Natural capital and biodiversity

Natural capital is now an area that attracts government attention, considering recent seismic environmental and political challenges facing the UK. Natural capital and biodiversity net gain (BNG) offer farmers and landowners new opportunities to secure additional income and new revenue streams, as the Basic Payment Scheme (BPS) is phased out.   

The changes are significant for how the countryside is managed, and farmers and landowners are right at the heart of the opportunities for managing things differently. However, with change comes complexity and risk. 

At Tees, we have many years of experience advising on the legal aspects of farm diversification to help farming businesses get an optimum deal. We advise on the legal implications of new potential agreements and how they affect existing agreements a farming business may have with developers. A major consideration is whether to take land out of food production - for decades. There are implications for how that land will be managed in practice, as well as the future options for use; plus the tax implications of taking land out of agriculture, which could have a major impact on a farming family in future generations. 

Our legal experts work for both landowners and developers, alongside land agents, and accountants to help achieve a seamless project and avoid the pitfalls that can come with natural capital schemes. Tees has expert lawyers in: estate management, commercial and agricultural property, renewable energy, corporate law, dispute resolution, regulatory law, private client and financial advice.

What is natural capital?

Natural capital is the value to humans of natural assets such as forests, biodiversity, land, fisheries or minerals. The phrase natural capital describes the outputs of land which deliver environmental benefits, alongside, or perhaps instead, of conventional benefits.

Examples are:

• creating wildlife habitat
• moorland to filter and slow water running from upper to lower ground
• reed beds to provide a natural filter for sewage treatment  
• carbon sequestration by wetlands or trees.

Social benefits are also included, such as green space in a city which provides recreation and a habitat for biodiversity.

What is biodiversity net gain?

Biodiversity net gain (BNG) is an increase in biodiversity associated with development.  As of 12th February 2024, most large development sites are legally bound to provide an increase of at least 10% in biodiversity. Smaller sites will be included as of 2nd April 2024 and Nationally Significant Infrastructure Projects are due to come on stream in 2025. Many developers will be looking off-site for that gain. The minimum period for which the habitat must be managed is 30 years. This is an opportunity for landowners to make the most of the natural capital of their land for profit, help to replace income lost after the loss of BPS, and for the good of the public. 

Considerations for landowners include:

• whether or not to enter into a direct agreement to deliver BNG, which comes with certain liabilities and risks or whether to go through a habitat bank provider which may mean less return but also less risk
• putting in place a different entity to manage the land under Habitat Management Agreements
• long term agreements that bind successors in title 
• do agreements allow the sale or dealing with other natural capital
• whether entering into such agreements will trigger existing overage arrangements
• tax implications as to whether such schemes are considered to be agriculture and therefore a potential loss of Agricultural Property Relief
• further tax implications as to when and how sums received are taxed i.e. income or capital 

Our services include:

• drafting and negotiating long term farm business tenancies (FBTs) for biodiversity net gain and woodland carbon units
• habitat bank providers – negotiating documentation for landowners documenting arrangements with providers including FBTs and habitat management agreements
• dealing with Section 106 agreements where offsite offsetting is being provided for development sites
• drafting and agreeing conservation covenants where suitable responsible bodies have been designated by Defra – so far as of 12th January 2024 only Natural England has been designated Conservation covenants: list of designated responsible bodies - GOV.UK (www.gov.uk)
• getting approval from lenders to enter into such agreements where land is charged to a bank
• advice on business structures refinancing and/or moving land into separate legal entities
• advice to both landlords and tenants on whether farm business tenancies allow or prohibit such long-term schemes being entered into and/or 
• advice on the effect of existing or proposed overage agreements  

We’re here to help

Our specialist lawyers are based in:

Cambridgeshire: Cambridge

Essex: Brentwood, Chelmsford, and Saffron Walden

Hertfordshire: Bishop's Stortford and Royston 

But we can help you wherever you are in England and Wales.