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This article was co-authored by Dominic Deery, Trainee Solicitor.
The Biodiversity Net Gain (BNG) requirement introduced by the Environment Act 2021 requires qualifying development sites to deliver, as a minimum, an increase of 10% to its biodiversity value. The provisions came into force for major developments on 12 February 2024, with significant planning implications for developers, local planning authorities (LPAs) and insurers.
This article focusses on the impact of the legislation for the sectors’ key stakeholders.
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The BNG requirement currently applies to the following types of major development, where the associated planning application was submitted from 12 February 2024:
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From 2 April 2024, the BNG requirements will also apply to small development sites. There are some limited exemptions which disapply the condition from certain planning permissions, and modifications for phased development. Developers will be responsible for confirming and justifying whether their development is exempt.
If an application was submitted before the corresponding date, the development will not be subject to the BNG requirements, even if permission is subsequently granted.
Impact on developers
The BNG requirement is secured by qualifying planning permissions being deemed to be subject to a condition that the minimum 10% biodiversity improvement is achieved.
Developers are responsible for ensuring their projects comply with this condition. The condition requires the approval of a Biodiversity Gain Plan before the development commences, identifying how the requirement will be achieved. To provide maximum flexibility, developers would be well-served to assess their options for complying with the BNG requirements from the outset of devising their development scheme.
The BNG gain can be met in three main ways:
(i) On-site biodiversity gains
These are gains made within the boundary lines of the development. For example, options include the introduction of living walls or green roofs which are a good option for large-structured developments. Live roofs can additionally help insulate and cool buildings. Developers must factor in the associated costs of on-site developments, such as the appointment of ecologists, landscape architects, contractors, and the cost of appropriate materials. Significant on-site habitat enhancements will likely require approval of a habitat management and monitoring plan, a legal agreement with the LPA or responsible body, and a commitment to the maintenance of these habitats for 30 years.
(ii) Registered off-site biodiversity gains
This can be on land that a developer owns but does not form part of the development site. Alternatively, off-site biodiversity units can be purchased from a third-party landowner. These will typically form part of larger privately managed habitat restoration projects and could include management of the habitat for the required 30 years post-development timeframe. DEFRA predicts off-site gains to be a popular approach by developers, estimating 1,300 off-site units will be sought each year.
Buyers and sellers are intended to find each other through the private market, with the cost of each unit estimated to range from £9,000 - £15,000, although this figure is likely to vary significantly until a mature market emerges. The gain site must be secured through a legal agreement, setting out who will undertake the BNG work and improvement and maintenance for 30 years. A potential benefit is that developers can pass the 30-year maintenance requirements to someone else where the site is managed by a third party land owner, depending on the terms of the sale contract.
All off-site gain sites must be registered on the Biodiversity Gain Site Register, for which fees can be charged for the application as well as financial penalties where false or misleading information is provided. This is a publicly accessible record.
(iii) Purchasing Statutory Biodiversity Credits.
This should be considered as a last resort. In July 2023, the Government announced indicative pricing for the credits starting at £42,000 per credit ranging to up to £650,000, but as for off-site gains these prices are not fixed.
Having decided on and secured the preferred approach, developers must secure approval to their Biodiversity Gain Plan, and associated calculations and required information, before their development works commence.
Impact on LPAs
LPAs have eight weeks to approve the Biodiversity Gain Plan which, given the infancy of the process and significant requirements to approve key information, appears a challenging timeframe. They must also ensure:
- That any off-site gains or credits have been properly registered and recorded and match the BNG requirements for the development.
- The BNG site will be managed to comply and deliver the forecasted net gain outcome. This includes ensuring the validity of legal agreements that enhance and manage the habitat in question for at least 30 years.
In the longer-term, LPAs can develop approaches to embed the BNG requirements into local planning processes and site allocations.
Impact for insurers
Insurers who offer planning, development, real estate or associated contractor liability products must be agile to the short and long-term requirements of BNG and tailor policies accordingly. This will relate to the complex process of compliance with the BNG regulations, the risk non-compliance raises for enforcement action and the potential ramifications for increased development costs and delay.
Additional areas of uncertainty arise around liability for the design of the habitat sites. Whether this falls to the land owner, contractor, ecologist, or landscape architect would need clarification.
Importantly, insurers may need to consider whether the BNG habitat is included in the insured part of the works. This decision may be dependent on the method of securing on-site BNG habitats and whether it is built into the fabric of the building. How insurance cover is likely to extend for the 30 years of maintenance of the BNG site is also a key area of consideration for insurers.
Comment
The requirements for and guidance on BNG are extensive, and this article only scratches the surface of the potential complexity for developers, LPAs and insurers.
Key considerations for developers include:
- Taking appropriate steps to meet the requirements which otherwise will result in lengthy delays and significant costs. Planning for BNG as early as possible in the development process is essential to addressing this risk.
- Including BNG requirements as a core component of site selection and the design phase of projects, alongside establishing joined up working partnerships to find suitable, cost effective on-site and (failing this) off-site BNG delivery where appropriate.
- Compliance with BNG requirements could adversely impact site-viability, and have a consequential impact on the planning obligations, including affordable housing, that development sites can afford and deliver.
For LPAs, the BNG process will give rise to a significant administrative burden. From additional planning application validation requirements, to checking metric calculations for achievement of 10% (or higher) BNG, checking habitat surveys, entering into legal agreements, reviewing Biodiversity Gain Plans, to new monitoring and enforcement requirements, already understaffed and underfunded LPAs once again are tasked with doing significantly more with less.
It is necessary for insurers to react with speed to the potential implications of BNG giving rise to increased construction costs, building maintenance complexities and the impact of potential penalties for a prolonged post-construction period. BNG could, however, provide an opportunity for enterprising insurers to carve out a niche corner of the construction market, providing they can appropriately tailor policies with a greater reliance on specialist environmental support and insights. Such policies, though, must account for the various complexities and uncertainties arising from this emerging BNG process.
Read other items in Commercial Brief - March 2024
We have partnered with environmental consultancy BrightTide to deliver a Regenerative Farming Accelerator. Bringing together land and ocean farming practices as well as other businesses in the farming sector, the ground-breaking global programme aims to support businesses generally by addressing biodiversity loss and climate risks such as BNG related claims.
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