Financing Biodiversity Net Gain requirements – who pays? Sophie Smith shares her thoughts with Sustain

Best practice is yet to emerge on how responsibility and cost for compliance with biodiversity net gain (BNG) planning requirements in England will be split between developers, landlords and occupiers. In this article, Sophie Smith, an associate at law firm Forsters, discusses how to lessen the likelihood of disputes between these parties and whether BNG considerations are likely to slow an already sluggish planning system.

BNG aims to leave the biodiversity position of development sites in a measurably better state than before the development was carried out, maintained over a 30-year period. Developments are required to deliver a 10% increase in biodiversity value relative to the pre-development value of the onsite habitat.

Achieving this comes with costs which landowners must factor into the price paid for development sites at the outset. Depending on whether the net gain is provided on-site, off-site, via the purchase of statutory creds, or as a combination, BNG compliance costs arise differently.

For on-site delivery, in addition to the initial cost during development, ongoing maintenance costs throughout the 30-year period will arise. Depending on the nature of the site and at what stage the landlord-tenant relationship arises, these costs could be recovered via service charge. From a landlord perspective, the leasehold allocation of responsibility for BNG should be considered from a future onward sale or funding perspective. Traditionally, landlords have expected a “clean” rent and there is no reason why that could not capture maintenance of on-site, and off-site mitigation. We expect landlords will take a robust position on this, but whether the market will accept that remains to be seen.

Responsibility for maintaining BNG for the requisite 30-year long period will bind successor interests in the site. Where the on-site gain is secured by a s106 agreement, depending on how the s106 is drafted, it could relieve occupiers from responsibility for maintaining onsite BNG. This is distinct from any leasehold covenant of the tenant to be responsible for BNG and apportioning financial and/or active maintenance responsibility for BNG amongst a multi-let estate. Factors to consider include where the relevant mitigation is located within the site and the level of maintenance required to protect the net gain. Careful consideration will be required as to the initial delivery of BNG and separately its ongoing maintenance, particularly in terms of phased planning permissions.

Whilst BNG mitigation is a hierarchical system, with the onus being on on-site delivery in the first instance, an alternative option is to deliver the required BNG by securing off-site units. Whilst this could be expensive for landlords in terms of upfront costs, off-site BNG delivery gives developers more freedom on-site resulting in neater solutions.

A last resort is the purchase of statutory biodiversity credits from the Government, which are invested in habitat creation in England. Depending on the distinctiveness of the habitat, a measure based on the type of habitat and its distinguishing features, such credits can cost anywhere between £42,000 per unit rising to a maximum of £650,000 per unit for the highest value water environments. These costs can be more than ten times the price of delivering on site, according to CBRE, making them significant for developers.

Advance planning, from both landlords and tenants, is crucial to successfully financing and complying with these planning requirements. Equally, additional time should be factored into developments owing to a lack of resource at local authority level, which may cause delays both in obtaining planning permission and discharging the associated pre-commencement condition.

This article was published on Sustain on 07 August and can be read here.