Two years after mandatory Biodiversity Net Gain (BNG) came into force, environmental obligations have shifted from being a technical planning issue to central commercial drivers in land transactions. Developers, promoters and landowners increasingly need option, promotion and other land agreements to address natural capital obligations early and explicitly to protect viability and avoid unpredictable planning‑related costs.
Under current legislation, all major developments must achieve a minimum 10% net gain in biodiversity measured against the site’s pre‑development baseline. This uplift must be secured through planning conditions and a long-term (typically 30-year) habitat management and monitoring plan.
The BNG hierarchy continues to shape commercial strategy. Promoters and developers need to be able to demonstrate they have followed the BNG hierarchy of preferring on-site BNG first.
On-site delivery may be unviable where developable area is valuable, where baseline conditions are high, or where on‑site habitats would sterilise land. Off‑site solutions include:
Developers do not need to identify the BNG land at application stage, but must do so before commencement, meaning early control of any off‑site land becomes critical to avoid delays.
Alongside BNG, projects in sensitive catchments must ensure development does not increase phosphate or nitrate levels in watercourses. Residential development is a key contributor due to the additional load on wastewater infrastructure.
Where baseline nutrient levels are already exceeded, developers must demonstrate nutrient neutrality. If this cannot be achieved on-site, mitigation may include purchasing nutrient credits or securing off-site land-use changes such as wetland creation or fallowing agricultural land, typically secured via S106 or s.33 agreements. Many protected catchments have limited credit supply, creating competition and upward pressure on costs.
The 2024 Spring Budget introduced a new Nutrient Mitigation Fund to accelerate mitigation project delivery, and further reforms are expected through the Planning Infrastructure Bill, which may overhaul how nutrient obligations are administered and funded.
Water‑stressed regions—particularly parts of the South East—are increasingly requiring water neutrality assessments before granting permission. New development must not increase overall water consumption unless mitigation measures (on-site efficiency, off‑site offsetting, water recycling infrastructure etc.) can balance demand.
Water neutrality can significantly affect scheme viability and may require early integration into planning and land‑assembly strategies, particularly where off‑site water‑saving measures or partnerships with water companies are needed.
Given the layered nature of BNG, nutrient neutrality and water neutrality, parties to development transactions must agree early how these obligations will be addressed. Agreements now routinely include bespoke natural capital clauses. Common areas include:
Agreements often require a strategy setting out how BNG, nutrient neutrality and water neutrality will be achieved efficiently and cost‑effectively. This may be part of the planning strategy or a separate document.
Documents may set out certain parameters for dealing with natural capital. For example, is it feasible to deal wholly on-site or will the landowner agree to make nearby land available. This may be at low cost on agreed terms, with the benefit being achieving a greater return on the development land.
Landowners may want to incentivise developers to identify land to use as a receptor site whereas developers may prefer purchasing biodiversity units which may be more costly but will be a one-off payment. A strategy can help to agree a route map of options.
Contracts may be conditional not only on the grant of planning permission but potentially on the securing of off-site BNG or other natural capital land. A planning permission will only become implementable when the BNG plan has been approved by the LPA, so the developer may want to have secured any necessary third party interests before completing the purchase of a development site.
Natural capital costs are increasingly deductible when determining price or calculating promoters’ fees. These may include:
Landowners commonly require approval rights, open‑book visibility and assurances against double counting (e.g., where costs are already reflected in residual valuations). Parties may include cost‑minimisation obligations and caps on expenditure, or require the promoter to obtain competitive quotes.
Where on‑site open space or habitat creation is required, this land is usually excluded from the net developable area (NDA), impacting minimum land values and return calculations.
Developers may require viability‑linked flexibility to adjust the NDA target or price formula where natural capital obligations reduce developable capacity. Agreements can include mechanisms to re‑run viability appraisals if environmental requirements materially change pre‑consent.
Where the landowner retains freehold title of natural capital land, the agreement may seek to clarify: whether the land is transferred, leased or managed for 30 years or longer; responsibility for establishment, management and maintenance of habitats; whether the landowner has pre‑emption rights to reacquire land post‑obligation; and liability flows for monitoring reports and remediation if habitats fail.
It is increasingly common to include obligations preventing the landowner from enhancing biodiversity value independently (which could inadvertently raise the site’s baseline).
Natural capital land may produce more biodiversity units or nutrient credits than required for the associated development. Agreements should state:
This area is becoming commercially significant as markets mature.
Long‑stop provisions increasingly allow extra time to secure planning permission, secure or register off‑site BNG land, negotiate conservation covenants, and obtain units or credits. Given third‑party negotiations can be lengthy, parties must agree a realistic buffer.
As guidance and legislation are continually evolving, agreements often include good‑faith obligations, open‑book ecological reporting, and requirements for promoters/developers to share ecological surveys, environmental assessments and technical advice with the landowner.
Natural capital regulation is evolving. Forthcoming developments likely to influence future agreements include:
Agreements must now build in flexibility, clear cost‑sharing, early collaboration and express natural‑capital governance to remain commercially workable as the regulatory landscape evolves.
Michelmores property and natural capital teams are working closely with developers, promoters and landowners to help them navigate these evolving requirements and preserve both value and negotiating position.
We are supporting clients from the earliest stages of land assembly through to planning, ensuring natural‑capital obligations are understood, strategically managed and reflected appropriately in commercial terms. This includes advising on structuring option and promotion agreements, assessing the viability impact of BNG, nutrient and water neutrality measures, securing off‑site solutions, and safeguarding long‑term management responsibilities. By combining property expertise with specialist natural capital insight, we help clients approach transactions with clarity, identify opportunities for value uplift and ensure their interests are protected as environmental regulation continues to evolve.
