Charging to net zero

There are now more than 660,000 battery-electric cars and 445,000 plug-in hybrids on UK roads, with between 8m-11m more electric vehicles anticipated by 2030, when the UK government aims to end the sale of new diesel and petrol cars. This transition requires new infrastructure in the form of charge points available for use by the general public on streets and in car parks, at service stations and leisure and retail parks.  Ownership of charge points Landowners need to make an initial decision on whether to install and own charge points themselves (even if the actual installation is contracted out to a third-party provider) or engage with a charge point operator that will install, own and operate the equipment.  The first option gives more control to the landowner, including the ability to offer free charging to staff and customers, but incurs the up-front cost of installation.  Advantages of the second option are that the operator will bear the capital cost of installing the charge points. The skilled task of installing, maintaining and operating the charge points will also be outsourced to a specialist, although landowners should carry out appropriate due diligence on the operator and its track record to ensure it will be able to meet its contractual obligations.  Lease or contract? Operators will generally look for a lease rather than a commercial contract or licence agreement. It may take more than 10 years for the charge point to pay for itself and begin to generate profit for the operator, so these are relatively long-term arrangements, and a lease gives the operator an interest in land that is binding on successors in title, should the landowner sell.  For landowners, the lease gives certainty as to what legal interest the operator has and any risk of operators claiming security of tenure can be avoided by contracting the lease out of the Landlord and Tenant Act 1954.  Landowners considering granting leases to charge point operators will be those who hold either a freehold or long leasehold interest rather than, for example, a typical five or 10-year retail lease. Given that the value of a charge point is relatively limited, both in terms of potential profit from the sale of electricity and likely rents, it is more cost effective for both landowner and operator to roll out an agreed form of lease across a number of sites, perhaps with a single overriding framework agreement. Commercially, what each party is seeking to achieve may be different from a usual commercial lease. For a commercial landowner, the objective may be much less about rental income and much more about attracting consumers to their premises, increasing dwell time, providing additional benefits to their own employees and meeting their ESG targets.  A charge point operator will want consumers to use their charge points so as to generate revenue and the success of the landowner’s business may be a critical part of that. Installation Both parties need to consider the type and number of charge points to be installed, the location of the charge points and the required minimum charge speed.  Workplace and destination sites typically have fast charging devices rated at speeds of between 7kW to 22kW, which charge much quicker than most home charge points but not as quickly as the rapid chargers found at service stations. Electricity supply will come either from the landowner’s own supply or via a separate grid connection, in which case new wayleave agreements or deeds of easement may need to be entered into. The landowner will expect the operator to secure those agreements, and the operator will look for the landowner’s assistance and co-operation. Supply to the site will partly drive this decision, although there is also an implication for the landowner if the charge point operator becomes insolvent. Where the supply is taken from the building supply and the landowner pays the cost of the supply with a sub-meter, allowing recovery from the charge point operator, the landowner may end up holding the cost if the operator becomes insolvent.  However, it can choose to continue meeting that cost, which may help to facilitate continued operation of the charge points, even if the operator runs into financial difficulty. If the charge points operate via a separate grid connection or supply agreement, there is a direct relationship between the operator and the supply company, so the landowner is not liable for the cost of the electricity supplied. Equally, the charge points may be disconnected if the operator is unable to pay its bills. The lease (or an accompanying licence for alterations) should include standard provisions requiring the operator to carry out its installation works in a good and workmanlike manner using good-quality materials that are fit for purpose, to comply with all legal requirements and to obtain all necessary consents for the installation.  Rent Charge point leases typically include a base rent and an annual profit or revenue-based top-up. This means landowners share some of the risk associated with the charge points. The extent that deductibles are permitted in the calculation of profit will need to be negotiated, although rental income may not be the landowner’s primary objective.  Clearly no revenue or profit rent will flow until the charge points are operational and the operator will not wish to pay a base rent until this point. This creates a difficulty for the landowner, with limited incentive on the operator to install the promised charge points within the landowner’s desired timescale.  Operators will argue they have a built-in commercial incentive to get charge points up and running in order to generate revenue but a sensible compromise is a long-stop date by which a base rent becomes due even if the charge points have not been installed and which ultimately allows the landowner to terminate without penalty if instalment is not forthcoming. Conversely, operators may look for termination rights if use of the charge points does not reach anticipated levels. Redevelopment Entering into a lease with an operator inevitably affects a landowner’s flexibility to carry out works or redevelop its site. Any possible requirement to relocate or remove either the charge points or connecting cables should be considered at the outset.  An operator is likely to seek compensation for both downtime and the cost of relocation, or where charge points are permanently removed, for the initial installation cost.  Where use of charge points is temporarily suspended, for example due to repair or maintenance works to a surrounding car park, suspension of any base rent may be appropriate. A landowner may wish to restrict or limit the ability of the operator to carry out works to the charge points, or seek minimum maintenance standards and availability levels, to ensure the charge points are available to its customers or staff, particularly at busy periods. This might involve, for example, avoiding works during Christmas trading periods or where possible undertaking them outside opening hours. Signage and adverts It will benefit both the operator and landowner to advertise their EV charge points. The operator will want some freedom to install charge points with its own branding and design, and may wish to install signage elsewhere, for example at the entrance to a car park.  The landowner will have the usual concerns about signage being appropriate to the location and may wish to restrict third-party adverts. Signage and other management or enforcement measures may also be needed to ensure that charge point bays are not blocked by overstaying visitors. The landowner is in a better position to take on this responsibility but will not want to be liable for behaviour that it cannot completely control. Sharing data Each party will have an interest in visitor and usage data available to the other. The lease should set out the extent to which this commercially sensitive data will be shared, in what form, and how it will be used. The lease will need to include appropriate confidentiality clauses. Both parties must comply with data protection legislation. Exclusivity Operators may push for exclusivity over a particular site, or even over a portfolio of sites, to avoid expected revenue being reduced by competing charge points belonging to another operator or the landowner. A potential compromise is to make exclusivity conditional on the operator delivering charge points on time and keeping them competitive and available for use or meeting other performance criteria. Indemnity A tenant indemnity is a standard clause in a commercial lease but it is unusual to cap the tenant’s liability under the indemnity. However, such caps are common in the energy sector and charge point operators may expect to see one.  For the landowner, a pragmatic approach will be to assess the risk and the level of the likely claims and whether the cap is high enough to cover them. The drafting should be clear as to whether any cap applies only to indemnity claims or to other claims under the lease and whether it is on an aggregate or each and every claim basis. A battery-charged future Without access to sufficient charge points the EV revolution could splutter to a halt. However, commercial landowners can play a key role in providing charge points to those using and visiting their premises. Many are keen to do so with an eye to future-proofing their investments and as part of their ESG agenda. Anthony Alderman is a partner and Nesa Kayoueche is an associate in Womble Bond Dickinson’s real estate business group Image © Kindel Media/Pexels