Net zero real estate: electric vehicle charging

Out-Law Guide | 06 Sep 2021 | 9:13 am | 5 min. read

The transition from petrol and diesel vehicles to those powered by electricity is a core plank of the UK government’s 10-point-plan for a green industrial revolution and ‘net zero’ emissions drive.

The real estate sector has a vital role to play in delivering the infrastructure necessary to facilitate this change.

The drive for electric vehicles charging infrastructure

The UK government has set a target of ending the sale of new petrol and diesel cars and vans by 2030, with all vehicles being required to have a significant zero emissions capability – for example, be plug-in or fully hybrids – from 2030, and be 100% zero emissions from 2035.

Many operators specialising in electric vehicle charging points are active in the market and demand for suitable sites in which to install electric vehicle charging infrastructure is competitive, with particular competition for sites at existing service stations on motorways and A roads.

Increasingly, institutional landlords with large retail or leisure estates are also becoming live to this new market and are actively looking at developing sections of their estates as electric vehicle charging points for use by staff and customers.

The government is considering making the installation of electric vehicle charging points mandatory on the development of all new commercial and residential buildings, and at the point of renovation of such buildings and for all existing commercial buildings. It held a consultation on this topic, which closed in October 2019. Given the trajectory for the phase out of new petrol and diesel cars by 2030, it is clear there needs to be policy and legislative measures to ensure the necessary charging infrastructure is in place.

Owners or landlords may be concerned about significant costs for the infrastructure and possibly for additional grid capacity being placed on them. It is to be hoped any resulting legislation will make provision for the possible need for third party consents, for example for any wayleave required for additional grid connections, and whether a freeholder, long leaseholder or occupational tenant should be responsible for the installation costs and how maintenance of the infrastructure should be treated within any service charge.

Landlords and developers of commercial property are increasingly considering the installation of electric vehicle charging points on suitable assets, such as out of town retail, where they enter agreements with a charging infrastructure operator. Prior to the installation of the charging infrastructure, there are hurdles which need to be overcome.

First, a satisfactory planning permission has to be obtained by the operator which permits the development.

Secondly, and in order to power the charging infrastructure, the operator needs to procure a suitable and cost-effective grid connection from the local distribution network operator (DNO).

Third, the operator may need to undertake various ground surveys to satisfy itself as to the suitability of the ground condition.

The current trend in the market is for the operator to take a lease of the relevant site, and it is for these reasons that an agreement for lease tends to be entered into first, with completion of the lease itself conditional on the satisfaction of these conditions.

In making a planning application, though it may be possible for a developer to include details of the charging infrastructure within its planning application for the development of the asset, this may not be the preferred course of action from the operator’s point-of-view. This is because operators often seek tight control over the location and number of charging points, along with the information included in the planning application. The developer may not have sufficient detailed drawings or specifications of the proposed charging infrastructure works to enable it to submit a planning application at the outset without an operator on board.

To obtain a satisfactory grid connection, while there is no reason why early negotiations cannot be undertaken between the developer and the DNO, in reality negotiations are unlikely be concluded without an operator on board. This is because there is usually a substantial cost in obtaining the necessary grid connection and the developer may not want to incur this cost unless it has an operator tied in.

Once a grid connection has been procured with the DNO, a new substation may also be required to power the charging infrastructure. Thought needs to be given as to where the substation will be located and, if it will be located elsewhere on the landlord’s property, the landlord will be required to negotiate and enter into a separate lease of the substation site with the DNO. The operator is, generally, not a party to the substation lease, so there is no reason why a developer could not agree the form of substation lease with the DNO at the outset in readiness for a future operator.

While the lease of the charging infrastructure will be similar in many respects to a lease of office or retail premises, there are a range of issues that need particular attention:

The rent payable

A well-advised landlord may insist on the payment of a performance rent, in addition to a fixed base rent per bay.

The repair, alterations and yield up provisions

An operator will need to undertake general repair and maintenance works to the charging infrastructure. Some landlords concerned by the appearance of the equipment may consider any resulting change in appearance to the infrastructure as constituting alterations. However, the operator will challenge this view as it will not want to obtain the landlord’s written consent in a licence for alterations every time it undertakes what it regard as maintenance works.

In addition, at the end of the term, and if the lease is not being renewed, the operator’s preferred choice may be to leave the charging infrastructure in place at the estate as it may not be cost effective to remove the infrastructure. Consideration should be given as to whether the landlord is offered a right to purchase the infrastructure at the expiry of the term.

“Lift and shift” provisions

Operators will resist any right for the landlord to have an ability to relocate the charging infrastructure elsewhere on its property, even at the landlord’s cost, as the operator will have expended significant time and capital resources in installing the charging infrastructure in its original location. The operator will lose profit if there is a period when neither the original nor the new charging infrastructure are operational.

Exclusivity and “rights of first refusal”

A well-advised operator will ask to be granted a right of exclusivity over the landlord’s property, which prevents the landlord from leasing any other parts of that property to other charging operators. If this is not achievable, the operator will be interested in a right of pre-emption over any other parts of the property which the landlord intends to use for electric vehicle charging.

Insurance provisions

If the landlord’s property is damaged or destroyed, even though access to the charging infrastructure is still available, a question arises as to whether the operator’s rent should be suspended until the landlord’s estate is reinstated. Landlords are usually willing to agree rent cesser provisions in this situation.

Another insurance issue to address is whether the operator be obliged to insure the charging infrastructure for damage caused by insured risks or whether the operator should simply be required to insure for third party and public liability insurance. If a performance rent is payable, then a well-advised landlord is likely to want the charging infrastructure fully insured to minimise any periods of down time.

Landlord and Tenant Act 1954 protection

Unlike leases of substations, it tends to be standard within the market for a lease of electric vehicle charging infrastructure to be excluded from the security of tenure provisions under the Landlord and Tenant Act 1954.

Power constraints

At the point that the lease is entered into, there may be power constraints in the available supply, meaning that the power supply to the charging infrastructure is lower than the operator would like. This could also mean that the operator cannot install all the intended fewer charging points.

In such circumstances, the operator is likely to want to keep open a dialogue with the DNO to ensure that it is first in line for any available spare capacity that becomes available in the future. If so, then the lease will also need to make provision for the operator to install additional charging points and/or the operator to upgrade the power supply to the existing charging points, if and when a power upgrade becomes available.

Co-written by Katie Farrelly of Pinsent Masons. To contact Katie, email [email protected]