Anjali Bancroft: Good morning everyone and thank you for joining us and a very warm welcome. I am delighted to be hosting this webinar, the latest in our How We Live Sustainably series. Today we are focusing on biodiversity net gain. My name is Anjali Bancroft and I am a principal associate in our housing and regeneration team focusing on helping developers acquire and dispose of land for residential development.
I am joined today by our presenters, firstly Ben Stansfield, a sustainability partner in our planning and environment team. Ben is advising a number of our clients, house-builders, logistics and renewable energy developers in relation to the risks and opportunities presented by biodiversity net gain and is currently advising on the creation of a number of off-site habitat banks, therefore dealing with many of the practicalities as to how BNG is to be delivered.
We are also joined today by Ed Colreavy, a partner in our housing and regeneration team. Now Ed advises house-builders and developers on acquisitions and disposals and, alongside Ben, has spent some time speaking to our clients recently in relation to practical implications of biodiversity net gain for transactional work.
So our topic today is BNG. We will look at the mandatory requirements coming into force, the recent Government guidance from February 2023 and the practical implications for compliance. Now just a few points on house-keeping before we start. As this is a webinar you may see that the chat function has been disabled. Now we have planned in some time to answer some of your questions at the end of the presentation and if you do have questions, please do feel free to use the Q&A function as and when these questions arise and we will look at them at the end. Now if we do not get to all of your questions we are more than happy to follow up so if you want to drop your contact details, we are more than happy to follow up with you after this session. We will be recording this session as it is a webinar and we will be looking to circulate that following the end of the session and it will also be uploaded to our website. The session is planned to run for about an hour so until about 11 o'clock and now I will hand over to Ben to start things off.
Ben Stansfield: Thanks Anjali. Good morning everyone, welcome to Stansfield Terrace here in Essex. I would be in the office with my colleagues if it were not for the train strike but never mind. So I am going to talk to you about BNG, I am going to cover some of the regulatory and planning issues and Ed will deal with some of the transactional and the meaty deal specific issues.
I am going to set the scene today by telling you why biodiversity matters with one of my favourite graphics from the World in Data website. This is a global image and it tells us really why we are in a biodiversity crisis. So 10,000 years ago the world was lovely, you know we had … nearly 60% was forest, 40% of our usable land was grassland. I mean obviously we had deserts, glaciers, terrain, all that kind of stuff, unusable land but the land that could be used could be used for growing stuff. It was grassland and forest and it was lovely. About 5,000 years ago we built the pyramids, we started to farm and it has been slowly degrading I guess since then. So if you look at our 2018-2019 figures, we do not have anything more up to date than that, you can see that we have lost a third of our forests and we have lost nearly three quarters, give or take, of our grassland and we have replaced that with buildings and agriculture. So if anyone ever points the finger at the development industry and says oh it is the developers who destroyed biodiversity, you can actually see, only 1% of our land is urban and built up and that is globally, I do not have the UK figures. I appreciate that would be even more insightful today but 15% of our land is used for growing crops for human consumption but a third of our usable land is for animals. Animal agriculture and grazing and producing crops for those animals as well so you can see very visually why we are in a potentially biodiversity, well we are in a biodiversity crisis and how we are using land and the whole purpose of the biodiversity net gain policy regime is to start replacing it, some of that lost biodiversity. We might not be able to replace the land but we can certainly improve nature that was previously with us.
Right so that is the scene beautifully set I hope. On to the basics. So the biodiversity net gain regime will start for most developments in November this year. Which means you need to start thinking about it now if you have a large application for planning permission that you are putting together, that is likely to get planning permission in November or subsequently. If you have got a smaller site and we can talk about the sort of split start if you like for BNG, some of it will start next year. If you have got a small start, so up to nine residential houses or if you do not know how many houses you are building, if you have got half a hectare or less than you are a small start, small site, and this all kicks in for you next year.
But you will be required, as a result, well you will be required to improve biodiversity by 10%. So you take a baseline, your pre-development baseline, you work out what the biodiversity value of that site is and then you need to improve that sort of like for like or better for like, improvement by at least 10%.
The biodiversity value of your site will be measured using a DEFRA metric. We are currently on metric, I think, 3.1 and the recent response to Government consultation of the guidance which was published in February, there is talk about having a biodiversity metric 4.0 so changes are afoot. The biodiversity metric is, I sort of joke, that it is way beyond my pay grade, it is, you know, you will need a very competent and qualified ecologist to help you evaluate the biodiversity value of your site. It is pretty complicated stuff and I know the groove in which I sit and the metric is not it.
Really important to get our heads around the difference between units and credits. So you will need to, as I say, work out the biodiversity value of your site, how many units that is and you will need to create or acquire biodiversity units, so either on your own site or off-site. If all else fails there is a in case of emergency break glass solution which will be buying biodiversity credits. So the statutory credit regime where the Secretary of State will, you can buy credits from the Secretary of State and use those to satisfy your obligation if, for whatever reason, the planning system slows you down. So, there is little chance of the new regime slowing down development in that sense.
Additionality - so what do I mean by that, and we will talk about stacking in a minute but additionality in this sense means that so if, ordinarily to get your planning permission you would need to do some landscaping let us say or create a sang or something like that, create some open space. That cannot be used for biodiversity net gain. So biodiversity net gain needs to be over and above that which you would ordinarily need to provide or do in order to secure planning. So that is additionality.
The Government is alive to the fact that some folk, not necessarily nor obviously on this webinar, but some folk might be tempted to degrade the biodiversity value of their site prior to getting planning so deliberately reduce the biodiversity value of the site in order that 10% is easier to obtain. The Government are alive to that, there will be rules, there will be regulations rather addressing this point and essentially any site degradation will be taken account of and so that we will probably go back to the, I think, it is January or April 2020, which is when the Environment Bill, which is the framework legislation for the BNG rules, that is when that sort of came back into parliament for consideration. So January 2020 would be the key date there.
Maintenance – so the works, the biodiversity works that you can provide will need to be maintained. They will need to be provided and maintained for at least 30 years. So really quite a long time and that has sort of implications on cost, liabilities for landowners, all that kind of stuff which we will talk about shortly.
A biodiversity gain plan will need to be submitted to the local planning authority as part of your, either your application or prior to commencement and there is a condition which ,I think, I will flash up in a moment which will be deemed to be included in all planning permissions granted from November 2023.
That potentially raises a JR risk which again, I think, Ed will cover subsequently. And how will these works, these wonderful works that you are going to do, be secured. Well there is at the moment section 106 agreements will be used for BNG works but there is also a new regime, the conservation covenant regime, which is within the Environment Act. I have got a few slides on that in a moment. So I will talk about that in a minute. So that is the legal mechanism will be used to secure, in particular, the 30 years maintenance. So I talked to you a minute ago, I referenced the condition which will be imposed. So the Environment Act says, you, know, planning permissions will be deemed to include a condition which says that development may not be begun until a biodiversity gain plan has been submitted to and approved by the local planning authority but I suspect in reality that condition will be very expressly included in that plan, sorry in the permission.
Okay, the Government consulted on BNG last year for 12 weeks and the consultation ended, I think, sometime in April and we have been waiting for a response to that consultation since. That response was published at the end of last month, very exciting I know a number of you have probably been waiting for it and I think, you know, I think, opinion has been split, right, on the response that Government issued, I think, there is a number of folk, perhaps myself included at one point that thought that the response might be a little bit more detailed and yet we have a sort of inch or two thick document which we would all have to wade through and it was a little bit thinner than we expected and, you know, I guess we hoped that, you know, the 12 or 24 however many questions we had, would all be answered and a number of them were, a number of the really important questions were answered but there are still gaps. We are still waiting for draft regulations to be published and do bear in mind that the things that I am about to tell you now, the outcomes, the exciting news from the response that has no basis in law so we need the regulations to crystallise to give teeth to the comments in the responses and I am sure that will come and actually the response is helpful because it says, look, we are going to tell you a bit more about what a biodiversity gain plan needs to include. We are going to tell you in the common weeks and months what a really good conservation covenant or 106 obligation needs to include. So we know roughly what is coming, we do not necessarily know when it is going to come but I think, what I take from this is that DEFRA is being quite careful to make sure that it has a really workable scheme, yeah this is going to apply to all developments, this is really important, they cannot get it wrong, they cannot be, sort of, you know, getting to December at the end of this year or January, February next year and say, oh, crumbs, actually we need to tweet the scheme because it is not quite working as we thought. So, I think, actually although a little bit frustrating for some developers now who are wanting all the information, I think, in the long run this is a really good approach that DEFRA is taking.
Okay, so, what are the highlights of the response to consultation in the guidance? Well, a lot more money for local planning authorities. So a lot of the local planning authorities that I have been chatting to have obviously, you know, they are lacking funding, resource is always an issue, this is a big thing for them to get their heads around so there is a fairly substantial cheque that is going to come their way to help them tool up for this. Yeah, there is a shortage of skills and understanding throughout, you know, with developers and the authorities as well. So additional funding which is good. A de minimis exemption so if your scheme is only impacting on let us say, a five metre hedgerow, then you will not need to provide biodiversity net gain. I you are impacting a small part, a small bit of land, say 25 square metres or less, you will not need to worry about biodiversity net gain. And I get that that is practical, you know, I fully understand that that it makes the scheme workable if there is some really tiny impacts but the tree hugger in me is a little bit disappointed by that and I think, maybe that whilst you might not strictly need to comply with BNG just something to be, I guess to bear in mind that, yeah, for developers that the optics of being exempt might not necessarily be favourable in the communities and notwithstanding you do not need to sort of be fully in the BNG regime you might want to think about something that you could do instead. There are exemptions from certain types of developments so if you are undertaking development through the permitted development regime, you do not need to worry about BNG. If you are doing some householder development so sticking on a conservatory, doing something to the roof, all that kind of stuff, you will not need to worry about BNG. If you are creating an offsite habitat land bank more on that in a minute you will not need to create or you will not need to provide additional BNG that would kind of BNG on top of BNG so that would be a little bit odd. Similarly there is a, it is not an exemption but they talk about a sealed surface, sealed surfaces. So if you have a site fully tarmacked then you biodiversity, your DEFRA's biodiversity metric will give that that site a zero score. So in a way you are exempt form that as well. So, you know, a few things to think about there when you are looking at your schemes.
Irreplaceable habitat. So this, you know, beautifully, some beautiful approach in guidance that they say, irreplaceable habitat will not be covered by BNG and the definition of irreplaceable habitat will follow in due course and we will consult in that. I think, what they are trying to get to here is, that I suppose, a bit like the HS2 development so development which impacts ancient woodlands, things like that, stuff which, I guess irreplaceable. So that will not be subject to biodiversity net gain but will be kind of subject to almost a parallel regime where appropriate compensation will need to be given. You will need to provide a lot more detail in your planning application, you know, additional reports analysis and that will go into the mix for the local planning authority to think about. So it will not be subject to the BNG 10%, it will be subject to something else and probably far, far more scary, involving far more, many more meetings and discussion with planning officers.
Phasing has worried a lot of us. So if you have a large outline planning permission and you are going to deliver scheme in a number of phases, what does that mean, what does that mean for BNG, does it mean you are going to have to do it all in phase 1, can you put it back to phase 4, and DEFRA have said in their response, look, we get it, we understand it is an issue so we are going to want, we are going to want a biodiversity gain plan still and we will want you to provide an updated biodiversity gain plan for each of the phases that you are going to come forward. There is a little bit of frustration, I guess in the response for me, in that, that DEFRA say, well we do not want to create any hard and fast rules, we do not want to create inflexibility. So, I think, there will still be discussions with officers and, you know, one or two officers may, rightly, put, you know, dig their heels in and say, well we do want some early biodiversity gain to be provided in phase 1, perhaps a little bit more than you might be comfortable with but there is a recognition in the response that if you have got complex infrastructure arrangements and it will not necessarily be possible there will not be an absolute requirement for 10% in every phase but they will want to know what is going on. In that sense if feels to me a bit like a travel plan that you produce this framework travel plan and then before you really start you give a bit more detail as to how it is going to really look. I think, overall that that is user friendly.
Section 73 applications. This was again a worry that if you had a planning permission, let us say granted this summer prior to the biodiversity net gain regime coming into force, before you have that mandatory 10% requirement if you then need to change your scheme, if you need to tweak your development and get a section 73 planning permission to a new planning permission, let us say early next year, that would be in the new phase but the original permission would not work then. How do we do baselines, it strikes me, or reading between the lines, there is quite a bit of debate on this internally with DEFRA what they have ultimately decided is, if the original planning permission was not subject to BNG then your section 73 will not be. So in my example, get your planning permission before November subsequent section 73s will not need to comply with mandatory biodiversity net gain that is a helpful thing for developers.
I have hinted or I have talked a little bit already about the small sites delays so if your developing up to nine homes you do not really think about biodiversity net gain until April 24, I guess that is just a, keeping the development industry sane, keeping officers sane as well that they do not need to worry about that, they can just focus on the bigger schemes at the moment.
INSIPSA, the Nationally Strategic Infrastructure Project so probably not applicable to many of us on the call today that will be subject to BNG but not until November 25.
Okay, what else. Biodiversity gain plan delivery, sorry, so again a discussion in the response about when does the biodiversity gains need to delivered, when do we need to do these works and there has been talk of needing to provide the biodiversity works within 12 months of commencement. Possibly with prior to occupation and again the response said, look, no hard and fast rules, each case on its own merits, all that kind of stuff, have a proper chat with the officers, work out something sensible. So there is flexibility here, so again, if you have complex early stage infrastructure works you need to do then there should, there is support in the response and the guidance to help you, let us see what it says in the regs.
Again, I am going to talk about offsite habitat banks in a moment there is a clear expectations that a number of local planning authorities will be creating their own habitat banks and I think, one or two cynical folk, myself included, expected to be in a situation of where you are going, you have got your planning, you have got your development scheme, you go to the planning authority and they say, well we would really like to introduce you to our estates team who are running their own habitat bank possibly you could get your units there, would not that be nice and that might make your planning application go through a little bit more easily. So response, the Government response says, well look, no, you cannot do that, local authorities cannot direct any developers to their habitat banks unless there are clear ecological justifications. I suspect what they mean here is, if you are after a certain type of biodiversity unit, you know, you are trying to get a particular type of grassland unit, something like that then that would be an obvious reason to us the local authority habitat bank but there is to be no donkey dealings let us say, so that is good.
I was surprised to see this in the response, excess gains. So if you are a developer, if you are a landowner and you put in more than 10% to let us say, you have got your housing scheme and you do 12% biodiversity net gain, you, the response to make is very clear, you can sell that that 2%, you can sell the excess gains. I think, a number of us thought that was fairly obvious but I guess, I guess it needed to be clarified, that is fine, you can do that.
Registers. So what have we got here. Offsite only. So there will be a biodiversity site register which will be managed by Natural England that will only include on it the offsite provision. So if you are providing biodiversity works on your development site you will not be on that register that seems a little controversial, that seems to be causing some disappointment amongst, you know, the sort of a, say, the ecologists or the non-development world. I suspect that might change, I think, we will end up with a register where all the information about all the different biodiversity bits and bobs will be on there but watch this space.
Secretary of States credit. I have told you in case of emergency if you cannot provide biodiversity onsite, if you cannot provide or get easily your units from an offsite provider, you could go to the Secretary of State and buy the credits. The response to guidance consultation says, those, the price of those credits will be intentionally uncompetitive. When the market for biodiversity units is up and running and it is all running smoothly, I think, we can expect that credit regime to be withdrawn. The Secretary of State does not really want to get involved with this but is providing this solution of last resort, prices will be published, I think, 6 months in advance. So we will know, yeah, you could put in your development model, your appraisal models what the cost might be of satisfying biodiversity net gain rules cause you can put your Secretary of State credit price in there but hopefully you should be able to get it cheaper.
Stacking this is cool. So if you have got a biodiversity site, you know, subject to being de‑regime, you can use that for other things. So if you want to use that for nutrient neutrality credits as the landowner you can do that, you cannot use it for carbon sequestration but you can, you know, work your site as a landowner, you can do a few things with it that is really good, that is going to be very popular.
And then finally, in the response they say, regulations we will publish them later in 2023 so I have no doubt that Ed, Anjali and I will see you again for another webinar in the future and again the response as we are going to produce more guidance so particularly what are biodiversity gain plan needs to look like also what a conservation covenant needs to look like as well.
So what are the questions. One of the big questions is where to deliver your biodiversity net gain. Is there going to be a hierarchy whereby, you know, you start onsite and then you sort of go down all the way through the options to Secretary of State and that probably is right but I still cannot really look any of my clients in the eye and tell them exactly when they move from one to the other and I think, and I think, this is going to be a topic a number of planning officers are going to say, a little bit like they do with affordable housing, the starting point is you provide that onsite that is where the impact is and that is where we want to see the works and I get that but it is not always going to be the most, well, firstly it is not really going, the most practical and we will go through a few examples and secondly it might not be the best for nature it might not be the best biodiversity solution, you know, we might find that in many many cases the offsite habitat land banks are by far and away the better solution but there is going to be an education process to go through, there is going to be discussions needed with officers and this does not, this quote here is not from the guidance this was from the press release with the response and it just to me creates, you know, it is just vague, right, so it says, well look, you know, we will encourage improvements onsite but there may be circumstances where that is not possible so again as I say, I think, this is going to be something where we discuss with officers quite a lot.
So where you might do your biodiversity gain works. Probably not a solution that many out in the shires will need to adopt but if you are doing student accommodation in an urban location, you know, you might have small constraint site and you might find that the local planning authority are really pushing you to do a green roof something like that whereby you can have some biodiversity compensation let us say onsite again, I think, that is potentially problematic, right, and yeah, that is extra cost that is all sorts of unpleasant and difficult maintenance so, but we might find ourselves there, you know, if you are a logistics provider, I know there should not be too many logistic folks on this site but, you know, if you are doing last mile logistics that is going to be quite a difficult, you know, you have a nice big roof, can be quite an expensive structural improvement that you need to make and all sorts of maintenance issues to deal with as well. So I think, onsite or on structure solutions challenging but they look great.
Okay, what else might you do. So if you have got your housing scheme with your, you know, within your redline you might be pushed or you might want to be doing your biodiversity gains works within your redline site it will look great, it might not be the best biodiversity solution, let us put ourselves in the position of a bee, if you were a bumble bee where would you rather go. Would you like to go to housing estate where there are, let us say, 200 homes with 2.4 kids in each one and there is a dog, everyone has a cat which is trying to attack the local wildlife, there are going to be cars coming and going, if you were a bee would that be your first choice destination, possibly, possibly not, you might prefer to go to an offsite habitat bank where, and the argument here, is the 2 + 2 + 2 + 2 gets you far more than or how many 2s that was, gets you in aggregate a much better biodiversity solution, there are going to be no cats, there are going to be no cars coming and going, no kids kicking their football into the wild flowers, all that kind of stuff but again local authorities may say, got to be onsite and there are some issues there and, you know, how you pay for the maintenance, how you do the estate management.
Okay, so you might want to do it on your blue line land so you might have your redline site and you might say, well we are going to put it on our blue line, next to the resi, next to our housing estates, next to our development, why, because it looks like it is onsite so it kind of ticks that local mitigation box. We might control the site, our landowner might control the site so there is a relationship there, there is an excess there that might make it easier. I think this is a solution that works really well perhaps not so much in the resi space but perhaps in the living space, I should say, maybe more for the energy and infrastructure so we have been talking to renewable energy clients about, well if you want to produce lots of solar farms or battery storage maybe it is quite good to have your biodiversity nearby, must be adjacent but in a slightly separate vehicle so you can sort of put all your, your infrastructure assets into a fund without this question mark as to what the long term liabilities might be. You could do offsite so if we cannot do onsite and we cannot do next to site we could do offsite so you might own land or lease land a few hundred metres away or a mile away, I think, once you start moving outside of the local planning authority, once, you know, move out of that administrative area there is a possibility of a bit of grumpiness from local well from objectors, I guess, and from planning officers and also the biodiversity metric is going to punish you the further away you go from your development site the more biodiversity units you are gong need to create or acquire whatever. So offsite is a potentially good solution and I guess, it means that you can maximise the densities and so forth, you will not have to take 10 units out of your scheme in order to the biodiversity works. A good solution, I guess, if you are doing a number of developments in a region or in area and you could perhaps do all your biodiversity works altogether and again get that application.
So offsite habitat land bank so, for example, the Environment Bank are really leading in this. Do check out their website. They are creating offsite habitat banks in each local planning authority, they will have a team of expert ecologists and folk doing the management so it is a really good sort of trusted, you know, the argument is that they would be a really good trusted third party who can take care of your, your habitat or your BNG requirements for you and it removes the maintenance, it removes the discussion with landowners, all that kind of stuff and it should be local to each of the schemes. So we are seeing those new assets cropping up similarly with local planning authorities that we have already mentioned that they might start doing stuff. It would be a good revenue spinner for some local planning authorities. So that is a new model that we are seeing crop up.
And then finally in case of emergency break glass by something from the Secretary of State so if you are building your mansion, for example, you might just think, well you know what, it is far easier to just buy credit from the Secretary of State, you know, I do not want to do it onsite that might be a solution for some people.
Okay, so how are we going to secure this conservation covenants. I kind of making an assumption that many of you will be familiar with a 106 so I do not really tell you how a 106 works. A conservation covenant is a new legal instrument established in the Environment Act 21 and it can be, it, the idea is that it will be used for perhaps listed structures so listed buildings as a means of conserving them but I think, fundamentally 95/99% of them will be used for biodiversity projects. So these are a little bit like 106 so contractual agreements to secure the long term conservation of sites unlike a 106 which is with the local planning authority the agreement with a conservation covenant will be given by a landowner or those with interest in land to a responsible body and I think, DEFRA in its mind has the idea that, yeah, sometimes these might be local planning authorities, it might be a local wildlife trust, someone or a body rather with real expertise perhaps in a certain type of habitat or in a certain administrative area. We do not know entirely what the criteria for being a responsible body, what those criteria are and so no one has put, no one has come forward and said, yes, I will be a responsible body, please sign me up. I will start receiving the benefit of these conservation covenants. Again, cynical Ben says, well are we going to find that local bodies, local nature groups apply to be responsible bodies perhaps people who do not have as much familiarity with enforcement as a local planning authority would have so there is a bit of a fear, I think, it, I mean it is fear of the unknown is not it. It is crumbs. Is this responsible body going to becoming round to my site every day saying, oh, those flowers have not, you know, they have not probably germinating, you know, oh, the daffodils have not come up all that kind of stuff or did a count and I could not see any bees so you need to come and start, you know, we need to start enforcing. All those kinds of silly trigger, hair trigger enforcement, I think, we worry about so at the moment we seeing all this stuff pushed down the 106 route, I think, that will change however. The idea of a conservation covenant will bind landowner, will bind subsequent landowners and they are going to be onerous, you know. It is not going to be an easy solution. These will be strict, you know, and let us bear in mind the whole point of BNG is to enhance nature. So that is the point and all the obligations will be aimed at doing that. So what kind of things might we see in the conservation covenants so covenants to create it, to manage it, to maintain it in accordance with an approved plan. Security is a real question mark, how are we going to deal with that, how are we going to demonstrate both to our landowners and particularly to the responsible bodies that we have got the funds to do this for the next 30 years, you know, if there is storm damage in year 10, how are we going to prove to them that we have got the funds to sort that out so that is going to be a big question mark. We are going have to do monitoring, we are going to do, have to have indexation of monitoring payments we, you know, for local authority in the 106 regime or for the responsible body to assess the works we have been doing. Are we going to have to have step in rights for an offsite developer probably not, I think, that is going to be entirely unacceptable but developers might be worried about their reputation there again, I have sort of hinted at, you know, what is going to be a fundamental breach, what is a material breach, what are the remedies. Ultimately a conservation covenant under the Environment Act, you know, the responsible body can get an injunction so this is pretty serious stuff. What if you want to modify your conservation covenant or your 106 does that mean the local authority should have a right to look at it, it is unknown, it is a bit of worry you look forward to, we look forward to addition guidance in this respect.
And then just finally before I hand over to Ed I just want to talk about some of the different sort of stuff that we are coming across our desks, you know, biodiversity net gain is producing or throwing up a whole new world of work for us all. Se we are going to have to have more additional reports, different assessments that form part of our planning application, we are going to have to include draft biodiversity gain plans and we do not know entirely what will be in those. New legal agreements and your habitat bank leases and business, farm business tenancies are being used to deal with BNG. Habitat management agreements are coming across our desk quite frequently now we are looking at those quite a lot. Those will be the relationship to, you know, that gets the actual work done between landowner and developer or offsite provider. Conservation covenants and 106s they are going to be pretty meaty lots of detail in there and again getting landowners comfortable or that they can sign up to them is going to be a challenge. We have seen unit purchase agreements and again those seem to be based on the sort of the omissions purchase, you know, under the carbon credits regime that we have looked at many years ago. So we are starting to see the unit purchase agreements and then neatly swaying into Ed options are a key biodiversity net gain is a key issue for options so Ed!
Ed Colreavy: Thank you very much. Everybody of the eagle eyed amongst you might have noticed that halfway through your environmental talk Ben the lights dimmed in the office in which I am sitting. So obviously we have environmentally friendly environment in which to work. So thank you very much for that that is really helpful and insightful as ever. As you can tell Ben is really passionate about everything to do with environmental matters particularly BNG and that the genesis really of my input in this. So this all started out with me talking to Ben and speaking to some of our housing developer clients. So I work in the housing and development and regeneration team here at Gowling but, of course, the conversation is much wider than housing which is why when we have been delivering training to our own cohort of lawyers internally this did not just start off as a housing and development talk it actually morphed into the whole of real estate which is approximately one-third of the size of Gowling really. So a really interesting topic and hopefully really relevant to all of you joining us to day so, welcome. So what I am going to be looking at today, a couple of things really. The first is in relation to key risks associated with everything that Ben has really helpfully just run through and the second is in relation to the practical implications for the land deals that you will all be structuring and reviewing out there from this point on. This is coming down the tracks quite quickly as Ben said from November we are in a new regime where in a case where we are going to have pre-commencement planning conditions to satisfy. We will have 106 agreements to look at potentially also conservation covenants this is coming down the track.
What is the first thing we need to look, well obviously we need to be aware of for each individual development site we are looking at whether we are buying, selling, occupying, taking an investment in any of the above. What the BNG solution is put simply is it going to be an onsite solution as Ben mentioned. So is it going to be within the redline of what is ultimately being acquired and built out or is it being a solution which is implemented offsite and as Ben mentioned offsite can mean a couple of things. It can mean a little distance from the development site or it actually can be adjoining and that is the important distinction to make or actually are you going to be paying your way through this and we talk about paying as Ben has really helpfully set out there are a couple of avenues for that.
The first is buying BNG units from a third party and that might be a local authority what we might find is actually local authorities looking at the areas they have got within their locality looking at the potential actually of turning those into habitat areas and biodiverse areas and promoting those and in the same way of course we are going to have clients, we are going to have landowners who are also looking at the commercial opportunities here which arise from creating their own biodiverse areas in relation to which they can then sell on units and this is a really interesting stream of work for us so already we are seeing heads of terms looking at deals being structured where clients are coming to us and saying, we want the ability to buy BNG units to develop our scheme and we are finding a way with all of that and as Ben mentioned we think that where we are going to end up is a comprehensive register of all of those interests there are a lot of discussions around actually how we can structure those types of deals so that those on the call that are negotiating land acquisitions in particular can be sure that they can have a BNG solution. Or as Ben say the fourth option is actually the more expensive solution in relation to buying, you know, from the Secretary of State but as we have just mentioned they are deliberately almost priced out of the market it is a safety net that has been put in by the Secretary of State until the BNG third party unit market is up and running and we do not think that is a long term solution. So when we look at all of this before we jump into risk essentially we have got clients coming to us saying, can we pay and go and actually if we can pay and go under a unit scheme or, you know, deal with this under a section 106 agreement is not that the way forward. The answer to which might be in the short term that might well be the preferred option but actually longer term we need to have our eye on the ball here because, you know, will this be the way forward or actually do we see the way this is running as being people wanting to and users of sites, homeowners, occupiers wanting to occupy be, you know surrounded by a well-managed biodiversity environment and actually is that going to increase marketability. Is that going to have a positive knock on effect in terms of price so we thing that actually in the shorter term, you know, some of the local authorities like Warwickshire are very quick off the mark in relation to section 106 agreements which is great but actually we need to have our eye on the ball here about what kind of BNG solutions we are crafting not just for this year but the medium and longer term and I think, the business models will change, you know, arguably as the market matures.
So what will we say before, you know, any client comes to us when we were talking about early engagement and that is really key. Do not forget the local authorities are finding their way on this just as much as everybody else. The pricing of all of this, how this all works so the first thing we would always say to anyone picking up the telephone asking about BNG is early engagement with the planners to try and work out the earliest point in time when everyone can work out the timing and cost implication or whatever the BNG solution is going to be.
So with that background if we can just run through some of the key risks then in relation to how all of this fits together. Well the first as Ben said is the uncertainty regarding the conservation covenant mechanism and the liability attached to that. We have structured agreements in past actually which deal with biodiversity and they are dealt with under the Wildlife and Countryside Act and we do those we draft them in a very similar way to section 106 agreements which is helpful so for those on the call that are familiar with those types of planning agreements they are the agreements that are put in place to trigger the grant of the planning consent. We often sew in relief mechanisms on that so the owner of land is released under our Wildlife and Countryside Act agreement when land is sold but we have not got any certainty at all. Have we Ben that actually that is going be the mechanism which is going to be agreed in relation to BNG particularly in relation to conservation covenants. Se we need to be really aware of the fact that we are going to be potentially dealing with lots of latent liability on the books in relation to management moving forwards. And critically how does that sit alongside the management regime, well that is really important, will end users occupiers homeowners be willing to pay for estate charge provision in relation to BNG where the provision of that BNG is offsite for example. I mean that is interesting the way the market is going to evolve in relation to that and actually what liabilities as I have just said will developers need to keep on their books for the longer term. We are talking about 30 year plus commitments here. So while there is potential for collaboration between essentially developers and responsible bodies we are also looking at clients brining a lot of expertise in house and employing of environmental consultants to look at these issues and I think that is something which we will see a lot of moving forwards. And do not forget of course the sanctions are really harsh for all of this so the full array of legal redress will be available for a breach of those conservation covenants that needs to be taken into account very carefully.
So we have dealt with the estate management regime and uncertainty what about the delay to development. Well we are all familiar with the situation where clients have got a planning permission in place but we all know and land banking arguments of course from the Government that you cannot start development until all the pre-commencement conditions are signed off and that will include of course BNG. So do not be fooled into thinking that just because you have got a consent in place if you are buying land you can build you have got to sign off that pre-commencement condition so again you need to be really careful when you are looking at sites particularly on the buying side. So we have looked at possible delays, we have looked sites not being oven ready essentially for development, what else do we need to look at, well there is obviously additional costs as well. We need to look at the potential for additional costs being required in order to unlock the BNG solution and that is not just a management and masons responsibilities but it might actually be buying in additional land, you know, how is that cost going to be factored in and we will come to that in a minute in relation to how we structure transactions and judicial review or JRs refer to it. How is that going to impact as we all know there is a real risk is not there that the eagle-eyed eco-warriors out there will be looking at the way in which these BNG plans are being signed off by local authorities and seeing that as an opportunity to actually bring about a judicial review challenge and we know that because actually any pre-commencement planning condition being signed off can always be subject to challenge. So again when you looking at development site it is really important to understand there is a real risk here arguably more so probably in the early days to some of the solutions which are brought forward being challenged in the courts and potentially the BNG plan which has been agreed being set aside and that process having to start again and that. I think, all feeds neatly into the points to consider contractually Ben if we can just move on to the final slide.
So we have looked at some of the key areas of risk and as ever that, you know, they come down to timing, cost, delay, you know, challenge that that is all standard development work really
What are the practical points, well the first point is beware particularly on the buying side where you are committing yourself to acquiring a land interest before a point in time where you have got a bulletproof BNG scheme which is itself free from planning challenge that is really important and depending upon the type of transaction you are looking at that might mean if you have got an option agreement not serving your price notice for example or if you have got a floating price mechanism under a contract not starting that price negotiation until such time as you know what the costs associated with BNG are and all of that actually leads into essentially not committing yourself to what we might call in the legal world, you know, the unconditional date definitions and a whole array of agreements not occurring until such time as we know absolutely what the solution is. Is it onsite, is it offsite, is it paying, is it buying additional land then. All of those things are integral parts of the whole development process. Sellers of course might say it is development risk and over to you but particularly on the buying side we are seeing buying clients now being much more careful about engaging early with the local authority and actually not waiting till the very end, not waiting until they have got the planning permission but putting all of the details in very early on for sign off as part of the planning application itself so that when they get the planning permission issued they have got not just the permission but the solution required to unlock the BNG headache that they now have to grapple with.
So that is the first point and also this is going to lead into onerous conditions as we might refer to them so there is a whole array of agreements again which deal with how do you agree on the buying and selling side, what is acceptable? Well of course you are going to, on the buying side, not want to be caught by unnecessary costs or onerous planning conditions in relation to BNG but on the sellers side as well, you will need to be really careful about what you are signing up to, particularly when you are leasing in a situation where you are going to be signing up to potentially a 106 agreement which is, or a conservation Government type mechanism, which is going to impose on you as a landowner some pretty long term conservation requirements for your schemes. So this is really going to require a bit more thought isn't it. So think about it if you are a landlord, tenant coming in, you know what kind of security do you require for that. That is all paths for discussion which I think is going to be circulating now once we are in the era of BNG, which we are.
So the first point is delaying commitment to buying land. The second is BNG costs, well it is an obvious point. We have dealt with actually the risks associated with all of this, how are we going to deal with this under a price formulae, you know are we going to be able to deduct the cost of paying for units from a third party or credits from the Secretary of State or buying third party land in. You know all of that needs really careful thought and particularly where you have got minimum prices as well. To be really careful of those particularly on a gross acreage basis and particularly where there is a fixed price land transaction, so just be really careful about that.
And what about securing additional land, well this is interesting. So you might have a development opportunity on the buying side, it is a great opportunity but actually seller might own additional land, you know do not forget that land which might not have development merit may well have biodiversity merit. So think about when you are structuring transactions, what ability you have to drawdown additional land to unlock a more lucrative, more profitable, more costly development on the development land. So bear that in mind please.
And what about change of use. Well you know people often try and limit a change of use in documents, sometimes it is important you know and sometimes less so but actually what we need to be doing here is thinking about biodiversity net gain and the clue is in the title, it is a net gain. So actually if, before development starts, your farmer that owns the site for example, has turned everything into a beautiful grass meadow, Ben is very happy, he is a self professed eco-warrior as you can probably tell from the first part of the talk, but actually where does that leave you if you are on the developers side. You know I am here to strike a bit of a balance really in terms of these discussions but that does mean of course that you are going to have a lower starting part, a lower base point for biodiverse calculations and metrics. So if you are not careful what you will end up with is a farmer doing the right thing for the environment arguably, developer coming along and having then a greater cost, a greater liability for biodiversity net gain, that actually might come full circle and you come to bite the farmer again if everything comes knocked off the price but there we go. So what we are doing at the minute is we are actually looking at limiting changes of use in our documents.
And infrastructure, well you know, we are all used to talking about infrastructure, roads, principal roads, POS, drainage, all the rest of it, do not forget BNG. You know, you will not want to be paying full development value for BNG land necessarily, particularly if it is you know adjoining a development, so just be aware of how that impacts on price, and particularly minimum price if you have got a net acreage calculation. And be aware of implied BNG conditions. So again, even if the planning permission does not include the BNG condition, you are going to have actually that implied through statute. So whether we see it in the permission or not, this is coming down the line and we need to grapple with it.
And the last point, commercial opportunities. As I mentioned earlier we have got lots of clients looking at options to buy BNG units, we have got other clients who have a larger land of interests. You think about it, you have got a large land owning family, they may be entering into disposal agreements with a whole array of developers and they may have a lot of retained land. That retained land might not have development merit, that might have biodiversity merit. So again we are into discussions about looking at the commercial opportunities that arise from being able to sell the benefit to accessing those biodiverse areas and then selling those BNG units on.
So lots to think about on the contractual side, if you are buying, or if you are selling, and these are discussions which we are having now with our clients, particularly on the planning process but also actually on practical implementation. So hopefully that was a helpful canter through some of the contractual points to consider as long as a risk. I mean the point to note is we are in this and actually from speaking to some of the really well versed environmental consultants working alongside, and also now in-house, with our clients, we would urge everyone to try and get ahead of the game here so it is early negotiation not just with, you know, their consultants but also local planning authorities.
So, back to Anjali.
Anjali: Thanks so much, thank you both Ben and Ed for lots of food for thought in that presentation I think. So we have had a few questions through, I am just mindful of time so we will probably only get time to answer a couple of them, so without further ado, the first question, which I thought was a really good question that has come in, Ben this one is for you. So does the same principle for section 73 applications apply to future reserved matter applications, so if your outline is granted before November and there is no local policy requiring 10% then is there no further requirement for future reserved matters in respect of BNG requirements?
Ben: That is right, that is a good question, we have had it three times actually in the last two weeks. So yes if your original permission was granted outside of the BNG regime you should not be subject to BNG at reserved matter stage, however, with all things planning officer, you never know what you are going to be asked and encouraged to provide but strictly speaking there is no statutory requirement to produce, to deliver BNG.
Anjali: Excellent excellent. The next question I would like to ask, again one for you Ben, how likely is it that the 10% biodiversity net gain requirement will change?
Ben: I think it will and to annoy Ed, the tree hugger in me hopes it does. But no, the fundamental purpose of the policy is to improve biodiversity in nature and so I think whatever government we have in the next how many years, it has to increase the percentage if, if that is what it takes. I think there is a feeling at the moment amongst some folk that 10% does not turn the dial and it just preserves the status quo and actually again if you remember that we had that 1% sliver in terms of how we use our land, that is the sliver we are dealing with, we are trying to increase that by, you know the nature within that sliver, by 10%. So I think it will, I think on the 30 year point the Government said we will look at this but we will not look at it until 2026, I think that is probably going to be the same for 10% and I am sure they will give us a long lead-in time because they know that planning takes however long to put together so it will not be a case of we submit our applications and the next day oh it is now 20%. It will be incremental and we will get plenty of notice but I fully expect it to change.
Anjali: That is interesting. One more quick question if I can that has just popped up from Alex and thank you for your question Alex. Do we need to secure planning for an off-site biodiversity site? Again for you Ben.
Ben: That is the $64,000,000 question. I think the general feeling is it should not and well I guess it depends where it is but if it is in an agricultural situation, I think the feeling amongst most planners is that it should not require planning. There is an unfortunate appeal decision not in BNG but in, I think it was in nutrient neutrality, which said yes that changes, you know you cannot, go from agriculture to a nutrient neutrality scheme is a change of use and therefore you need planning permission. So it should not but I cannot say for certain that it will not and of course if you are doing extensive engineering works to develop that new off-site habitat then yes that engineering works require planning permission but you know typical lawyers answer, all depends and not easy but it, hopefully, hopefully there will be some guidance on that coming out but it is a really topical point. I am sure that is why it was asked.
Anjali: So really watch this space I guess is the message. That is really useful, thank you so much. I think we will round things off now so sorry if your question was not asked but again if you would like to, us to follow up then do just drop us a note with your contact details and we would be happy to do that so all is left for me to say is thank you very much to both of our presenters and thank you to you all for attending. Before we go remember you can sign up for Insights on our website. So if you go to gowlingwlg.com and then navigate to Insights and Resources you will be able to sign up at the bottom of the page but thank you again and goodbye for now.