Conservation Covenants

The Environment Bill contains a new statutory scheme to allow the creation of conservation covenants in England and Wales. Broadly, a conservation covenant is a private, voluntary agreement made between a landowner and a conservation body to secure conservation measures relating to the land which endure changes in ownership.

Background

Such a scheme was recommended by the Law Commission in its report of June 2014. The Law Commission identified that the rules of English property law militated against the creation of conservation covenants. In particular, generally it is only possible to bind freehold land in the long-term including future owners if the covenant binding the land benefits neighbouring land (as opposed to the public good) and it comprises a negative obligation (ie a promise not to do something) as opposed to a positive obligation (ie a promise to do something). Thus, if a conservation body does not have an interest in the “conservation land” or in some cases neighbouring land, it is difficult for it to secure durable conservation measures. Whilst there are some statutory exceptions (the National Trust has some limited rights), or sometimes potentially costly and complicated legal workarounds such as sale and leaseback have been used, the net effect is that unlike in other jurisdictions there is no legal framework which generally allows private landowners to enter into long-term binding commitments with relevant bodies to promote conservation objectives.

Potential circumstances where conservation covenants could be useful include multi-generational businesses. For example, a testator, rather than donating family land to a charitable body to secure conservation objectives after their death, could bequeath the land to their family but make it subject to a conservation covenant. Similarly, a conservation covenant between a landowner and wildlife charity could allow the charity to secure the maintenance of a habitat (for payment or otherwise) without having to buy the land (which the landowner maybe unwilling to sell in any case). They can also be used as a mechanism to address biodiversity net gain requirements (see article by Jay Sattin). In that context the Government noted in its consultation response (July 2019) that conservation covenants are simply a tool to secure conservation outcomes and their use in a planning or development scenario would be subject to the relevant planning rules and policies.

The proposals

There is not space here to cover all aspects of the proposed statutory conservation covenants scheme, but some key features are discussed below.

Under the Environment Bill a “conservation covenant agreement” is a written signed agreement made between a landowner and a “responsible body” which contains provisions that meet the statutory test to qualify as a conservation covenant and where it appears from the face of the agreement that the parties intended to create a conservation covenant.

To qualify as a conservation covenant provisions in an agreement must:

• relate to land where the landowner holds a freehold interest or a leasehold interest where the lease was granted for more than seven years (a “qualifying interest”);
  
  
• require the landowner to do or not to do something on the land or to allow the responsible body to do something on the land, or require the responsible body to do something on that land; and
  
  
• have a conservation purpose and be intended by the parties to be for the public good. The definition of a conservation purpose is wide. It includes notions of protection, restoration and enhancement and it encompasses the natural and manmade environment, natural resources and archaeological, architectural and cultural matters and the like.

For the purposes of the legislation a conservation covenant includes provisions in the agreement which are ancillary to the main conservation provisions including those which relate to public access. It is the provisions which qualify as a conservation covenant which have statutory effect.

The “responsible bodies” which are entitled to enter into conservation covenants are the Secretary of State, and local authorities and other bodies designated by the Secretary of State as suitable to act as responsible bodies. For bodies other than local authorities to be designated they must have some main function or activity which relates to conservation. Interestingly, the Government has, in contrast to the Law Commission’s proposals, enabled for profit companies to become responsible bodies as well as charities and public bodies. The Law Commission in its report observed that there may be a useful role for private sector companies, for example in relation to delivering biodiversity offsetting or payment for eco-system services (such as managing land to mitigate flooding elsewhere); however, it concluded that the risk of conflict between a company’s interests and the public interest meant that for profit companies should not be included in the pool of potential responsible bodies. The Secretary of State can de-list responsible bodies which fail to perform their function properly.

Conservation covenants are to be registered as a local land charge by the responsible body. They also bind future owners of the land (ie the qualifying interest) and those who derive an estate such as a lease or under-lease from the qualifying interest. However:

• such successors will not be bound by the conservation covenant if the land charge was not registered at the time they took their interest in the land; and
  
  
• for leases which are granted for a term of seven years or less, the leaseholder is only caught by negative obligations and not positive ones.

The interface of leasehold arrangements and conservation covenants will need to be considered. For example, for those bound by a positive obligation under a conservation covenant the liability is strict in the sense that a breach (subject to certain limited defences) arises if the obligation is not performed. Accordingly, a landlord would need to require that occupiers under short term leases and periodic tenancies do not put it in breach of a positive conservation covenant. Contrariwise, a tenant under a long lease who wished to enter into a conservation covenant would need to ensure that it was not prevented from doing so under the terms of its lease.

The parties have flexibility to agree the length of any conservation covenant. However, if a shorter period is not provided for in the drafting, the default period for the duration of a conservation covenant is indefinite in the case of a freeholds and for leases is the length of the term remaining. There is also flexibility to discharge or modify conservation covenants by agreement between the parties, and, in response to enforcement proceedings, a party can ask for leave to apply to the Upper Tribunal to modify or discharge the covenant. The Upper Tribunal has the power to modify or discharge a covenant where it is reasonable to do so and in exercising its power it must consider whether there have been any material changes of circumstance since the covenant was created and whether the obligation still serves its intended conservation purpose and the public good. For example, the Law Commission consultation responses mentioned the need for flexibility should climate change mean that certain actions to preserve a habitat became redundant. It will be important to consider whether a conservation covenant should endure for a specified finite period or whether the agreement should include a right to break or review the covenant at regular intervals. Equally, in other contexts the indefinite duration of the covenant is what may make it the right tool to secure the conservation objective.

Although the covenant is said to be for the public good it is contained in a private agreement and is enforceable through the civil courts. Responsible bodies are not acting as regulators here. The Government has (in its consultation response) observed that if responsible bodies want a right of entry to monitor compliance with a covenant, that should be included in the agreement. In conservation scenarios payment of money may not be a sufficient remedy and the parties can apply for specific performance of the covenant or an injunction. However, it is worth noting that where the landowner breaches the covenant, the court can award “exemplary” damages (ie to ensure that the landowner does not profit from its breach) to responsible bodies.

In relation to consultation responses querying whether conservation covenants would have tax consequences because they would devalue the land or could be used as a tax mitigation tool, the Law Commission’s firm response was that it was focussing on conservation covenants as a philanthropic tool. However, the Government (in its consultation response) has stated that it cannot confirm that conservation covenants will be tax neutral and that in guidance it will recommend that landowners should seek specialist tax advice.

The Government intends to develop guidance to assist parties looking to enter into conservation covenants.

If you require further information about anything covered in this briefing, please contact Claire Sheppard, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2020