Thursday, April 18, 2024
AdviceCommercial Property News

Businesses need to future proof their leases with EV charging point operators

Electric vehicle (EV) charging points are appearing in public car parks and the car parks of all kinds of commercial premises across the country to help facilitate the transition to electric motoring, although some say the installation growth still needs to be faster.

Simon Robinson, Real Estate Partner at Kingsley Napley LLP explains that unsurprisingly there are a host of EV charging point providers springing up whose business is to operate the charging stations. They install and maintain the equipment, link to electricity networks, and manage driver payments or, in some cases, bill landlords if the charging points are to be offered free to visiting customers.

As such landlords and EV charging point operators need to negotiate and enter into a lease that meets the current and future needs of both parties.

There are several standard features that lease negotiations need to consider, including whether planning consent is required for the construction of the EV station; the planning conditions attached to the landlord’s land stipulating a minimum number and type of parking bays to be provided; the right to install electrical cabling from the electrical grid to the EV station; and rights of entry on the land to allow maintenance, repair, and renewal of the cabling. However, it is also important to consider the future needs of both parties given the rapidly evolving EV market.

EV operators will require a lease of between 10 and 20 years to recoup the significant infrastructure costs involved in installing an EV station. Operating incomes will depend on usage and electricity supply and pricing. Models are helpful to a point. But it would not be unreasonable for a landlord to look to receive a performance rent calculated by reference to the EV operator’s net profit received from the EV station.

If electric vehicle car ownership continues to rise, the EV operator may need the option to lease an increased number of car parking spaces. However, equally, the landlord may wish to relocate (lift and shift) the EV station to a different part of the carpark in the future. Leases should therefore specify whether this would be at the landlord’s cost and perhaps, include a rent-free period whilst the EV station is out of operation.

There may be circumstances, such as the development of a new retail park nearby or the loss of an anchor tenant in a car park, which may lead to a drop in traffic, making the economics of the EV station no longer viable. The EV operator will look for the lease to reflect this, including the right for them to terminate the lease early.

The lease should set out clearly what equipment the EV operator will remove on termination of the lease and whether the landlord will purchase the equipment and if so, at what price. There may be considerable costs associated with the decommissioning of a charging area.

Exclusivity should also be a factor considered at the lease negotiation stage. In addition, the lease should ideally also allow the EV operator flexibility to update their equipment; the power supply capacity; the design of the EV Station; and specify what can be done with or without the landlord’s consent.

Whilst landlords may appear to have ‘the power’ and upper hand right now, it would be short-sighted to stipulate terms that might render a charging station uneconomic in the future. Given the pace at which this market is developing and the different projections for how far it will go, both sides need to get as much flexibility as possible in any lease terms negotiated. Otherwise, this is also going to be a growing area for disputes down the line.