In this four-part series, Corrs' Environment and Planning team examines biodiversity banking across Australia, its role in environmental assessment processes at state and federal levels and the different transaction structures for buying and selling biodiversity credits.
In this part, we explore the different transaction structures which may be adopted when buying and selling biodiversity credits.
Buying and selling biodiversity credits
Unlike real property transactions, there are no standard form contracts in the buying and selling of biodiversity credits.
The appropriate transaction structure to be adopted is a matter to be negotiated between the vendor and purchaser and can depend on various factors including:
- whether the biodiversity credits exist at the time the
transaction is agreed;
- if the credits do not exist, the extent of the purchaser's
involvement, financially or otherwise, in the creation of the
- the value of the transaction; and
- in NSW, whether a payment of the Total Fund Deposit is required and the party responsible for payment.
The price of biodiversity credits ranges from a few hundred dollars to up to tens of thousands and are likely to increase in value given the demand for credits generated by large private and infrastructure projects. Depending on the number of credits involved, the value of each transaction can range from thousands to tens of millions.
Given the potential value of these transactions, ensuring that the appropriate transaction structure is adopted is important to ensure that provisions are in place to protect the vendor's and the purchaser's interests.
Whilst not exhaustive in any way, the following are examples of agreements which may be adopted as part of a biodiversity credit transaction.
Put and call option
A put and call option grants the vendor and purchaser the right to buy or sell the biodiversity credits at a particular price. These agreements may comprise an appropriate structure where an application has been lodged for the creation of the biodiversity credits the subject of the proposed transaction, but they are yet to be created.
A put and call option would usually be accompanied by a separate sale and purchase agreement.
A creation agreement may be appropriate where the purchaser approaches a potential vendor who has not previously contemplated the creation of biodiversity credits. A creation agreement would typically include exclusivity and confidentiality clauses to allow the purchaser to assist the potential vendor create the credits.
Sale and purchase agreement
The form of sale and purchase agreement can vary in light of the factors outlined above. At the simpler end of the spectrum, when credits are already in existence and no payments of the Total Fund Deposit are required, a simple sale and purchase may be sufficient.
At the other end of the spectrum, where credits have not yet been created, or the value of the credits is substantial, a more complicated agreement may be required to account for various risks which exist in the transaction process, including potential delays to the transfer of the biodiversity credits to the purchaser.
In part four of this special series on biobanking, we discuss key matters which are relevant to vendors and purchasers when negotiating the sale and purchase of these credits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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