BIODIVERSITY NET GAIN A SUITABLE CASE FOR TREATMENT?

 

The Environment Act 2021 will promote biodiversity net gain by way of a number of mechanisms but principally by way of a statutory condition which will be imposed upon most substantial planning permissions. In a nutshell, the condition provides that the developer must provide a biodiversity gain plan to the local planning authority and that this plan must be approved prior to the commencement of development. At first blush, this seems like a relatively straightforward provision; however, it is arguable that it is not particularly well thought out.

This article will explore the shortcomings in this approach and, also, discuss a possible methodology for overcoming those flaws

A 'zero sum' problem

The initial problem is an economic one. Those familiar with larger development schemes will now also be familiar with economic viability assessments. An economic viability assessment is a financial model for the scheme itself. It is a snapshot in time and the parameters of the model are set by reference to a set of external considerations which are taken to be fixed for the duration of the model. The object of the exercise being to input the costs of the relevant project, then to estimate the income which will be derived from the project and, finally, the profits which will flow to the developer. It is important to emphasise at the outset that the developer has to be treated as a footloose source of income, in the sense that, if the profits to be realised to him from the project do not match the income he could derive from investing his money elsewhere then he can simply take his money elsewhere. The project is “viable” only if the profits to be derived from the enterprise either match or exceed the opportunity costs of investing the relevant funds in another project.

If, as is the way with economic viability assessments, the financial parameters and assumptions are locked then one has a ‘zero-sum’ financial model. That is to say, the only money which is available for expenditure within the model has to come from within the model. It is a pie of a fixed size and, whilst one can change the sizes of the slices within the pie, one cannot change the overall size of the pie itself. Thus, for example, if the local planning authority is seeking an increase in the level of affordable housing, then, the costs of doing so must be drawn from a source within that fixed parameter model. To put it another way, the developer will have to rob Peter to pay Paul. And therein lies the rub. The imposition of a condition which puts the developer in the position of having to come up with a biodiversity net gain plan means that money has to be found to underpin that plan. It is a matter of timing. If the developer knows, at the outset, how much this expenditure is going to be, then he can put this on the cost side of the economic viability assessment and feed that expenditure through the cash flow model for the scheme. If, however, the costs are unknown until after the scheme has gain planning permission then one is left of the question as to how this contingency is going to be reflected in the economic viability assessment. More to the point, the would-be investor might ask how much his proposed investment will yield.

The short answer, of course, is that the prudent developer will have discussed the parameters of the biodiversity net gain plan with the local planning authority early on in the planning process and will have, therefore, been able to carry out an estimate of the cost involved. However, this begs the question which is why this matter is then left to a condition until the end of the process at all? If both developer and local planning authority are going to discuss biodiversity net gain in any event, then, surely, it makes sense to try and bolt the matter down at an early stage instead of leaving it as an unknown contingency for the future ?

This is not some academic economic argument. As most local planning authorities are well aware, if it transpires that the real costs of delivering a development exceed the estimated contingencies within the financial model then the developer is highly likely to come back to the local planning authority with a revised economic viability assessment. This is not a rarity. It occurs on a regular basis. For example, it may be the case that the estimated costs of remediating a contaminated site are well below the real costs of remediation. As noted above, this is a zero-sum financial model. Unless, at the same time, the revenue stream is estimated to match the uplifting costs, then, it is necessary to rob Peter to pay Paul. In practice, this means that the developer will be suggesting that his promised planning benefits be revised or redistributed. As is often the case, the burden appears to lie with a reduction in the provision of affordable housing. Thus, if it transpires that the costs of delivering a biodiversity net gain plan exceed the contingency set aside for that purpose, then the local planning authority might be faced with a choice between affordable housing and biodiversity. However, unlike the difficulties of determining the extent of contamination without considerable intrusive site investigations, it is possible to cut the cloth of biodiversity net gain in a way which suits both the scheme and its financial parameters at an early stage. Doing so will reduce uncertainty for both the developer and the local planning authority. To put it bluntly, it should be possible to come up with a bottom-line figure for biodiversity net gain early in the process. Ergo, leaving the matter to a statutory condition at the end of the process simply injects further uncertainty into the complex patchwork of uncertainties which comprise a typical development project.

Why use a condition ?

A second point relates to the use of a condition as a regulatory mechanism at all. Arguably, this is, perhaps, the most inept way of dealing with the point. This is due to the fact that, rightly or wrongly, the courts have imposed a very narrow ambit of operation to planning conditions. For example, it is not lawful for a local planning authority to require the transfer of land for a public purpose by way of a planning condition or to thus require the payment of money. The logic for these restrictions are buried in the 18^th and 19^th century; however, it remains the case in the 21^st-century. This is a very obvious inhibition where the developer and the local planning authority have agreed that certain land should be dedicated for use as an offset site which can be developed for future biodiversity gains.

However, the problem is more mechanical in that no thought appears to been given to dispute resolution in the event that the somewhat complex matter of settling a biodiversity net gain plan runs into difficulty between the parties. The worst case is that they become entirely entrenched with the result that an appeal must be lodged with the planning Inspectorate in the hope that, in the fullness of time, an inspector will consider the matter and, hopefully, resolve the dispute. Whether that inspector will be an expert on biodiversity will be on a lap of the gods, but experience with the planning Inspectorate would suggest that it will be otherwise. Again, one has to ask how the parties will seek to resolve this particular problem.

The answer, of course, is that, if they are prudent, they will seal seek to incorporate this requirement in section 106 agreement. Aside from anything else, the agreement should provide a dispute resolution mechanism to an agreed timetable and with a determination to be made by an appropriately qualified expert, instead of an planning inspector who happens to be available at the relevant time. To put it another way, one has to ask why those who created the statutory condition did not tackle this particular point at the outset and conclude that the better way of dealing with the matter would be by way of a planning obligation instead of a planning condition. A planning obligation would allow for the transfer of land to provide offset sites and, unlike a planning condition, can provide for the payment of money towards off-site biodiversity enhancement. Unless the proposed biodiversity net gain scheme is going to be delivered on the development site itself, then the reality is going to be that the parties will be looking towards an off-site solution and it is as plain as the pike staff that a planning condition is not going to be helpful.

Biodiversity as a material planning consideration. 

Biodiversity is, of course, a material planning consideration. This is a matter of national policy in the National planning policy framework. It is also a matter of law in relation to a number of specific statutory provisions relating to fauna. 

It follows that the local planning authority must seek information on these matters as part of the application and determination process. That is to say, local planning authority will be expecting appropriate echo logical reports from the developer. This should beg an obvious question. Namely, why those who settled upon the statutory biodiversity net gain condition as some form of solution do not appear to have attended to this important contextual point and required that these important documents are delivered to the local planning authority as part of the application process. This is not a remarkable proposition. There has been a statutory requirement for the delivery of design and access statements since. Given the important environmental considerations to be covered by a biodiversity net gain plan, and the financial implications, it would have been prudent to seek to frontload the process in this way.

No doubt there are other things that could be discussed in connection with the statutory condition, but it is, perhaps, appropriate to now consider how local planning authorities might approach it in the context of day-to-day development control. Arguably, the better approach is to discount the condition as the start of the process but to treat it as being towards the end of the process. This means taking an holistic approach to the process as a whole from beginning to end.

An holistic approach ?

As the above discussion may have revealed, the prudent developer and local planning authority will have considered the financial and logistical aspects of delivering biodiversity net gain long before the matter is taken to committee for final determination. The council’s planning officers will be providing members with a report which includes their evaluation of the ecologically impacts of the scheme and the way in which the developer is seeking to meet them. The developer, in turn, should have provided the planning officers with sufficient materials to compose that report. The report as a whole will discuss not only biodiversity but all other relevant material planning considerations and, in particular, those matters which need to be secured by way of either planning condition or planning obligation. The proposed package will not treat each item as self-contained but, inexorably, will have to set each and every planning benefit within the fixed zero-sum economic viability assessment. To put it another way, all of the basic ingredients for producing a biodiversity net gain plan should be in place long before planning permission is granted and long before it is necessary to consider the matter in the context of a planning condition. To that extent, the imposition of the condition simply duplicates work which has already been carried out.

To put this into practice, it is arguable that the parties should be capable of settling a draft biodiversity net gain plan before the application goes before members and, certainly, before planning permission is actually granted. This throws up an important logistical point which is that the time to be expended on these matters has to be incorporated into the critical path for the application process itself. This is to say, this is an act of voluntarily frontloading the process so as to make that process more predictable. Furthermore, this might, in the context of a difficult biodiversity management plan actually reduce the overall time to the commencement of development by obviating the possibility of late disputes as to what the parties originally intended in terms of the content of the plan.

Conclusion

To summarise, whilst it might be true to say that the imposition of the statutory condition has the benefit of focusing the minds of the parties on the matter of biodiversity net gain, it is a somewhat ad hoc addition to the statutory framework which pays little, if any, regard to the context within which it is proposed to operate. Accordingly, it is arguable that, in order to provide a workable methodology, the parties should approach the matter of net gain in an holistic faction which starts with the application documents themselves and is, largely, brought into port by the time the application is brought in front of members for a determination.