Commercially acceptable biobanking agreements are critical to making biobanking feasible.
It has now been two years since the first BioBanking agreement registered in NSW. And with over 60 expressions of interest for new biobank sites currently lodged with the Office of Environment & Heritage, (affecting some 33,000 hectares of land in NSW), commercial interest in the scheme appears to be blossoming.
However, landowners looking to establish a biobank site should be mindful of their ongoing legal obligations and the lengthy financial commitment involved.
This article provides a brief overview of the BioBanking scheme and examines the obligations of landowners to continue to maintain land even where payments under the scheme are unavailable or insufficient to cover the landowner's management costs.
What is BioBanking?
BioBanking is a market-based scheme which enables:
- owners of land with biodiversity value to undertake (through a BioBanking agreement) to preserve and manage land in exchange for saleable biodiversity credits; and
- developers to offset the loss of biodiversity on a development site by purchasing and retiring biodiversity credits.
How can landowners utilise the scheme?
In exchange for entering into a biobanking agreement and establishing a biobank site, a landowner is granted biodiversity credits which may be sold to developers.
The number and class of credits which will be created by establishing a biobank site is determined by accredited assessors using the "BioBanking Credit Calculator", an algorithm based on a technical methodology devised by the Office of Environment & Heritage.
How can developers utilise the scheme?
Developers wishing to use BioBanking to offset the biodiversity impacts of their development will need to obtain a BioBanking statement from the Office of Environment & Heritage which specifies:
- the measures which should be undertaken on the development site in order to reduce the impact of the development on biodiversity; and
- the number and type of credits which must be purchased and retired in order to offset the biodiversity impact which cannot be adequately reduced through on-site mitigation measures.
Once a BioBanking statement has been obtained, the developer will need to purchase the appropriate type of credits from a landowner.
Once the credits have been purchased, they must be retired to the Office of Environment & Heritage so that they cannot be traded again.
To assist in creating a marketplace for credits, the Office of Environment & Heritage maintains a register of all credits which have been created and the types of credits which are wanted.
Landowner's obligations under BioBanking agreements
BioBanking agreements require the landowner to carry out management actions on the biobank site which may include any number and range of activities such as; controlling weeds, reintroducing vegetation and maintaining fences.
Landowners are required to report on an annual basis to ensure compliance with the terms of the BioBanking agreement.
BioBanking agreements are registered on title to the land and are binding on landowners, their successors in title and mortgagees in possession.
The BioBanking Trust Fund
Central to the BioBanking scheme is the obligation for biobank sites to be managed in perpetuity by landowners.
To facilitate this, the BioBanking Trust Fund holds and manages accounts for each landowner's biobank site. When biodiversity credits are sold by a landowner, the proceeds from the sale must be directed to the landowner's BioBanking Trust Fund account until the balance reaches the "Total Fund Deposit".
The Total Fund Deposit is calculated as the total present value of all management costs under the BioBanking agreement into perpetuity.
Any proceeds received on the initial sale of credits in excess of the Total Fund Deposit are received by the landowner as profit.
Annual payments to landowners
Once the balance of a landowner's BioBanking Account reaches 80% of the Total Fund Deposit, and subject to the landowner complying with its management actions each year, the Fund will make an annual payment to the landowner as scheduled in the BioBanking agreement.
These payments are intended to compensate the landowner for performing the ongoing management actions required for the conservation of the biobank site.
What happens if the money runs out?
The Threatened Species Conservation Act 1995 (NSW) states that if the balance of a landowner's BioBanking Account:
- is low and falls below 20% of the Total Fund Deposit (calculated as at the relevant date), the Minister may direct the Fund not to make payments to the landowner until further notice;
- is insufficient to make a scheduled payment, the actual payment made to the landowner will be reduced to the available funds in the BioBanking Account;
- is nil, no scheduled payments are required to be paid by the Fund.
However, the landowner must still carry out its management actions irrespective of whether scheduled payments are made.
Office of Environment & Heritage's approach
In addition to the statutory provisions set out above, the Office of Environment & Heritage has provided some practical insight on its policy where there is a shortfall of funds in a BioBanking Account.
While the Act strictly requires all management activities to be performed at all times, the Office of Environment & Heritage's policy is not to enforce the performance of "active" management actions where scheduled payments have been suspended due to a BioBanking Account holding insufficient funds.
The Office of Environment & Heritage makes the distinction between "active" management actions and "passive" management actions (a differentiation which is not specified in the Act).
Active management actions are those activities which involve a high cost such as weed control and replanting.
Passive management actions are those activities which have minimal or no cost such as allowing fallen timber to remain on site and keeping stock numbers low.
As the BioBanking scheme is still in its infancy, there have so far been no examples of how the Office of Environment & Heritage has enforced biobanking agreements where the relevant BioBanking Account has a low balance.
Negotiating protection for landowners
While the Act and the Office of Environment & Heritage each contemplate (to varying degrees) how a lack of funds in a BioBanking Account will be dealt with, landowners can ensure greater certainty of their obligations by negotiating, at the formation of a BioBanking agreement, clear limitations as to their future management requirements if funds are low at any stage.
Establishing commercially acceptable biobanking agreements is critical to making conservation under biobanking feasible for landowners and, in turn, facilitating a market for credits available to developers.
Clayton Utz can assist landowners and developers to access the BioBanking scheme and to negotiate appropriate commercial protections.
You might also be interested in...
- BioBanking in NSW - a time for review, and the story so far
- BioBanking in NSW - an overview
- BioBanking - can you bank on it?
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.