Legal briefing | |

The Environment Act 2021 and the real estate sector

Overview

The Environmental Protection Act 1990 was a landmark piece of legislation for the real estate sector, establishing legal responsibility for contamination and pollution control for land, air and water, and also regulating waste disposal and statutory nuisances. Our understanding of the threat posed by contamination and climate change has increased significantly in the thirty years that followed, and the long-awaited new Environment Act was finally put onto the statute books in 2021. When it is fully operational, what might the new legislation mean for the UK's real estate industry?

Overview of the Environment Act 2021

The Environment Act 2021 (the "Act") is split into two distinct sections. The first half provides a legal framework for environmental governance, requiring the Government to set long-term targets in each of the priority areas of air quality, water, biodiversity, and resource efficiency and waste reduction by October this year, and creating a new, statutory and independent environmental body, the Office for Environmental Protection, to hold the Government to account on environmental law now that the UK has left the EU.

The second half makes provision for specific improvement of the environment, including measures on waste and resource efficiency, air quality, water, nature and biodiversity, and conservation covenants. More details are set out here, but 3 of the key measures that will have the greatest impact on the real estate sector are summarised below:

Local Nature Recovery Strategies

The Act will introduce Local Nature Recovery Strategies, which are a new, England-wide system of spatial strategies that will establish priorities and map proposals for specific actions to drive nature’s recovery and provide wider environmental benefits in the area covered by each strategy. Much of the detail impacting businesses remains to be determined at a later date, when the delineations have been made by the Secretary of State and the local authorities or other bodies have published their draft strategies. Defra carried out a consultation in 2021 as to how the new scheme will be introduced and is currently reviewing the responses received. What is clear, however, is that these strategies will form part of the local plan for each area, and will therefore be taken into account when developers apply for planning consent for a new scheme. Developers should ensure that their applications indicate how their scheme enhances the environment in line with the local nature recovery strategy. The strategies may also assist in development planning as they will set out clearly any national conservation sites, nature reserves, and other areas which are or may become important for biodiversity or other environmental reasons.

Biodiversity net gain

The Act also significantly bolsters pre-existing recognition of biodiversity requirements in the planning system that arrived in 2012 with the light touch, persuasive, language of the National Planning Policy Framework ("identify and pursue opportunities for securing measurable (biodiversity) net gains"). The Act provides that certain applications for planning permission granted under the Town and Country Planning Act 1990 will be subject to a condition for biodiversity net gain that must be met before the development commences. Making this a pre-commencement requirement demonstrates the importance being attached to it by Government – the risk of potentially stalling new development is a price worth paying if it helps to deliver on wider environmental commitments. The condition would require the developer to submit and have approved a biodiversity gain plan showing how a 10% gain in biodiversity value will be achieved. Importantly, the 10% figure is proposed as a national standard but the consultation is clear that it is a minimum and not a cap – in practice, local standards may require a higher percentage.

There is a hierarchy of approaches through which this requirement can be met. The first preference is to do it on-site. However, recognising that some development sites may be constrained in this regard, developers will be able to propose either (1) achieving the required gain on an alternative site for a duration of at least 30 years, or (2), as a "last resort", purchasing what will be known as ‘biodiversity credits’, when the system has been set up.

The biodiversity net gain requirement is expected to apply to projects from late 2023 and will be subject to certain exemptions, expected to include householders, change of use and projects with a de minimis impact on low or medium value habitats.

What is the biodiversity gain site register?

When the required regulations have been put into place, the register will contain details of all the sites in England in respect of which someone is required (under a conservation covenant or planning obligation) to carry out works for the purpose of habitat enhancement, and to maintain that enhancement for at least 30 years. It will list those sites where the enhancements are available to be allocated to one or more developments on other sites, ie this will be a register of off-site units, although it is possible, but not yet decided, that onsite gains will also be included. The register will be open to the public and will contain details about:

  • the location of gain sites;
  • the area (or length) and type of habitats created or enhanced;
  • the number of biodiversity units resulting from habitat creation or enhancement, calculated using the biodiversity gain metric indicated by the Secretary of State (this is anticipated to be Natural England's Biodiversity Metric 3.0, subject to a further consultation to confirm it as the metric used for mandatory biodiversity net gain);
  • the planning reference of the development to which the enhancement is allocated;
  • habitat management and monitoring plans for gain sites; and
  • the enforcement body for gain sites (usually the planning authority or a conservation covenant’s responsible body)

Similarly, nationally significant infrastructure projects ("NSIPs") will need to show a biodiversity net gain where set out in a "biodiversity gain statement", which recognises the considerable differences between types of NSIP subject to development consent orders. The Government has clarified that it proposes to formulate a core statement which will then be adjusted by project type, unless the consultation reveals that bespoke statements will be needed. At present, biodiversity net gain is only expected to apply to NSIPs from November 2025, and initially only onshore projects will be subject to it.

DEFRA is currently consulting on regulations and implementation of the biodiversity net gain principle. The 3 core themes explored in the consultation are: defining the scope of the biodiversity net gain requirement for property development; how best to apply the biodiversity gain objective to different types of development; and how the mandatory biodiversity net gain regime will work in practice.

What are biodiversity credits?

The Environment Act 2021 provides the basis for the UK Government to sell statutory biodiversity credits to developers. The purpose of this is to avoid unreasonable delays in the planning system if developers cannot deliver net gain on-site, off-site on other landholdings, or by purchasing biodiversity units on the market. The system has not yet been finalised, but the Government's current plans are as follows:

  • There will be a need for statutory biodiversity credits to be available to developers – though only as a last resort, in line with the mitigation hierarchy - as soon as the new biodiversity net gain regime is implemented. Developers will be able to buy them on a sales platform which will be simple and cost-effective to administer, designed to avoid and manage the risk of fraud, and able to capture the data required to discharge reporting obligations on the Secretary of State under the Act.
  • The current preferred approach is for developers to purchase credits prior to final approval of the biodiversity gain plan and discharge of the pre-commencement condition, but the current DEFRA consultation requests feedback on the best timing.
  • The UK Government will undertake a credit price review to confirm how the price for statutory biodiversity credits will be set; and
  • The intention is that a market for biodiversity units will grow and eventually replace the Government's credits.
Conservation covenants

Conservation covenants were recommended by the Law Commission in 2013 and were introduced by the Act. They are agreements between a landowner and a responsible body (such as a local authority, or a conservation charity) which require the landowner to do or not do something on land in England in relation to which the landowner holds a qualifying estate, or allows the responsible body to do something, and which have a "conservation purpose" such as conserving the natural environment of land or natural resources of land. They will be protected as local land charges and will bind successors in title. Possible uses include:

  • As legacies, whereby owners of woodland bequeath it to their children but want to ensure it is not cut down in the future for building;

  • For heritage property, where for instance a heritage group has invested funds in buying and restoring a historic property, and wants to sell it while ensuring its preservation;

  • As a condition of funding, so that conservation and land management grants could be conditional upon preservation of the financed improvement;

  • As a planning tool, so that planners could target the preservation of part of a development site, or ensure that biodiversity loss from a development on a site is offset by long-term biodiversity gains at another site (though we note that the precise interaction with other Environment Act planning levers is not clear); and/or

  • As part of a biodiversity offsetting scheme, under which credits could be applied on compensatory biodiversity sites.

The consultation envisages the use of conservation covenants or planning obligations as a way to secure long-term off-site gains that would survive a sale of the land in question. It states that the Government will work with the sector to produce model planning conditions, obligations, and template conservation covenants. Standardisation – alongside the consultation's repeated focus on aligning reporting and digitising data – would be welcomed if it can bring early clarity and consistency of approach when applying these new requirements.

Concluding thoughts

If the biodiversity net gain requirements are to deliver, there must be a commensurate effort to adequately fund the local planning authorities tasked with evaluating and securing them. The consultation acknowledges that this will be a new burden and that funding will be made available to the planners. Historically, the aspirations of wider planning reforms have been blunted by a failure to properly resource those at the coal face. Here, where a lawful start on site requires approval of the plan, there is a real risk of delay to development if planning authorities are unable to deal expediently with the new requirements.

Now, more than ever, there is a need for developers and landowners to plan ahead. They should be evaluating their pipeline of sites and/or factoring the new requirements into their site selection. Existing biodiversity value, pre-development, will become increasingly important and there will be a need to re-evaluate approaches to strategic sites (individually and collectively) and the timelines for bringing those through the planning process. There will also be new opportunities for those with sites with the potential to offer off-site enhancement opportunities either as part of their own proposed developments, or in combination with others'.

More broadly, although there are many details still to be decided, the Act enshrines a number of core environmental principles which are intended to protect the environment whilst facilitating sustainable development. The Government is keen to hear about any anticipated problems or unforeseen consequences of its proposed biodiversity net gain regime, so let us know if you intend to reply to the DEFRA consultation or would like to contribute to a joint response. Similarly, do get in touch if you would like to discuss your strategies for particular development sites and how they might be impacted by the new requirements.

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