The Green Energy revolution has been given a huge boost by the Government’s announcement that the sales of petrol and diesel cars and vans will end in 2030 with hybrid vehicles being phased out by 2035. With the phenomenal growth in the sales of electric vehicles (EVs) and the Government’s promise of over £1 billion in funding, the focus is on providing sufficient charging infrastructure to support this.
With many predicting that properties with EV charging points will result in higher rents, be more attractive to tenants and lead to an increase in the value of real estate assets, more landowners are looking to capitalise on this rising demand. But how easy is it? We will look at some keys point to consider.
Is planning permission required?
Generally the installation of charging points has the benefit of permitted development rights provided they comply with the stipulations set out in The Town and Country Planning (General Permitted Development) (England) Order 2015 (as amended). The rules differ depending on whether the charging units are wall mounted or are the larger upstanding units and neither can be installed without planning permission on heritage or listed property.
Permitted development rights only last as long as the property is being used for EV charging and when this use ceases, reinstatement is required, which is a point to be clarified in the lease as to who will pay for the cost of this.
Is there an electricity supply?
The ability to connect into an electricity supply is key and this may not be as simple as it sounds. Commercial sites will use considerably more electricity than residential developments and additional infrastructure is likely to be needed, such as an electricity substation, in order to service the charging points, particularly for the super-fast chargers. This will often require a new connection, the location of which will be specified by the electricity distribution company and not the landowner, and in some cases will mean that the landowner will have to provide land for the new substation for the scheme to be viable. It is vital that the necessary rights are put in place to connect to any substation or a new connection if they do not exist already, otherwise this is likely to be a deal-breaker.
Are consents needed?
Title deeds and supporting documents should be checked as consent may be needed in various situations for example where:
- there are restrictions and/or covenants which prevent redevelopment
- the property is leasehold and consent is needed from the superior landlord
- the property is mortgaged and consent is needed from the lender
- buildings and third party liability policies require consent from insurers
What will the lease contain?
EV charging operators will require a lease in their standard form in a similar way to mobile phone operators and so will resist amendments to ensure that leases are consistent across all their sites. Manufacturers estimate that the life of the charging equipment is 25 years and so terms vary but generally start with a minimum term of eight years, with the ability to extend although a term of 25 years is now being seen.
- Security of tenure. An EV charging lease is a business lease and so should be contracted out of the Landlord and Tenant Act 1954. However, be aware that the tenant may lease equipment and this can have an impact on security of tenure, for example, where the arrangement results in a sub-lease to the third party owner of the equipment.
- Specialist advice from a surveyor who has experience of assessing rent under these leases is recommended as rent is calculated depending on the commercial arrangement. Often there is a mix of a fixed rent and a profit rent and expertise is needed to assess how the profit element will be calculated, after taking into account aspects such as transaction and processing fees to third parties and the cost of the equipment. Where there are occupational tenants, this advice should cover how the availability of charging points will impact on future rent reviews.
- Service charges. These can be tricky as although the area demised may be small in terms of square feet (often just a row of charging units and parking spaces), it will have a higher volume of traffic. On an estate, this may be unfair to the other tenants, as the operator will be paying a much smaller percentage (if it is based on floor space) without taking into account the increased use of services. This will be easier to set up on a new development, but can cause problems on an existing estate.
- Sufficient rights to use and access the charge points and identify who has these rights will be included. For example whether the points will be made available for use by the general public or restricted to the tenants on the estate. If the charging units are on the landlord’s retained land or on communal parts over which occupational tenants have rights, creating new access arrangements can become more complicated.
- A prohibition against subletting or assigning the whole or part of the premises is standard, however, the operator will usually want the ability to underlet part for an electricity substation. The lease may also include the right for the operator to assign the lease to a funder at some time in the future and the landlord will be unable to object. These points need to be carefully considered by the landlord so the consequences of these provisions are fully understood.
An emerging market brings opportunities as well as challenges and different joint venture structures are being explored, plus various grants are available. It is possible for a landowner to provide the charging infrastructure and basically pay for everything in the hope of getting a sufficient return on its investment, but most enter into an arrangement with an operator. Careful scrutiny of terms is needed when considering schemes which involve the landowner taking a share of the risk in return for a greater share in the profit. Provided the sums add up, this arrangement may be beneficial for both parties as the costs of operating, installing and maintaining the necessary infrastructure can be considerable.
There is no guarantee that the road ahead will be paved with gold, but EV charging provides the potential for landowners to acquire another income stream - as long as they take legal advice at the beginning of their journey to avoid ending up in a pothole!
If you would like to discuss this topic in more detail, please contact David Hobbs, Partner.