How to make recovery pay

by Jack Manning, Clarke Willmott

Nature recovery is a hot topic at the moment.

Recent legislation means property developers are now having to achieve mandatory levels of improvement to the natural environment for wildlife (known as “Biodiversity Net Gain” or “BNG”) in connection with the sites they deliver. This has created interesting opportunities for landowners to make nature recovery pay.

BNG is an approach to development and/or land management that aims to leave the natural environment for wildlife in a measurably better state than it was beforehand.

As of 2nd April 2024, the relevant provisions of the Environment Act 2021 came into force, meaning that all major and minor commercial and residential development must achieve a minimum of 10 per cent BNG. The same requirements are expected to extend to Nationally Significant Infrastructure Projects, from late November 2025.

If developers cannot meet this requirement through their development, the gain can be delivered on separate land, as long as it is maintained accordingly for 30 years. This has led to developers seeking off-site solutions on third party owned land to meet the BNG requirements for their projects via a variety of legal frameworks, offering new income and capital opportunities for landowners.

The requirements vary in each Local Planning Authority but the principle is that a habitat management and monitoring plan is put in place (via a s106 agreement or conservation covenant) which will record the number of units that the scheme generates. Then the units can then be sold to a developer, which then allows them to proceed with their development.

Clarke Willmott was involved in creating the first live habitat bank in Devon. We are also assisting a wide range of landowners and unit providers in establishing their own habitat banks. There are a number of ways in which land can be owned, controlled and managed to deliver saleable BNG units.

Some of the possible frameworks available to landowners to make nature recovery pay are:

1. Leasehold Habitat Banks

• The landowner will grant a lease, either to a third party unit provider or “broker”. The leaseholder will then manage the land as a “habitat bank” generating the BNG units to be allocated and sold.

• Depending on the scheme, the landowner could receive one lump sum payment as a premium or a guaranteed income stream via annual rental payments. Landowners should carefully consider which best suits their circumstances and take advice on the tax implications, as it’s not always clear how the income or capital received from BNG schemes should be taxed.

• Consider who has the management responsibility. Some schemes place the responsibility on the broker, whereas some schemes require co-creation or co-management. Registering the scheme will restrict the use of the land, so a co-creation/management scheme may be favourable if a landowner is concerned that the scheme needs to fit with wider business operations so as not to jeopardise other income streams.

• Landowners should make sure that the lease doesn’t include break options that could leave them open to habitat management obligations which require expense and expertise.

• There may be significant upfront capital costs required for the design approval, registration and creation of the habitat bank. Check who will be responsible for these.

2. DIY via self-fund or green finance

• This framework allows the landowner to create and maintain the habitat with a view to selling the units directly to a developer.

• The obvious benefit is that landowner will directly receive the income from the sale of the units and will have complete control over the management of the land.

• However, there is no guarantee of units being allocated/sold. Landowners should consider whether they have sufficient routes to market and speak with a land agent to take advice on the best way to market the units.

• As outlined above, there could be significant costs involved in the habitat creation. “Green finance” can assist. There are specialist lenders who will assist with the funding of these projects, who offer loans with lower rates which could assist with other projects or cashflow generally.

• Advice needs to be taken as early as possible from ecologists on scheme viability and cost.

3. Strategic land deals

• If you are in the process of agreeing a strategic land deal, remember that developers may be open to the possibility of acquiring extra land for habitat creation. They may also want to take an option for BNG units if you have already created a scheme. It’s worth asking the question.

• As with any deal, ensure you get appropriate valuation and tax advice on potential disposals.

Finally, a few general considerations for any landowners considering any of these schemes:

• Teamwork can make the dream work. Consider forming a consortium with neighbouring landowners to maximise potential. A landowner’s agreement between the consortium will set out the responsibilities to one another.

• Remember that a section 106/Conservation covenant will be binding on successors in title and crystalise the use for at least 30 years. Consider your circumstances carefully and that of the next generations.

• You should take advice early on to establish whether the land is encumbered by restrictive covenants, easements or charges which would frustrate BNG potential.

This is an interesting time for landowners and developers alike. To ensure that you maximise the potential of your land, please get in touch to speak with our Real Estate and Planning teams here: Environmental Markets and Natural Capital (clarkewillmott.com)

Jack Manning is a solicitor in the commercial property team at Clarke Willmott.