My Lords, I shall also be speaking to my Amendments 267, 268, 269, 274 and 276. These are amendments to Part 7 of the Bill, which introduces into English law for the first time the important and radical concept of conservation covenants. Following in part the Law Commission’s 2014 report on conservation covenants, the provisions of Part 7 are a hugely significant change to long-standing principles of English property law—a radical departure, in the words of the Bar Council, from the centuries-old rule that only restrictive covenants benefiting neighbouring property can run with the land and bind successors in title.
The Law Commission proposed a stand-alone Bill to introduce these significant changes, as would be appropriate. It is therefore regrettable that such radical
new property provisions, including significant departures from those proposed by the Law Commission, find themselves tucked away in Part 7 of the Environment Bill and are afforded only a short slot for debate on the eighth and last day of this Committee.
I am grateful to all noble Lords willing to consider these provisions and to the NFU, the CLA, the Bar Council and many others for their support and insights. Having started my career as a junior property barrister, the intricacies and implications of the significant change to the law of real property are clear to me, but they may not be to noble Lords who do not keep a copy of Megarry & Wade to hand, so excuse me for providing some context.
Conservation covenants are central to this legislation. They are the principal vehicle by which the private finance will be brought into the brave new world of biodiversity net gain—the means by which developers will be able to ensure that the biodiversity lost to their development will be off-set, plus 10%, on someone else’s land. If successful, they will be a key tool in turning the environmental tide and an important alternative source of funding for farmers, whose basic payments are rapidly diminishing. They are an exciting development on which the Government are to be congratulated and which many in the farming community, including me, strongly support.
However, as the Minister described on day six of the Committee, the Bill creates an entirely new market in biodiversity net gain, the likely size and extent of which the Government are unwilling or unable to specify—despite repeated requests. It is described by some as the wild west of ecosystem services. It is a new frontier, and I am aware that a number of major financial institutions are prospecting with keen interest.
I am therefore surprised that the Government cannot estimate the likely size of the market. It must be a simple calculation to estimate how much biodiversity will be lost over the next decade, given the Government’s proud housing and development aspirations and the recent publication of the updated biodiversity metric. An impact assessment should be possible, and it seems a mistake to launch such a radical new land use and property law scheme without at least trying to understand what its impact will be. You do not venture west without a telescope to see where you are going. Can the Minister please say whether the Government will be able to provide an impact assessment of biodiversity net gain by Report?
Given this background of considerable uncertainty, the aim of my amendments is to ensure that this new market actually works, that trust and good practice in conservation covenants are established at the outset and, most particularly, that we are able to protect our natural environment and those who work it from the disastrous impacts of poorly conceived covenants entered into by cash-strapped farmers dealing with sophisticated for-profit commercial operators.
This is a complex area of law, and the covenants entered into will have long-standing—potentially perpetual—implications for generations. If they are wrong at conception, both farmers and their land will suffer and the market will not succeed. If they are
right, well drafted and clear in their terms, they will be a vital tool to achieve the biodiversity net gains we all aspire to.
In legislating for conservation covenants, the Government have departed significantly from the Law Commission’s cautious recommendations by introducing for-profit companies as responsible bodies capable of entering into, registering and enforcing conservation covenants. The Law Commission proposed that only public bodies, registered charities and local authorities be able to enter into such covenants but, in their efforts to inject the energy of private markets and finance into this sector, the Government have opened it to any private body that the Secretary of State designates, so long as at least some of the body’s main activities relate to conservation.
In response to this proposal, the Bar Council stated:
“We do not see that there is any case for this. A for-profit company does not appear to us to be an appropriate body to hold the benefit of such covenants.”
It noted the danger of a private, for-profit entity being able to recover exemplary damages and the potential for abuse of a system that may allow for-profit companies to enter covenants for tax management purposes—that is, to adjust land values.
Conservation covenants bind successors in title and are able to be registered as local land charges on the land charges register. In the Land Registry’s own words,
“land charges are generally financial charges or restrictions on the use of land which are governmental in character and imposed by public authorities under statutory powers”.
It is therefore a major departure from standard Land Registry practice to permit for-profit enterprises to wield such quasi-governmental functions, particularly as the Minister has admitted that we simply do not know how they would work in practice.
There are multiple other significant and potentially dangerous implications to entering into a conservation covenant. I have already noted the right to claim exemplary damages from a landowner who unwittingly breaches the covenant—an extraordinary remedy in the hands of a for-profit company—plus the fact that the covenant binds successors in title, thereby banishing once and for all English property law’s long-held aversion to the perpetual control of land by the dead hand of one’s predecessor. Beware the zombie habitat banks—and here I am not being facetious. Conservation covenants will bind land to a particular use by default in perpetuity, and the land management prescriptions that may be agreed in writing now between a farmer and a developer might well fail the test of time, particularly given that this has never been done before. As the Minister so clearly explained last Wednesday, there are simply not ecologists and consultants currently in the market who know how to make this happen. It has never been done before, and we are entering wholly uncharted territory.
I ask noble Lords to consider the intervention of the RSPB on Exminster Marshes, which I have mentioned previously, which showed that even the most well-funded and well-intentioned land management prescriptions can have disastrous implications for the flora and fauna they aim to protect. In that case, on taking over the marches from traditional pasture farmers, the
RSPB set about 20 years of intervention, removing livestock, minimising pest control and flooding fields to create an artificial wetland. When ground-nesting birds all but disappeared and Canada geese took over, the RSPB abandoned those practises, restored ditches and reintroduced pest control and grazing cattle. Ground-nesting bird numbers are now increasing again, but all those steps towards recovery would be likely to be in breach of a conservation covenant had one been put in place 20 years ago.
Part 7 offers only limited statutory defences to a breach of covenant, and it is no defence to a claim for breach that the farmer’s other property would otherwise have been damaged. Thus, if a farmer is faced with an imminent flood, caused perhaps by a beaver damming the local river upstream, which will wipe out his stored grain after harvest, it would be no defence to a breach of covenant if the farmer redirects that flood to a field subject to a conservation covenant prohibiting standing water. Assuming that he damages a nest site for a pair of cirl buntings, he will be facing a claim for damages in excess of £70,000 plus exemplary damages.
Equally of concern is that, in absence of provision to the contrary, the responsible body is free to transfer its interests to any other responsible body unilaterally. Thus, the local farmer may negotiate and agree the outline terms of a conservation covenant with a local developer’s ecologist who he knows and trusts, leaving the complicated details to be worked out as the habitat bank is developed, only to find that the local developer transfers its interests to the ecosystems services department of an international banking conglomerate with no local presence and a for-profit obligation to maximise shareholder returns.
I know that I am presenting a parade of horribles here, identifying all the things that can and might go wrong. However, that is the job of a lawyer being asked to advise a client entering a new and radical agreement.
This brings me to my principal amendment, Amendment 267, which seeks to ensure that conservation covenants are executed by deed and not merely by signed writing. As any law school graduate knows, signed writing in this modern day can be achieved simply by an exchange of email evidencing sufficient intent to be bound to an agreement and no legal advice needs to be given on their execution. Therefore, a conservation covenant tying land to perpetual obligations could conceivably be created by no more than an exchange of messages, which do not even need to state that they are intended to amount to a conservation covenant so long as it appears from the language that a covenant was intended. Amendment 266 addresses that anomaly.
Defra’s draft fact sheet on conservation covenants released last week recognises the danger of entering into agreements without legal advice and states that the Government’s forthcoming advice will recommend that those entering conservation covenants take advice. Will busy farmers even read that guidance? Amendment 267 will ensure that legal advice is sought such that all conservation covenants that are entered into are properly drafted to achieve the effects required.
In conclusion, consider a hypothetical because lawyers love a hypothetical. The typical English farmer is in his late 60s. He is seeing his BPS payments decrease year on year and the margins on which he subsists are rapidly decreasing. He disagrees with his children about to the future of the farm, and he cannot understand the myriad government strategies being trialled elsewhere. However, the farm having been in his family for generations, he does not wish to take the Government’s money to retire.
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A local developer meets him to discuss biodiversity net gain opportunities arising from a local housing development and subsequently offers by email to maintain annual payments equal to what he was getting for BPS so long as he ceases grazing the riverside fields to encourage ground-nesting birds and decrease run-off. The email suggests that five breeding pairs of birds per year should be achievable, for which the fields must be kept dry and in long grass over the summer months. The farmer responds “Yes” to the email, expecting formalities to follow, but none do because the farmer unexpectedly dies.
The conservation covenant contained in the email exchange is binding on his children, who are committed in perpetuity by default because no period of time was stated. The payments in return for the ecosystem services are fixed at the current BPS equivalent with no increase for inflation. Given the conservation prescriptions preventing any farming, the land is no longer treated as agricultural land for inheritance tax purposes, so agricultural property relief is unavailable and an unplanned tax burden falls due. A year later, that flood comes, causing considerable damage. In order to save their grain store, the children redirect the flood water into the conservation habitat fields, which are thus flooded in the summer months, in contravention of the covenant. The children become liable for contractual and exemplary damages and by this time the responsible body is no longer the local developer but a multinational with no desire to resolve the matter amicably.
The children might have to sell the farm to pay the legal fees and damages, but they cannot sell the fields themselves because no one will purchase land burdened with such an inexact and expensive covenant with only diminishing payments in return. Some years later, the responsible body goes bankrupt for unrelated reasons, at which point the Secretary of State becomes the custodian of the covenant and under Clause 125(8) has no obligation to make even the small compensation payments that had been made previously, thus all income from the land ceases. It has fallen into ruin and is blighted in perpetuity, losing even the biodiversity value it had before the covenant came into being.
I accept this is a long and gloomy hypothetical, but it could well happen if conservation covenants and their radical and far-reaching implications are not clearly understood by those entering into them. Farmers and land managers will be desperate over the next few years to make up for the loss of basic payments and will be presented with a range of confusing options under ELMS and the various environmental strategies we have been debating. If they are not obliged to take legal advice by ensuring that conservation covenants
are enforceable by deed, they will be taken advantage of. If covenants can be covenants without saying so on their face, without being by deed, without expressly stating their duration, terms and the payments due thereunder and without the responsible body being predominantly conservation-focused, they will be taken advantage of.
The NFU, in particular, is concerned about this, given the extreme vulnerability of many of its members. I am grateful for its assistance in drafting these amendments, which are supported, as I said, by the CLA and the Bar Council. I should note for the record that I am a barrister, a landowner and a farmer, albeit I am not a member of the NFU or the CLA. I sit on the Devon CLA committee on behalf of my law firm, Michelmores, which represents numerous clients active in this space, including farmers, investors and other operators in the market for ecosystem services. I believe they would all appreciate better formalities. Indeed, I cannot think of any that would object, albeit all lawyers would say that.
I do not know whether or why the Government would resist these important and entirely reasonable amendments. I am sure that, like me, they want biodiversity net gain and conservation covenants to be a roaring success. I have requested a meeting with the Minister and the Bill team, but we have not yet had a chance to discuss. Perhaps we can meet before Report where these amendments will return if they are not accepted. In any event, I look forward with anticipation to the Minister’s reply and beg to move.