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Eversheds Sutherland property column: April 2020

  • United Kingdom
  • Real estate

08-04-2020

 

Together in electric dreams

The Chancellor’s announcement of a £500 million fund to support the rollout of electric vehicle charging points has caused many landowners to take notice of the potential benefits that this electric revolution may provide. While some market players and firms have been trailblazing in this area for a few years, innovating new legal structures and arrangements to balance parties' requirements, those who are now ready to seize the opportunities will need a crash course in how to structure these arrangements to ensure that all parties are driving in the same direction.

When putting a deal together, the first question that is often asked is: how long is the charging point going to be in position? Fortunately, and this is one of the only times you find this in such a rapidly evolving sector, there is a market standard position. The charging point operators usually seek the ability to remain for eight years with the option of extending that term for a further two years. This allows a balance to be found between the front-end investment of installation by the operator and the flexibility needed by both the operator and landowner to cover off changes in technology and the fact that, despite best intentions, some sites may not be as popular as expected.

Once you get past the duration, the next point to consider is how the different interests are going to be structured and documented. The obvious choice, especially with a tenanted property, is to use a letting arrangement. This would see the operator take a contracted-out lease or underlease of the car parking spaces and neighbouring land where the  charging points are to be stationed (often just the latter). Sometimes this could be as small as a single space on the ground on which a charging point sits, sometimes a lot more. The rent payments are a point for negotiation but will often involve an element of rent based on usage. The real estate documentation is likely to flow from an underlying commercial agreement between the parties and that agreement will usually set out the basis of what a tenant will be asked to pay for the right to operate the charging points. Occasionally, there will be a nominal base rent but this is normally where a landowner is looking to mould the site into more of a destination for tenants and their visitors, especially in a retail context.

A more innovative approach is to enter into a quasi-commercial agreement with the operators. Sometimes called a concessionaire agreement, the landowner retains ownership of the site but grants the operator rights to install and operate their charging points on it. This is fast becoming the more popular way of structuring these deals, rather than granting a lease. The commercial arrangement can deal with things such as payments to the landlord in exchange for the rights and the obligations to operate and maintain the charging points, but without imposing what are often seen as unnecessary and inappropriate leasehold terms.

Pulling away from the overarching form of the documentation, drafting the detailed terms involves thinking outside the box and avoiding falling into the trap of treating this like any other property deal; there is no road map to followhere.

To take alienation as an example, property professionals are used to thinking about a tenant’s ability to assign being contingent on the covenant strength of the incoming tenant. With charging points, this must be a consideration as the market is largely made up of smaller businesses finding their way in an increasingly crowded market. However, from a landlord’s point of view, thought should be given to exactly who you want to do business with. The first round of operators were mainly small enterprises, but we are now seeing lots of these being bought up by major corporates. This could leave you, as landlord, one day dealing with a managing director at the end of a phone, to the next day struggling to get through the switchboard to a property manager who has a hundred other sites to worry about.

Turning to alterations, the market standard approach is for the landlord to install the conduits up to the parking spaces with the operator then fitting and connecting their charging points. Due to the nature of the installation and the small amount of space the equipment will occupy, there will inevitably be works outside the demise and the landlord will need to ensure that they know exactly what is to be installed and in which locations, for fear of sterilising other land and disturbing other occupiers.

These other occupiers present further hazards as the landlord will have to navigate the rights and interests of these third parties. While the installation of charging points may improve the offering for tenants, works will inevitably cause disruption, capacity issues for conduits are frequently encountered and, ultimately, there will be a reduction in the number of available car parking spaces. If the landlord has granted a fixed number of spaces to various tenants under their leases, while the landlord may see the charging points as an optional extra worth the cost, the tenants may take a more dim view which could open the landlord up to derogation from grant claims.

It is clear that property deals allowing the installation and use of electric vehicle charging points are going to be more frequently encountered. These transactions present unique challenges that require bespoke solutions. Any party who adopts a standard approach does so at their own peril and risks sailing past fantastic opportunities and swerving into future issues.

This is an exciting time to get on board with this market which is at the start of a new era. We have already seen strong growth in the number of electric charging points nationwide and this is only set to skyrocket, making the electric dreams a reality.