Posted: 18/12/2023
New mandatory biodiversity net gain (BNG) requirements are due to come into force from January 2024, making a BNG of 10% a mandatory condition of planning permission.
The National Planning Policy Framework (NPPF) describes BNG as ‘an approach to development that leaves the natural environment in a measurably better state than it was beforehand’.
The new framework is contained in the Environment Act 2021 which adds a new schedule 7A, dealing with BNG, to the Town and Country Planning Act 1990. A body of government guidance and draft regulations have been published since 29 November 2023, which provide more detail on how BNG will be achieved and managed in practice.
Local planning authorities (LPAs) will need to incorporate these requirements into their local plans, to the extent that they have not already done so, but could still require greater thresholds to be achieved than those set by the legislation.
This article sets out below some of the key considerations that developers and their lenders will need to be aware of.
Under the new framework, planning permissions going forward are deemed to be granted subject to a condition that a biodiversity gain plan will need to be submitted to and approved by the LPA before commencement of development. The plan will set out the developer’s methodology for achieving BNG. Ideally, the plan should be incorporated into the planning application to ensure that any issues are drawn out at an early stage. A template is set out in the guidance.
The legislation requires the following to be addressed in the plan:
The draft regulations add further requirements to the content of the plan including the use of the BNG metric, detail of how maintenance and monitoring obligations will be met for at least 30 years, how the ‘biodiversity gain hierarchy’ will be followed and compensation where the development leads to ‘irreplaceable habitat’.
The biodiversity gain hierarchy has been the guiding principle of BNG for several years now, but regulations are expected to formalise this, setting out the hierarchy as follows:
The biodiversity gain plan must show how the hierarchy has been adhered to.
The legislation provides that biodiversity site values are to be measured by means of a BNG metric, which is a tool established by Defra. The government published an official version of the metric on 29 November 2023. The metric translates habitat distinctiveness, condition and extent into a score which is presented in biodiversity units. It assesses different types of habitat separately (such as grasslands, rivers and hedgerows). To achieve BNG, a development must result in a sufficiently higher biodiversity unit score after development than before development.
The measures for achieving BNG are examined in more detail below.
On-site measures:
What this means: Delivering BNG on the development site itself (for example: enhancing existing habitats on site, creating new habitats, using green walls or roofs). Developers will be expected to consider BNG at an early stage and, where possible, incorporate this into the design phase with the assistance of ecological expertise.
Who will be responsible for ongoing management? Developers will be responsible for the on-site BNG and will need to provide management and maintenance obligations to the LPA covering a period of at least 30 years (usually in the section 106 agreement). The developer will need to consider whether in practice a management company, agent or other third party (all of which must be acceptable to the LPA) will be appointed to deal with these obligations. Even if a third party is appointed, the developer will remain liable to the LPA under the terms of the planning obligation.
What does this mean for lenders? Lenders may consider on-site BNG delivery as a low-risk option. Firstly, they will have security over the development land. Secondly, the developer will have a greater level of control over the delivery of the BNG and its ongoing maintenance. At the point of disposal, the maintenance obligations will run with the land in respect of any disponee.
Off-site measures:
What this means: Developers can allocate BNG units generated on another site towards their development. The off-site land could belong to the developer itself, or a third party.
Purchasing off-site units: The owner or operator of off-site land is referred to in the guidance as a ‘land manager’, and can include a habitat bank operator, private landowner or other responsible body such as a woodland trust. Units could be purchased by searching the private market, through a broker, through a trading platform or sometimes even from the LPA directly. The purchase price for the units is essentially a premium payable for a certain area upon which the BNG delivery will take place and for the carrying out of ongoing maintenance of the biodiversity enhancement works. Prices and payment terms will be agreed with the land manager.
Location of off-site land: It is preferable for the off-site land to be contained within the administrative area of the same LPA. This is important for enforcement purposes, but the guidance now also confirms that the BNG metric will incentivise off-site gains close to the development, so that communities local to the development benefit from increases in biodiversity. Off-site gains outside of the LPA’s remit will be worth less than gains within it.
Registration: The ‘Biodiversity Gain Site Register’ will be in place to record allocations of off-site biodiversity gains to developments, and the land manager must record the gain on the register before, at the same time as, or after the units have been purchased. However, this must be recorded before the LPA can approve the biodiversity gain plan. The register will be available when BNG becomes mandatory in January 2024.
Who will be responsible for ongoing management? If the off-site land is owned by the developer, it will need to supply a suitable maintenance covenant to the LPA secured by a section 106 agreement.
Third party landowners should be responsible for the delivery of BNG works on the off-site land and their ongoing maintenance. There are various ways in which these obligations can be provided. For instance, they can be:
There is no prescribed format for such agreements. It is up to each party to ensure it is adequately protected and its aims are achieved. Developers should be careful they do not become responsible for managing BNG on land they do not own, and that the relevant drafting ensures they will be able to meet the BNG requirement.
What does this mean for lenders? Delivery of BNG off-site is a higher risk for lenders as they are unlikely to have security over the BNG land, and as such will not have control if the obligations are not complied with. Further, there will be reliance on third parties for the delivery of the BNG and on-going maintenance. A lender is therefore likely to insist upon the developer meeting additional requirements to ensure that the planning obligations will be complied with.
A lender will normally need to be a party to any section 106 agreement binding the development site, which could also contain obligations relating to the BNG land. Documentation should be reviewed carefully on each project to ensure BNG requirements are properly addressed and that the obligations do not extend to the lender.
Statutory credits:
What this means: The Environment Act 2021 provides for a scheme to be set up whereby a developer can purchase 'credits' from the government, the cost of which is then applied towards developing natural habitat elsewhere. The guidance confirms the use of statutory credits is a last resort and should only be used where BNG cannot be delivered either on-site or locally. The government has released prices applicable to statutory credits which are set intentionally high as a disincentive and so as not to compete with local off-site BNG schemes.
What does this mean for lenders? This option is also likely to appear risky to lenders as it is still not clear how it will work in practice and whether any obligations from the developer other than in respect of payment for the credits will be required. There is also no guarantee that the LPA would agree to this option, and so it is risky to embark on a scheme with the intention of relying on statutory credits. If they can be used, they are likely to be much more expensive than other options which will not be an attractive solution for a lender.
The legislation contains provisions prohibiting the pre-development BNG value of a site being artificially lowered by undertaking activities (such as site clearance) which reduce the biodiversity on site.
The new guidance and draft regulations contain some derogations from the standard rules in the case of specific types of development. Some of these are highlighted below.
Although the market has had several years to adapt to the notion of BNG, the new legislative framework presents both risks and opportunities that developers need to be aware of.
BNG will be a deemed condition of planning permissions going forward. Usual enforcement remedies for breach of planning conditions will apply if a developer fails to comply with this, even if there is no express condition within its planning permission referring to BNG. Obligations to maintain and manage BNG works for at least 30 years set out in section 106 agreements will bind the land and any breaches of the agreement can be enforced by the LPA. LPAs may also have specific enforcement policies relating to BNG. Developers must therefore remain alive to the requirements of the legislation to avoid unexpected enforcement action.
The new framework sets out a strict and prescriptive approach to the content and approval of biodiversity gain plans and so great care should be taken to ensure they are correct and comprehensive, with the help of an ecologist, well in advance of making the planning application. While approval of the plan is technically a post permission matter, developers should avoid the risk of not being able to satisfy the LPA and having to spend unexpectedly high premiums for off-site gains or statutory credits, or, worse, not being able to occupy or dispose of the development as a result.
The prominence of land managers and ‘habitat banks’ has grown as BNG has become more mainstream and is likely to grow further. Landowners or operators with land that could be used to deliver BNG and sell units to developers are encouraged to enter into the market, which can be a lucrative business. The government has published targeted guidance to anyone interested in this field.
The planning team at Penningtons Manches Cooper has experience in dealing with BNG agreements and associated section 106 obligations, and is able to provide advice or act on behalf of anyone needing assistance in this field.
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