17.06.26 – TCS – BNG – ARE DEVELOPERS OVERPAYING FOR UNITS? – THE DEBATE CONTINUES

Our previous email titled “BNG – Are developers overpaying for BNG units?” sparked an interesting debate on LinkedIn, regarding the state of the BNG market and the potential need for more due diligence and regulation. For those of you interested the debate is copied in below and we would welcome thoughts from all professions.

Hugh Townsend initially posted the following on 1st June:

“One factor which is currently affecting how the market develops, or at least how it is appearing to develop to those not familiar with it, is some BNG landless operators are tending to represent the market price at what we consider are artificially high levels. BNG landless operators offer a variety of different models to landowners. Typically they either acquire BNG units and sell them in partnership with a landowner or sell the units for themselves whilst paying a rent for use of the land. These operators, therefore, often have a direct interest in the units they sell, which contrasts to the approach of ‘pure’ brokers, who are motivated only by turnover and commission. Such polarised approaches have created a two-tiered market in which landless operators are selling at significantly higher prices than ’pure’ brokers, who are aiming to maximise turnover. By doing this, these brokers are more representative of a transparent and efficient element of the market place. Reasons why we suspect that landless operators are less flexible are:

1. Landless operators, are often selling a limited range of habitat types sometimes isolated in a single location. They are unable to easily avoid the spatial weighting penalty trading into other LPA/NCAs (shortly to become LNRSs) and tend not to want to bear the discount themselves (see below).

2. Some landless operators started creating habitat banks with landowner partners early on, when habitats unit were thought to be worth >£25,000. In many cases, to deliver the promised works needed for a project, the landless operator is held to these prices, even though brokerage prices are hitting £15,000 and below before the effects of spatial weighting, which can take the gross return per unit transferred by a vendor to less than £7,500.

3. Another reason why landless operators tend not to drop their prices to compete at the level of the brokerage market is the threat of a withdrawal of a line of credit, where leveraged against the value of BNG units they own when they were expected to remain over £25,000 per unit. Should they drop their prices too far and compete, the value of their assets may fall to a level at which their accountants will not sign off their books, thus forcing the landless operator to become insolvent.

All the above appears to create a market where landless operators cannot go below a certain price, so a false impression of the overall market can be given. This type of influence is similar to what I experienced with the fledging milk quota market in the 1980s until things “settled out” after a few years and the overall market became more efficient and transparent.”

 

On 3rd June Tim Graham from RSK Wilding made his own post in response to ours:

“Some interesting views dropped into my inbox today from Townsend Chartered Surveyors. They were pointing out how the models for off-site BNG provision impacts sales values for Biodiversity Units on the market.

There were some interesting points in there, especially about locking in BU values into non land owned models. I think it’s worth a few points for discussion.

It’s not always to artificially inflate prices, different sites with face different costs, as well as 30 years to plan for. Many have these costs locked away and already secured, while other face no such cost. This is a point of assurance in the market.

Different sites face different costs, but to have a viable scheme you do need to model and plan for your 30+years.

There are now sites on the GSR that have not undergone suitable due diligence. Our view when dealing with said schemes was that they shouldn’t be part of the market. If rumours are true the are presenting artificially deflated prices for BUs that look impossible to deliver.

what does this mean?

We need greater transparency and oversight,.as it feels like the cogs are moving faster than the system can move. Perhaps some rebalancing will happen, but it may need some intervention as well.

As a responsible body we really value any moves for codes of conduct for us and also brokers. Though perhaps the Financial Conduct Authority is or should cover aspects of pricing and contracts.

Would love to hear thoughts”

 

Commenting on Tim’s post Simon Kennedy from Building Space for Nature replied with:

“£15k is potentially still achievable (for medium distinctiveness area units) if the management entity has already accounted for some capital costs (plant and machinery) as part of a wider business. I have always felt, having modelled this A LOT, that £17k per medium BU is about as low as it could safely go. £15k might well come unstuck over 30 years at that price if inflation is worse than the average over the last 30 years. Also worth mentioning that medium distinctive area units are massively over supplied so could be used as a loss leader to maintain an overall business case. However, I think we can all agree that this is a dangerous line to tread….. but it is the due diligence of the RBs that is designed to limit this, and the RB that will be left managing enforcement if it does come unstuck. Some (one?) RBs require future management in an escrow, which is something I actually recommended to them and still believe is one of a number of ways to ensure that sites do not fail.

I do also think that some straight out brokers are attempting to artificially keep prices high by releasing sale prices that do not reflect the actual deals being made. I have made that point to the broker directly.”

 

Continuing this train of thought Paddy Harlow, co-founder at Natural Asset Partners added:

“Agree with your thoughts on this! I think it really depends on the structure of the habitat bank, how it’s setup, their level of overheads and how reliant they are on external contractors. Also – there is such a big difference in scheme viability depending on unit uplift / hectare. Really think we should be thinking about revenue in terms of £ / hectare / annum rather than £ / unit – a scheme delivering 4 units a hectare at 30k per unit, is the same as 15k per unit for a scheme at 8 unit per hectare – with often very similar establishment and management protocol and therefore cost profile. Benchmarking against SFI/CS payments (which obviously has it’s flaws!) on a 8 unit per hectare at 15k per unit, is still £4k per hectare per annum – all paid upfront – on a 30 year basis, rather say 2-5 years for SFI. Completely agree on the importance of the RBs role in creating a credible and sustainable structure – escrow / security deposit / enforcement / proper step in rights.”

 

Wrapping up this thread Hugh Townsend then replied to Paddy stating:

“Some good observations. Of course the reason farmers are interested in using their land or some of it for BNG is that SFI/CS is no longer as reliable as it used to be and is limited to smaller farms at the moment. This has created the interest in BNG creation but the other side of the equation in this is not just the return of the costs and liabilities going forward (which can be better managed with full flexible phasing) and the loss of alternative use income but the value these units will have to developers. When the market price rises we will be talking more about the value from the demand side of things and this of course is why farmers’ interest turns into investing in a habitat bank for BNG and if possible also NN. Do watch the recording and read my presentation notes about this from our seminar on the 25th March. Email me for a copy. The ‘dead cat will bounce’.”

 

In a separate thread Charles Cowap, who currently chairs the Certification Committee of Organic Farmers and Growers amongst other projects, also replied to Tim’s post:

“Interesting comments and highlights the importance of doing your sums and assessing your risks very carefully indeed. Is this also a characteristic of any emerging market? Some early movers are very cautious on pricing; find themselves undercut by some later entrants who may get their fingers burned while markets do what they do and find a level. Should we even be viewing this as a ‘market’ with so little homogeneity in the products on offer? One point I didn’t really understand was your paragraph ending in, ‘This is a point of assurance in the market’. I’m probably missing something but what did you mean by this?”

 

Hugh Townsend also replied to Tim’s post directly:

“Tim thank you for your interest in my post on Monday 1st June ‘BNG – are developers overpaying for off-site units?’ I’m always very pleased to share views about the BNG market. From our point of view, prices are based on what landowners are willing to accept or reject based on what suits them, their land and what their business needs are.  Everyone is different.  If instructed as a broker (clients using our professional habitat bank creation services are not obliged to use us as their broker), we try to create a high turnover of sales on the landowner’s behalf or at least providing them with the opportunity to offer their units to multiple purchasers.

In the current soft market this results in prices being offered to purchasers from an effectively “reverse Dutch auction” process between our vendors and others in the market place, competing with each other. This sets the price, not us. No one can “buck the market” (Margaret Thatcher).

As traditional land agents we take an early holistic approach making the most of our estate management experience looking at the impact on the whole landowner’s business. I agree robust risk assessments, modelling, multiple interviews and budgets including whether there is a cooperative LPA or alternatively who is the best Responsible Body to use (which can have a big impact on costs), is needed.

Tim you must be able to offer a comprehensive service to habitat bank creators, making use of your experience as a Responsible Body ( “wearing both hats” as it were).

Throughout the separate project stages, before our clients commit to the next, we are regularly reviewing this early advice alongside what is going on in the market. Do email me if you would like a copy of our “Key Steps” which details our BNG & NN independent and regulated project consultancy services. We are or have advised on over 90 habitat banks throughout England and Scotland as Chartered Surveyors with our own environmental team including panel ecologists and solicitors.

I agree Tim, use of more regulated professionals is needed in the BNG world whether for creating units or brokering them. The RICS already deals with what procedure there is for those involved in giving advice to declare other relevant involvements including conflict of interests; is the broker also selling their own units at the same time as their client’s; how independent is the advice, does the client properly know from whom they are taking advice, when selling is there a designated client account (where a third party insures the purchase monies); who is acting for which party when a sale is agreed. One of the most time consuming RICS requirements is being able to demonstrate a client has understood everything correctly before committing. There has been and is a lot of biased and incorrect information circulated by some landless operators to promote the arrangements they offer landowners.  I was pleased in the 1980/90s to be part of the RICS working party that published guidance on how to apply RICS regulations for Chartered Surveyors involved then in the emerging milk quota market.

Without an interest in the assets we broker it will always be for the landowner to decide when and at what price to sell their units.

Tim you are right 30 years plus is a long time and the risks are considerable and many remain unknown at this early stage of an emerging market. I am very lucky to already know a high percentage of our habitat bank owners due to acting for them over the last 40 years; most are from multi-generational businesses who have farmed the land and know it better than anyone else and understand our advice about the project costs and taking the long term view to suit  their businesses. This has resulted in us placing £7,000,000 worth of sales for our clients in the last two quarters of 2025 with a 233% increase in the number of purchasers approaching us to buy, on a month by month basis compared with last year. This has been a great success for our clients who want to sell some units.

I am though optimistic Tim, as mentioned in my presentation at our seminar on the 25th March “Both sides of the BNG coin” (do email me for a copy) that prices will go up as well as down and after “a dead cat bounce” the “boot will be on the other foot”.

I am surprised to hear there are now sites on the GSR that have not undergone suitable due diligence. Would be interested to know more about this and the rumours to which you refer. I am not sure intervention is something the Government is keen on if the market is alive and working.”

 

Last week Hugh Townsend also added:

“Enjoying the conversation about the BNG market place from last week. Do the CIEEM provide any regulation relevant to buying and selling BNG units?

Does anyone else have any further thoughts about the regulation of those involved in the creation, buying and selling of BNG units?”

 

To which Clare Traynor, the chief commercial officer at Nattergal answered:

“Hi Hugh, there are some ongoing conversations around an independent body providing some sort of accreditation of habitat banks or providers however these discussions are in their infancy and it would likely take some time to set this up”

 

With that final comment from Clare the discussion was brought to an end, which was rather a shame in our opinion, as it is a vast and constantly changing topic. We would welcome any other opinions or insights on this conversation. Please feel free to email your views into bng@townsendcharteredsurveyors.co.uk or do call Hugh Townsend on 01392 823935