target from its development in one or more of three ways:

• Through the creation of biodiversity units within the redline boundary of the development (in most cases a 10% BNG through this approach will not be possible);
• Through reliance on biodiversity units created on land elsewhere which are registered on Natural England's offsite biodiversity gain land register (“registered offsite biodiversity gain land”) and then sold and allocated to the development;
• Through statutory “biodiversity credits” purchased from the Government.

In anticipation of the November 2023 mandatory BNG start date, Freeths LLP has seen many LPAs across England making significant demands on developers for BNG delivery from development applications, even though the new legislation and legal duty is not yet force. The policy bases for these demands vary across LPAs. It is essential that, if demands like this are made, there is a clear LPA Development Plan basis for the BNG demand being made. Demands based on national planning policy alone (paragraph 174(d) of the National Planning Policy Framework (“NPPF”) encourages BNG) can be challenged since the NPPF is not part of the Development Plan and is merely a material consideration in the determination of planning applications.

We are awaiting full details (through secondary legislation and guidance) on how mandatory BNG will operate in practice. However, this new legal duty is already having (and will continue to have) a huge impact on developers in England and presents a massive income-generating opportunity for landowners too, whether acting independently or through emerging intermediaries who offer to generate for landowners biodiversity units from landowners' land and match those units with developers who need them. 

How can Freeths LLP's Natural Capital Legal Team help with BNG legal issues?

Freeths' Natural Capital Legal Team is here to support you in every aspect of the natural capital economy, whether you are a landowner, developer/operator, entrepreneurial intermediary, consenting authority or environmental/ecological consultancy.Our BNG services are as follows:

If you are a developer anticipating receipt of planning permission before November 2023

If you are facing planning policy-based LPA demands for BNG delivery from your planning application:

• We interrogate the legitimacy of the BNG delivery demands and, where appropriate, provide legal and policy-based arguments by which you can push back against the demands. This is a particularly common issue if you already have outline permission and you are now seeking a reserved matters approval.

If you need to rely on off-site biodiversity units to meet planning policy-based BNG demands:

• We identify the best structure and legal mechanisms by which to legally secure the delivery of the biodiversity units so as to satisfy the LPA (note that, pre-November 2023, biodiversity units are unlikely to be registrable on the Natural England register and so the delivery mechanisms will vary across different LPA areas).

If you are proposing to purchase biodiversity units from a landowner to meet planning policy-based BNG demands:

• We carry out due diligence on the legal documents underpinning the offsite scheme to check if the scheme will be sufficiently robust to meet the LPA's requirements.
• We review and negotiate the biodiversity unit purchase agreement under which you will purchase the credits from the landowner.

If you are looking to deliver your own off-site biodiversity units for your development to meet planning policy-based BNG demands:

• We assist you in securing appropriate ownership of the relevant land to deliver your biodiversity unit scheme.
• We assist you in considering whether other “natural capital products” might also be deliverable from the relevant land. There are a number of ways that land could be enhanced to deliver different environmental outcomes and it may be possible to generate multiple natural capital income streams from the same land.
• We identify the appropriate legal mechanism by which to secure the creation of the required biodiversity units in perpetuity (i.e. a s106 agreement or potentially a conservation covenant).
• We draft the s106 or conservation covenant and negotiate it with the body which will enforce it (this body will depend on which sort of agreement it is).
• We draft and negotiate the biodiversity unit purchase agreement (the agreement by which the biodiversity units can be sold, if this is necessary).
• We work with LPAs to obtain their sign off of your biodiversity units.

If you are a developer looking to purchase land for a future development which will require delivery of BNG:

• We ensure that your land purchase is conditional upon planning permission being “BNG - deliverable

If you are a developer anticipating receipt of planning permission from November 2023 onwards

Outline permission and reserved matters:

• We advise on the applicability of the mandatory BNG regime to your outline and / or reserved matters applications.

Baseline biodiversity unit value of your development site:

• We advise on the “anti-trashing rules” in the BNG legislation so as to determine an appropriate biodiversity baseline of your development site.

If you are relying on on-site (redline boundary) biodiversity units to contribute significantly to the mandatory 10% BNG:

• We advise on the legal mechanism to achieve this (this could be a planning condition, s106 or conservation covenant).

If you are relying on purchase of off-site biodiversity units to contribute to the mandatory 10% BNG:

• We conduct legal due diligence over the legal and registration status of the biodiversity units, to ensure that they will be acceptable to the LPA.
• We review and negotiate (and if necessary draft) the biodiversity unit purchase agreement by which you will purchase the units.

Your Biodiversity Gain Plan:

• We legally review your statutory “Biodiversity Gain Plan” to ensure it is legally compliant  - this is the document which must be submitted to the LPA for pre-commencement discharge to demonstrate your development's delivery of at least 10% BNG.
• We engage with the LPA on your behalf to overcome any objections to the Biodiversity Gain Plan.
• We advise on appeals against LPA refusals of Biodiversity Gain Plans.

Once your Biodiversity Gain Plan is discharged by the LPA:

• We advise on your options if it turns out that you cannot deliver the on-site biodiversity units envisaged in your Biodiversity Gain Plan.

If you are a developer looking to purchase land for a future development which will require delivery of BNG:

• We ensure that your land purchase is conditional upon planning permission being “BNG - deliverable”

If you are a landowner creating and using/selling biodiversity units to meet mandatory BNG

If you are a private landowner, a commercial landowner, a public body landowner (such as a LPA or statutory undertaker) or third sector landowner (such as a Wildlife Trust or other not-for-profit group) wishing to enhance your land for biodiversity and thereby create biodiversity units to use or sell to developers:

• We advise on the legal requirements that you must meet to create and use / sell Natural England-registered biodiversity units.
• We  draft and negotiate the legal agreements you need so as to secure in perpetuity the delivery and management of your biodiversity units, to permit their successful registration on Natural England's register.
• We advise on the Natural England registration process and on appeals where off-site biodiversity units fail the Natural England registration process.
• We draft and negotiate the biodiversity unit purchase agreements, to be able to sell biodiversity units to developers.

If you are a LPA offering to developers an existing local BNG payment scheme:

We advise you on how to make this scheme compliant with the mandatory BNG legislation.

If you are a LPA determining planning permissions from November 2023

LPAs have a pivotal role under mandatory BNG as LPAs have to ensure that developments will deliver an at least 10% BNG:

• We advise on LPAs' determinations of developers' Biodiversity Gain Plans, including application of the anti-trashing rules for the development sites' baseline value and the legal mechanisms by which to legally secure delivery of on-site biodiversity units.

LPAs will also be asked by landowners to enter into s106 agreements or conservation covenants, to legally secure the delivery by the landowner of the biodiversity units they wish to use or sell:

• We draft and negotiate for LPAs the legal agreements with LPAs requested by landowners (s106s or conservation covenants) to allow the landowners to secure in-perpetuity delivery of their biodiversity units.
• We advise on LPA enforcement of biodiversity unit legal agreements between LPAs (as enforcer) and landowners (s106s or conservation covenants).

If you are an entrepreneurial intermediary

If you want to create a business by working with landowners and developers to generate and sell biodiversity units:

• We advise on how best to structure your business to secure landowners' delivery of biodiversity units and to match those units with developers' needs (e.g. leasehold vs brokerage model).
• We draft and negotiate required leases over landowners' land.
• We advise on the commercial and management agreements needed between the intermediary business and the landowners.
• We advise on, draft and negotiate the legal requirements you / landowners must meet to create and sell Natural England-registered biodiversity units.
• We advise on the Natural England registration process and on appeals needed where off-site biodiversity units fail the registration process.
• We draft and negotiate the legal agreements you need to be able to sell biodiversity units to developers.

If you are an environmental or ecological consultancy

If you are an ecological consultancy providing BNG services to your developer or local authority clients:

• The BNG calculations you prepare for your client will be scrutinised by the LPA and third parties and so you need appropriate protection in your Terms and Conditions of Business and your BNG calculation reports to ensure that the basis of your BNG calculations are understood and agreed by the client - we advise on this.

Please contact Freeths LLP's Penny Simpson, Partner, or Richard Broadbent, Director, if you'd like more information.