Natural capital projects in Scotland: structuring land rights and long-term obligations for biodiversity projects

Natural capital is about recognising and improving the value in our natural assets – and in many cases looking to make some income along the way.

Given the long-term view that comes hand in hand with natural capital, it’s important to make sure that the i’s are dotted and the t’s are crossed.

In the first of our two-part series on natural capital projects, we take a look at biodiversity projects and how land rights and long-term obligations can be structured to balance project objectives, the rights of the landowner, and enforceability against their successors.  

Biodiversity projects

Businesses, developers and investors are becoming increasingly interested in biodiversity projects, whether for environmental and/or net zero reasons, to meet planning obligations imposed on them by local authorities, or as a means to generate and trade in this newly recognised asset class. Projects can range from large-scale woodland creation or peatland restoration to smaller-scale interventions such as riparian revegetation around streams and burns. The nature of the project will depend on a number of factors, including the scale and nature of the available land, the investment available, the intended term of the improvement, and the purpose of the project (e.g. whether it’s purely intended to improve the land for environmental reasons, or whether it’s being implemented to meet a planning condition for an energy project).

Depending on the term of a given project, there can be some challenge in properly constituting and documenting the land rights which are required to deliver it in a way which also protects the investment of the businesses, developers and investors who are funding it. As with any project relating to land, the most important initial step is to ensure that the necessary land rights have been secured, which can result in multiparty agreements being required among the landowner, the project delivery agent and the investors. Alternatively, multiple layers of contracts may be used to separately document the land rights from the project implementation terms and conditions.

Land rights

As well as securing the land rights for the project, any agreement with an affected landowner will also need to protect the funder’s investment in the project by imposing obligations on the landowner to prevent them disrupting or removing the project from the land before the agreed term, which may vary quite considerably depending on the project type and purpose – it’s not uncommon for projects to be granted for a period of between 5-100 years. For this reason, the project delivery agent and funders will typically want to consider options for the long-term imposition of land obligations, including:

Real burdens

Real burdens could be imposed on the landowner’s title obliging them to use the land only in accordance with the agreed uses, and not to do anything to prejudice the ecosystem interventions for the duration of the project. However, this is not usually a realistic option because real burdens require a benefited property and a burdened property, and in this scenario there is only really a burdened property.

Conservation burden

These are a specific type of statutory real burdens which do not require a benefited property to be identified. In some instances, this could be a potential option, but in order to constitute a conservation burden, the project delivery agent (or other interested party) would need to be a registered conservation body (which requires the approval of the Scottish Ministers). 

Additionally, conservation burdens can only be created for the purpose of preserving, or protecting, for the benefit of the public a special characteristic of the land (including a characteristic derived from the flora, fauna or general appearance of the land). While in some specific instances these could be useful, in the majority of cases these are too prescriptive and will not meet the needs of the parties.

Management agreement

1. The project delivery agent could enter into a land management agreement with the landowner to set out the rights and obligations required in connection with the delivery and management of the project for the agreed period. Since these types of agreements are personal contracts between the parties, one of the key issues (particularly where a project is intended to be in place for a longer period) is how to enforce the terms of the agreement (including obligations not to reverse any ecosystem interventions carried out by the project delivery agent) against any successors in title. There are a few ways in which the project delivery agent might look to bind successor landowners by the terms of the agreement:
2. The agreement could be registered against the landowner’s title deeds as a minute of agreement, with an explicit “successors bound” provision. The agreement would then appear on the titles to the property unless or until a discharge was granted, and so it would become a matter of public record. While this approach would provide notice to successors and potential purchasers of the land, it doesn’t guarantee that any successor wouldn’t try to challenge the enforceability of the management agreement on the basis that it is a personal contract and not a “real burden”. The project delivery agent would be reliant on the costs of challenge to be dissuasive for any future challenge to the validity.
3. The landowner could secure their obligations in the agreement to their title, by granting an ad factum praestandum standard security, which is a standard security in relation to non-monetary obligations. The terms of the agreement would not be disclosed in the standard security, but since it would be registered against their title this would act as a flag on the title to any third party reviewing it. The agreement would remain a personal contract between the parties, but if the landowner wished to sell or convey the land, then they would require to give notice of their intention to sell or convey the land to the project delivery agent, who would typically be obliged to act reasonably and consent to the sale or conveyance, and to deliver a discharge of the standard security, but only in exchange for a replacement management agreement and standard security signed by the incoming party. This would ensure continuity of the project rights even if a new landowner was introduced.
   If the landowner didn’t want the agreement to be registered against their title in any way, it could be registered in the Books of Council and Session for preservation and execution. This would also result in the agreement becoming a matter of public record, and would allow it to be enforced in court, if necessary. However, the agreement would remain a personal agreement between the original parties, with no direct means to enforce the terms against any successor landowner, if the land was ever sold without the original landowner complying with the “successors bound” provisions.

Leases

The landowner could grant a lease of the project land to the project delivery agent, but this is likely to lack appeal on the basis that a lease requires exclusive possession and a landowner is unlikely to surrender exclusive possession for a long period. This becomes increasingly complicated if the land is already subject to other third-party rights or leases.

If the landowner was comfortable with the principle of granting a lease, but wished to retain possession of the bulk of the land, then alternatives such as a licence to occupy or a “postage stamp” lease (which is a lease of a very small (usually insignificant) area of land nearby the affected area together with ancillary rights over the necessary area) could be investigated.

Conclusion 

Securing appropriate land rights is central to the success of any natural capital project. Whether through management agreements, statutory conservation burdens, or bespoke lease arrangements, parties must carefully balance the protection of the project, the rights of the landowner, and enforceability against future successors when determining the most suitable approach for a given project. Read more about carbon credits here. 

If you would like to discuss anything raised in this article, please get in touch with Alan Gibson or your usual Burness Paull contact.

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