Webinar: Extracting value from biodiversity net gain
Oct 06
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Oct 06
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Q&A

You will find below brief answers to the questions that we did not have time to answer during the Q&A session. If you have any further questions or would like more detail on any of the questions already answered, please do not hesitate to get in touch with a member of the team. 

The actual return will be different in each case as this will depend on a number of factors, including what the land use is to start and what you propose to change this to. In the examples I gave, and assuming the market settles at around £10k to £15k per BNG unit, on the arable to grassland example, producing 2.2 units per acre the payment would be £22,000 per acre (2.2 x £10k). Whereas in the arable to woodland example producing 1.15 units per acre the payment would be £11,500 (1.15 x £10k). Though it may seem obvious to change arable to grass, remember that there are other factors – how much work there is to maintain the land use, tax treatment, long term land use impact (woodland is a longer term option than grassland). So, there is no easy answer to your question, but I hope I have shown the scope/level of likely payments at the outset.

Whilst we do not know the tax treatment of these payments or how the land use will change the IHT position at this point, one should consider that, in IHT terms, it is the use of the land that is important, so both grassland and woodland can still be agricultural if grazed. With regards to woodland, this may also still be operated as a commercial asset, and so BPR may apply.

The minimum timeframe of 30 years is set within draft legislation, but duration can be longer if agreed – this is a flexible element of the conservation covenant. Some habitat types will come under the protection of other legislation during the initial 30-year period which will prevent them from reverting to a different land use later. For example, if you create a new woodland, once it has been woodland for ten years it has to be restocked if felled. There is similar legislation to protect established wetland.

The metric currently contains a number of calculations which, on the face of them, produce perverse results such as the example you have given. At the moment, woodland is considered to deliver few biodiversity improvements until about year 30, which means it has a hefty discount within the BNG calculation as opposed to a high quality (from an environmental point of view) grass sward. I would agree that this does not make much sense and we will have to see whether the Government continues to develop the metric to better reflect what one would expect the transformation to produce. As with any computation-based system, it will never be perfect. In our presentation, we were also at pains to say that how one loads the information into the metric makes a large difference. Choose one delivery option and the calculation assumes you destroy the baseline landscape units and only end up with the new landscape, whereas another allows the baseline units to remain and the additional units to "grow" on top.
The tool’s design allows for a standard unit for the habitat and condition at the start and end of the project – the interim is less relevant. However, there is a recognised frustration that this fits better with short-term single-phase developments such as housing, and that the dynamic nature of minerals sites is not recognised by the tool. How this develops as mineral authorities become more familiar with net gain, we will have to see. In the meantime, the biodiversity units for the start and end of each snapshot in time could, in theory be calculated, which would allow some of the biodiversity value in the interim period to be taken into account. You would need to agree that approach with the minerals authority at the outset. However, it is worth also considering that potentially as well as being a lot more work involved in that approach, any interim biodiversity gains which are temporary may actually result in having to account for further biodiversity losses further down the line, and any loss is weighted higher than a gain because of the time taken for a donor habitat to improve elsewhere. Another factor is that biodiversity units should be protected for 30 years, so, if you are using your interim biodiversity gains, that could potentially prevent further disturbance to that part of the site. There is a lot to work through in the aggregates industry because, as you rightly point out, these sites are quite different to a short-term single-phase development. However, I believe that the intention of the tool was to be applicable to all types of site and to try to create as much consistency between them as possible. Yet it’s clear there are still some unanswered questions and the aggregates industry and minerals authorities will need to work together to establish how the tool is best used on these sites in practice, which may set a precedent going forward.

The tax issue is an important one both in how these payments will be treated – in theory they contain both revenue and capital compensation elements. As for how the land will be treated for IHT purposes – the use may still fit within APR or BPR (as set out above). I was also recently reminded that in the 1990’s a derogation was provided to allow Set Aside land to still be recognised as Agricultural given that the scheme was seen (then) as being a benefit to the public.  It is possible that similar derogations may be provided.

In the example we gave, the assessment of the whole site was that it could provide for its own BNG requirement of circa 40 units and still have a further 260 units left. Given that part of the site would be in BNG use it would be logical (and environmentally sensible) for this part of the site to be made larger and therefore the landowner could have the opportunity to sell those further BNG units to third parties. In practice, they would need to phase that BNG creation to match the developments they sold them to and there would be no point in doing the work unless a linked development site had been "signed up". There is one other alternative that may come about – where a site is linked to the provider of last resort (LPA or Government), it may be that BNG created will then be pooled and the units sold later – this is a possible policy response, but is not covered in the legislation at the moment.

The Environment Bill includes new legislation for the introduction of "conservation covenants," which is the perceived agreement type for securing restrictive or positive management on BNG sites. These are private, voluntary, legally binding agreements, enforceable through the courts, and a Responsible Body with sufficient experience in the management of the habitat will be a party to the agreement and undertake monitoring over the course of the agreement. They will also bind subsequent landowners and the intention is for conservation covenants to be recorded on the Local Land Charges register. However, particularly at the outset, there may be other types of agreement used, such as a lease, or the landowner simply signing up to a section 106 agreement. The actual agreement type will be site specific. For example, a landowner working with a promoter may be asked to add some more land into a planning application to reach the BNG target. That land is likely to be subject to the linked planning condition, it may be purchased by the developer or retained by the Landowner and the supply of the BNG would need to be a condition within the sale to the developer.

The requirement to provide for 30 years is as drafted in the Bill. The Bill states:

A biodiversity gain site is land where:

(a) a person is required under a conservation covenant or planning obligation to carry out works for the purpose of habitat enhancement,

(b) that or another person is required to maintain the enhancement for at least 30 years after the completion of those works, and

(c) for the purposes of Schedule 7A to the Town and Country Planning Act 1990 the enhancement is made available to be allocated (conditionally or unconditionally, and whether for consideration or otherwise) in accordance with the terms of the covenant or obligation to one or more developments for which planning permission is granted.

Whilst they do not constitute development themselves, these BNG sites will be required to enable development to happen once the Bill is passed. Therefore, it is quite possible that Local Planning Authorities may identify sites and keep some form of record of these to help prevent delays in the planning process and to demonstrate that donor sites are achievable locally.

The rates we identified are the total payable not an annual sum. The process of payment is not detailed in the legislation and will depend on the detail of the agreement between the landowner, the developer, and the Local Authority. Previously, the system has been that a trusted third party has held the funds and an amount has been paid at the start to cover the cost of establishment and the capital loss in value with further payments through the term to cover maintenance work. There is some logic to this but, at the moment, the actual delivery process for BNG is not set and one can see the position where a landowner receives the whole payment at the start of the 30 years, signs up to a conservation covenant and is bound into that agreement. The follow up point would be – what happens in year 15 when the land is sold? The logical answer is that the buyer will take the land on subject to the conservation covenant along with the liabilities that go with that, and will value the land parcel accordingly – so long as the first owner got sufficient compensation to cover the loss in value that seems logical and fair.

Assuming the market settles at between £10k and £15k per BNG unit, the payment to a landowner is, in theory, made up of cost (establishment and maintenance), loss of capital value and incentive (profit). Mathematically, I guess your suggestion is right; one could divide the amount across the length of the BNG agreement. In reality, I do not think that is how a landowner would want to receive the payment as he/she suffers the value loss at the start of the process.

Where habitats are secured by conservation covenants, responsibility for monitoring and enforcement would sit with the Responsible Body that holds the covenant. Conservation covenants can be enforced through the courts by the parties to the covenant agreement. There is no intention to transfer the role of enforcing conservation covenants to a public body or a third party.

Whilst the Bill is still to receive Royal Assent, some local planning authorities have already started to implement the soon to be mandatory 10% requirement in policy. Much like the process in delivering a Local Plan, some authorities will be quicker than others in amending their policies or producing supplementary guidance to take this into account. Whilst there may be a degree of variation to how authorities look at donor sites, we would not expect too much deviation from the approach taken by Leeds City Council. With this example, Leeds City Council has made it a requirement for donor sites to be located within the same ward, or, subject to LPA approval, the neighbouring ward. Of course, this could result in a donor site being next door but within another county (an extreme examples, but does suggest a requirement for early engagement to discuss and agree the most appropriate location).

Conservation Covenants or other BNG securing agreements will be taken into account by a valuer, just like any other issue.  At the outset, it will downgrade the value of land as a restriction and, in the fullness of time, the market will show us what it is prepared to pay for land subject to this restriction. Looking at the examples I used in the presentation, the arable to grassland example will be treated as a block of land that, for the foreseeable future, has to remain grassland, without any ability to provide other value enhanced schemes (solar etc). As in every case, this will depend on the detail of the agreement in place.

As above, we don't yet know the tax implications of these agreements and it hasn't been tested through the courts yet but it is the right question to be asking and to keep in mind, especially given the length of time these agreements cover. When considering IHT particularly, it is the land use that is important. If, for example, grazing is still being undertaken, one would expect this to comply with the definition of agriculture. If the use has moved away, then so might the tax treatment. The Conservation Covenant may not, of itself, move it out of agriculture.
Both the BNG scheme and the ELMS scheme you refer to are still in development but, from what we have seen so far, they will both be based on enhancement. One would hope that the way they are implemented would provide enough flexibility that if one was to put in place a BNG scheme and were then to want to further enhance that perhaps taking the environmental quality score from "fairly good" to "good" then one would be able to do this under ELMS. However, I think it will probably be more difficult to further alter the same landscape through an ELMS application, but its presence might enhance the impact of a neighbouring ELMS application. I also believe that BNG is likely to be more valuable per acre than ELMS. In reality, in any one year, in any one Local Authority, there will be a limit to the amount of BNG required, whereas ELMS will be designed for whole farm/landscape applications so across a farm/estate landscape the two may work side by side.
The baseline must be measured before any features are affected or any intervention takes place and digital tools and aerial photography can be used to check this, so any ecological degradation before the baseline is established is likely to be picked up. Defra and Natural England are aware of this risk that what they are ultimately trying to achieve – a national net gain – would be quickly hampered by any rush from landowners to reduce the biodiversity value of their land in advance. Therefore Defra have set in place that where there is any doubt in the previous condition or distinctiveness of the site, where the site has been negatively affected prior to assessment of its baseline (for example, where a field has been sprayed off prior to a baseline assessment), the highest category of biodiversity value must be applied to the baseline. This would penalise this action, as a much higher number of biodiversity units would then need to be delivered by the development.
GET IN TOUCH

If you’d like more information on these or any other topics or would like to submit a land plan to the team, please feel free to get in touch with one of the speakers.

TIM JONES (chair)
07775 562033
tim.jones@carterjonas.co.uk

KIERON GREGSON (speaker)
07775 562070
kieron.gregson@carterjonas.co.uk

MARK RUSSELL (speaker)
07967 555737
mark.russell@carterjonas.co.uk

SAM HAGON (panellist)
07826 867326
sam.hagon@carterjonas.co.uk

 
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