Nutrient neutralty: what now for developers?

With developers in a state of limbo after the House of Lords blocked plans to relax nutrient neutrality restrictions on development and with no new legislation outlined in the King’s Speech, Marianne Barker of national law firm Clarke Willmott LLP considers the implications for the housebuilding industry.

Earlier this year, Michael Gove outlined plans to scrap the current rules that require housing developments to be nutrient neutral. In effect, the proposed amendment to the Levelling Up and Regeneration Bill 2022-2023 would have required local planning authorities to assume that nutrients in wastewater from new development would not adversely affect protected habitat sites.

However, this proposal was defeated in the House of Lords in September. The Levelling Up and Regeneration Act has now been enacted without any change to nutrient neutrality requirements from new housing development and no new legislation was outlined in the recent King’s Speech to deal with the issue, as had been hoped.

And so the position remains that local planning authorities should only consent to developments that will not adversely affect a protected site by adding more nutrient pollution to the water catchment, or ensure any adverse effects are mitigated so that the development is nutrient neutral.

Impact on housebuilding

Nutrient neutrality requirements are causing significant delays to new housebuilding and have an onerous cost implication for housebuilders.

While mitigation strategies are available, including the introduction of new wetlands, retrofitting of sustainable urban drainage systems or making arable farmland fallow to reduce nitrates, there is a considerable knowledge gap in relation to the successful delivery of these mitigation strategies. Council-operated schemes to mitigate phosphates are still getting off the ground. Those that have, do not provide anywhere near enough nutrient credits to allow each council’s backlog of planning applications to be granted permission.

This leaves developers with the onerous task of mitigating nutrient pollution themselves, which is either prohibitively costly, or virtually impossible without having access to swathes of farmland to fallow. This then pushes up agricultural land prices and pushes up the cost of mitigation measures.

How to avoid delays to new developments

If developers or land promoters are looking at acquiring a site or getting involved in a development, they should check whether nutrient loading is likely to be an issue, and check whether the site is in the catchment area of a protected site with declining conservation status. Such sites are likely to be the next to be designated.

If nutrient neutrality is an issue, a team should be assembled that includes ecology and technical specialists familiar with both the nutrient neutrality regime and options to mitigate nutrient release, both on-site and off-site.  It is important that these specialists are involved as early as possible during a project life cycle so that any necessary mitigation requirements can be identified early on and incorporated into the scheme design.

Natural England should be engaged as soon as possible to check any proposed mitigation measures will be acceptable.

Contractual considerations and finance

In areas which are affected by a nutrient issue, developers should ensure that they factor in the potential for a significant delay into their contracts and development programme and consider how on-site or off-site mitigation should be reflected in the purchase price and addressed as part of the overall transaction. In the case of a conditional contract a cost cap, allowing parties to terminate the agreement if mitigation is prohibitively expensive, should also be considered.

If an off-site mitigation strategy is proposed, developers or promoters should avoid committing to the scheme as part of the planning application unless the off-site landowner is contractually committed.

Banks and financial institutions are increasingly factoring in nutrient neutrality costs as part of their calculations when considering development finance. Accordingly, it may be worth considering securing sufficient mitigation at an early stage to facilitate the availability of development finance.

Section 106 agreement or private agreements

Determining whether any off-site mitigation is to be secured by way of a s.106 agreement or via a conservation covenant, is also an important consideration.

From a property perspective, both s.106s and conservation covenants – private agreements between a landowner and a ‘responsible body’ – are similar. At the moment, developers are gravitating towards section 106 agreements as these are more familiar than conservation covenants.

Excess credits

Where either off-site or on-site mitigation is being proposed, there should be agreement as to how any excess credits are to be dealt with.

It would seem sensible that any excess credits are given the appropriate market value, and such sums form part of the gross receipts for the land.

For the developer, it will be a question as to whether they ‘bank’ the credits for other developments, or sell them, and to capture this preferred approach in the drafting of contracts.

Conclusion

The legislative hiatus over nutrient neutrality rules has left housebuilders without a clear framework or solution for dealing with a problem they did not cause. A solution seems some way off and in the meantime the delivery of vital housing is delayed. The system, some would say, is stuck in neutral.

Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton, and Taunton. In response to the considerable increase in support required for this area, the firm has formed a new group of specialist lawyers from different disciplines to create an Environmental Markets Team which can support housebuilders, landowners, real estate investors and leisure developers navigate this challenging emerging market.

For further information visit www.clarkewillmott.com

Marianne Barker is a partner in the planning team at Clarke Willmott