Offsite BNG – where are we now?

Statutory biodiversity net gain (BNG) – the requirement to supply at least a 10% increase in biodiversity net gain on any development – has been with us for nearly 18 months. It presents opportunities for rural estates that have land they can use to generate biodiversity units which can then be sold to developers; with units trading at between £25k and £35k, it may also prove a more lucrative use than traditional agriculture. In the past month, however, it has been announced that the implementation of BNG for Nationally Significant Infrastructure Projects (NSIPs) will be delayed by six months to May 2026. Also, two consultations proposing changes to how BNG rules work have been launched, which may have implications for the market in BNG units. What have the past 18 months taught us, and where does this leave estates who are considering dipping a toe in the offsite market?

First (and this will not come as a surprise) we have seen the cogs of Local Authorities grind very slowly indeed. At the heart of the documentation required for an estate setting up an offsite habitat bank is a Habitat Management and Monitoring Programme and a binding legal agreement. The latter can take the form either of a Section 106 Agreement, or a Conservation Covenant. In the early days of BNG, there was a general preference for using the established mechanism of a Section 106 Agreement made with a Local Authority, which developers already understood. As the months have passed, however, Local Authorities’ inability to respond quickly, and the lack of a unified approach to charging for monitoring obligations, has caused problems in what are, after all, commercial deals (developers cannot develop until the BNG condition has been satisfied). Many Local Authorities are simply underprepared to deal with BNG and lack guidance and resources – others may perhaps be dragging their feet in the hope the whole problem may go away. Either way, the result has been a rise in the preference for using Conservation Covenants. Here, the obligations are monitored and enforced by a designated “responsible body”, who are generally nimble and able to respond quickly. 

Based on numbers to date, it would also appear that BNG units have not exactly been “flying off the shelves”. Whether this is just a natural lag (exacerbated by Local Authority delays) that will resolve itself as the market develops, or whether demand is indeed limited – perhaps because developers are seeking to fulfil their obligations on site – is unclear. Here, the consultations’ proposals to improve access to the offsite market, especially the proposal to disapply the spatial risk multiplier (effectively meaning there is no need for the development and offsite provider to be geographically proximate) and simplifying the metric, give cause for hope. The proposals to widen the scope and increase the size of which developments are exempt from BNG requirements, may, on the other hand, limit how much offsite BNG is ultimately required. Remember, however, that although the focus is often on housebuilding, commercial developments must also fulfil BNG criteria, and where there is less scope for fulfilling the net gain onsite, opportunities are created for offsite providers.

A number of outstanding questions also remain which overshadow offsite BNG. One is the lack of guidance on the taxation of BNG units – although there is clarity that using land as habitat bank will still allow a claim of APR for IHT purposes (as long as there is a binding agreement in place), there is no guidance regarding whether receipts should be treated as income or capital. Even assuming, as the majority of advisers tend to, that it must be income, there is still no clarity on whether it will count as trading or investment income – a vital distinction for those landowners engaged in a Balfour type scheme for tax planning purposes.

Another grey area is valuation and the effect on the underlying capital value of the land of putting it into a 30-year agreement. This is not assisted by the fact that it is also unclear what will be permitted on the land at the end of the agreement – will its use be formally restricted to environmental purposes only? Or could it be put back into some form of agriculture? 

It is clear that we don’t have all the answers yet. Opportunities undoubtedly exist for estates who are keen to supply offsite units, but whilst question marks remain over market size and other variables, estates should proceed with caution: avoid land that may have future development potential, consider bringing forward schemes in tranches, and ensure that documents are drafted to provide an appropriate exit strategy if units cannot be sold. 

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

© Farrer & Co LLP, July 2025