The UK Government has publicised its intention to bring in rules for biodiversity net gain (BNG) (opens a new window), to take full effect in January 2024. From this date, developers in England will need to deliver at least a 10% increase in biodiversity value when building new housing, industrial, or commercial developments.
BNG will impose new sources of risk on developers, consultants, and contractors, including the requirement to submit an adequate biodiversity gain plan in order to obtain planning permission. Although potential claims are likely to be covered under the majority of PII policies, parties will need to undertake significant preparation to comply with the legislation and avoid enforcement action.
What is biodiversity net gain?
BNG is an approach to development with the intention of ensuring that natural habitats are left in a measurably better condition following the development of a site. The strategy was introduced as part of the Environment Act 2021 (opens a new window), which received Royal Assent in November 2021, and stipulates the following:
Developments must meet or exceed a 10% increase in its biodiversity value.
The 10% increase in biodiversity value must be maintained for at least 30 years.
BNG requirements will be enshrined as an implied planning condition in every planning permission granted for the development of land in England.
Government guidance suggests biodiversity is to be assessed by reference to the biodiversity metric (discussed further below), and initial compliance may be secured via planning obligations or voluntary conservation covenants (opens a new window) to be entered into by the landowner. There is as yet no indication as to how longer-term compliance is to be achieved.
Complying with BNG
There are three ways in which it is possible to achieve the BNG’s required 10 percent increase:
Development of the natural habitat on the site itself.
Development of other sites, either through developing the natural habitat on these directly or by purchasing biodiversity units from sites that have exceeded the 10 percent target.
Purchase statutory BNG credits – these credits are to be implemented by the Secretary of State, who also has the power to determine the cost and the corresponding BNG value of each credit, and will be sold by Natural England.
Unless the development in question is exempt (opens a new window), any person applying for planning permission must submit a biodiversity gain plan to the responsible planning authority. This plan will need to include the pre-development biodiversity value of the land being developed and the proposed approach to meeting the BNG requirements (as set out above). It is only when this plan is approved along with the rest of the planning application that the development is able to commence.
While the point in the development at which the 10 percent increase in its biodiversity value has to be achieved has not yet been finalised, the Government has indicated that it should be delivered within 12 months of commencement (opens a new window), and prior to occupation at the latest.
Calculating biodiversity units
Biodiversity units are calculated with reference to a complex metric and are accordingly quite site-specific. However, by way of illustration, Natural England has provided a number of worked examples (opens a new window). For instance, 1ha of modified grassland (low habitat distinctiveness, poor habitat condition and low strategic significance) equates to two biodiversity units, while 1ha of neutral grassland (medium habitat distinctiveness, poor habitat condition and low strategic significance) equates to four biodiversity units.
Where developers cannot use on-site or off-site land to achieve biodiversity net gain, they must purchase statutory credits from the Government as a last resort.
Following initial indications that BNG credits would deliberately not be priced competitively (opens a new window) to deter over-reliance, the Department for Environmental and Rural Affairs (DEFRA) has since confirmed indicative pricing, which varies depending on the type of habitat.
A full breakdown of the credit values is provided on the government’s website (opens a new window). Depending on the type of habitat replaced, costs per ha could range from several tens to hundreds of thousands of pounds.
Crucially, two BNG credits will be required for every one biodiversity unit being compensated. As such, the costs for any given habitat are likely to be at least double what is currently listed. Developers will need to factor this in when calculating the cost of delivering BNG via the purchase of statutory credits.
Enforcement of BNG
The manner in which BNG will be enforced has not been finalised; however, government publications give some indication of how the BNG regime will be enforced:
Fundamentally, no developments that fail to adequately address BNG will be allowed to proceed, as a biodiversity gain plan will be a precondition to planning permission (set out in the Environment Act 2021).
To ensure that biodiversity gains are implemented in a timely manner, the government has suggested that the timeframe discussed above (ideally within 12 months of commencement of the development and in any event prior to occupation) will be enforced by way of a reduction in the post-development biodiversity value of the land (opens a new window). Failure to deliver biodiversity gains on time may not only result in a loss of excess biodiversity credits that may have otherwise been available to sell, but if the loss of BNG value is significant enough, it may represent a breach of a planning condition and at the very least may require the submission of a revisited planning application, taking into account greater use of off-site development and biodiversity credits to avoid sanctions and fines.
A failure to properly maintain the developed land on- or off-site will likely also be a breach of the same planning condition and may face similar sanctions.
Risk and insurance guidance
The most obvious source of risk is the requirement to submit an adequate biodiversity gain plan in order to obtain planning permission. This is particularly acute, as developers, architects and contractors will have no prior experience of submitting such a plan when this requirement comes into force, and planning authorities will be similarly inexperienced in assessing these.
With regards to insurance, the most obvious policy of response is professional indemnity insurance (PII). Under the majority of PII policies, there will be no exclusions for potential claims here, but it is imperative to speak with your insurance broker to ensure that these new requirements are covered.
Further, we recommend that:
Parties consider early engagement, including with the planning authority, to establish how the BNG requirements are going to be met.
Parties consider which party or parties are going to assume the risk for obtaining planning permission and meeting the BNG requirements during design and construction and after completion of the project, and how the risk is going to be managed within the supply chain, for example, by use of collateral warranties.
For further information, please visit our Architects & Engineers (opens a new window) page, or contact:
David Isherwood, Senior Vice President, Global Professional and Financial Risks, Lockton