Gil Martin and David Miller look at the practicalities of selling offsite biodiversity net gain units, from the perspectives of both an estate manager and a legal adviser.
Subject to some exceptions, developments with a planning application submitted on or after 12 February 2024 must deliver a mandatory 10% biodiversity net gain on whatever habitats existed on the site before the development.
The net gain can be achieved onsite first by minimising the ecological impact of a development and secondly through habitat enhancement work within the redline boundary. Where this is insufficient, it is possible for developers to deliver the BNG required by purchasing offsite BNG units that are maintained by a landowner/land manager for a minimum of 30 years.
Ever since the BNG requirement was enacted in the Environment Act 2021, developers and landowners have been preparing for the practicalities of the incipient marketplace for buying and selling offsite BNG units.
The director of estates’ view
Gil Martin, director of estates and natural capital at Belmont Estate in Somerset, an early provider of offsite BNG units, shares the estate’s experiences
In 2019, Belmont purchased 130 acres of land with the intention to restore it ecologically and turn it into a community asset allowing people to reconnect with nature and understand the link between environmental restoration and sustainability.
We realised that BNG could be a natural capital mechanism that we could overlay on to our pre-existing ambitions for the site, providing a new income source that secures the project over the long term. We measured the biodiversity value of the existing habitat using the statutory biodiversity metric then proceeded to enhance those habitats and create new habitats that contributed to the net gain. For us, this included ambitious rewetting, rewilding, tree planting, and other ecosystem restoration work.
We were fortunate to factor in BNG from the very beginning of this project. It is difficult to factor in retrospectively, so it should be considered where possible from the outset.
When it came to finding prospective buyers for the units, we found that we have several unique selling points or co-benefits to our units that were attractive to certain developers. For example, those associated with local community access and education. We’ve had more than 4,500 children visit the site, all for free, as part of our community connection impact strategy. These co-benefits help turn what is a compliance exercise on behalf of the developer into an opportunity to provide greater value beyond just delivering against their planning obligations.
From the start, the biggest challenge we faced lay in the fact that the legal structure and contractual framework is not fully established or is just now coming into focus. In this context, it is hard to ensure developer confidence in the process and the units they are purchasing. This slowed the progress on the sales side.
Pricing and payment
There already appears to be quite a lot of price comparison going on in the background, as you would expect. Most sellers appear to be taking their lead from the statutory unit price and then discounting from this, because you can’t go above that threshold.
Even though it is a 30-year contract and requires ongoing maintenance, the capital expenditure associated with BNG is heavily frontloaded. We look for a deposit to secure commitment and then ultimately a lump sum on delivery.
Site-specific solutions
Though we are very excited about our role as a high-integrity BNG unit provider, we are certainly not advocating that every development should rely solely on an offsite solution. The prevailing wisdom seems to be that both – onsite and offsite – can be the most sensible solution in many cases. This could incorporate both green infrastructure within the development itself, and some offsite support.
Offsite habitat banks, like our project Watercress Farm, are particularly equipped and effective for delivering ecosystem health and viability at larger scales that cannot practically be accomplished onsite. The potential scale also provides opportunities for other co-benefits to offsite units that are not as practical for smaller – particularly urban – developments. This could include community access, as mentioned, but also carbon fixation and sequestration, flood mitigation, air quality and more. In any case, going forward, offsite BNG should be part of the conversation from the early stages of conceiving a project.
The legal adviser’s view
David Miller, partner in TLT’s future energy team, which advised Belmont Estate, offers his observations on the market
One current obstacle is the system’s reliance on third parties, specifically local authorities, which are either not commercially incentivised by the system and have been offered limited additional budget for resourcing or they are overwhelmed by requests. The objective is to create a system that practically authenticates and manages itself in a commercially sustainable way, which requires a clear legal framework and incentivised and properly funded stakeholders. It is a significant piece of legislation, so there are bound to be teething problems, but over time this burden should ease, reducing any current delays.
Pricing and payment
As the market is in its infancy, we arguably haven’t gotten to the fully competitive stage yet on pricing. This will come with time as more applications for development are made and the mandatory requirements apply.
The current delays of dedicating any habitat with a legal agreement and registration on the habitat with Natural England could cause an imbalance of supply and demand which may, like any market, in turn affect the prices. In order to get the BNG unit registered ready for sale, you need a legal agreement, for which landowners will either need to negotiate with the local planning authority for a planning agreement (section 106 of the Town and Country Planning Act 1990) or a “responsible body” (eg Natural England) for a conservation covenant. The process of securing these agreements can be lengthy and may be slowing down current availability of offsite credits. It may become necessary to create an interim solution for temporary delivery covering the period before full registration, to help ease the pressures.
We have seen limited instances where parties have opted for payment on a staggered yearly basis, but this is a slightly different concept and likely to be less suited to most landowners’ needs. A key consideration here is also the tax regime, which is still being established by HM Revenue & Customs following an industry consultation, but presumably may end up with different rules for income versus capital payment.
Huge potential
While there are some areas for development and exploration in the system, ultimately the Environment Act 2021 and its subsequent secondary legislation, so far as it relates to BNG, is an ambitious and potentially very consequential piece of legislation.
There is a lot to admire and support in the ideas and objectives that underpin it. Landowners have further opportunity to diversify their businesses through delivering biodiversity while supporting individual developments that are aligned with their values and objectives, eg green energy generation or easing the UK housing crisis.
When everything is in place and it is firing on all cylinders, BNG will hopefully have a profound impact on the landscape and the sustainability of qualifying developments. In the meantime, landowners and developers should be equally alive to both the opportunities it presents and the obstacles they will have to overcome in the process.
