Landowners have multiple factors to consider before entering into electric vehicle charge point leases

The UK’s EV charging network increased by a third over the past year to meet growing demand. While the deployment of EV charging infrastructure has so far been in line with the pathway outlined in the Climate Change Committee’s 2023 progress report to parliament published last June, the rate of EV charge point installation will still need to double over the next few years to ensure that provision keeps pace with the anticipated uptake of EVs in the UK.

Against this backdrop, many landowners are choosing to partner with and grant leases to EV charge point operators (CPOs), under which the CPOs can install and operate EV charge points on landowners’ sites. In doing so, landowners can take advantage of new income generating opportunities, but they also face new challenges to ensure that their position as a landowner is adequately protected both from a commercial and legal standpoint.

However, before entering into leases to CPOs, landowners should consider a range of potential legal and commercial issues.

Considerations when granting EV charge point leases to CPOs

Pre-conditions to grant of the lease

When a CPO takes a lease from a landowner, there may be an ‘agreement for lease’ entered into between the relevant landowner and the CPO, setting out certain pre-conditions that need to be satisfied before the lease can be granted. When entering into such agreements, landowners should consider whether they wish to leave the satisfaction of these conditions – such as obtaining any required planning permission or grid connection for the installation and supply of the EV charge points – entirely up to the CPO’s discretion, or whether as landowner, they would prefer to have some measure of control over the satisfaction of those conditions. 

If the landowner’s aim in entering into the transaction is to provide EV charging facilities to its own customers, ideally it should seek to agree the latter position. If instead, the CPO has total discretion over whether or not to accept the terms of any planning permission or grid connection agreement which may be offered, it may be appropriate for the CPO to unilaterally decide that their terms are too onerous and so not take the lease. The landowner’s customers may not then end up with the adequate EV charging facilities required.

Term of the lease

The term of the lease – that is, the period of time which the lease will run for – also needs to be carefully considered. The landowner may want to keep this term as short as possible to retain control over the future use of its land, whereas the CPO may want a longer term for greater security over its revenue stream from the EV charge points. If the rent to be paid by the CPO to the landowner under the lease is particularly significant, the landowner may also favour a longer term so that it can continue to receive that rent for as long as possible. The landowner should however consider that the longer the lease term, the longer the landowner will be prevented from using the relevant part of its land in any other way than for the CPO’s installation and operation of EV charging stations.

The landowner should also therefore consider whether it requires the flexibility to break the lease mid-way through the term. For example, the landowner may consider that it requires break rights for redevelopment or sale of the land or, where the landowner chooses to supply electricity to the CPO through its own supply and grid connection, for termination of those electricity arrangements. In return, the CPO might seek to argue that the landowner should pay a break fee, or might seek a lower rent or rent-free periods during the term. If no landowner break rights are included, this would also restrict the landowner’s ability to deal with the site for other purposes during the full term of the lease.

Electricity connection

There are also questions for landowners to consider around the supply of electricity to the CPO’s EV charging points. For example, does the landowner intend to supply electricity to the charge points from its pre-existing supply of electricity and grid connection to the landowner’s site, or will the CPO obtain its electricity for the EV charging points through a new, independent supply/grid connection?

If the parties agree that the landowner will supply the CPO from its own electricity supply/grid connection – which may be more appropriate for smaller EV infrastructure developments – the landowner should consider how it plans to recover those electricity costs from the CPO. If the landowner supplies the CPO’s EV charging points directly from its own supply and the lease does not contain appropriate provisions allowing the landowner to recover the relevant electricity costs from the CPO, the landowner could find itself inadvertently paying for the CPO’s electricity supply to its EV charging customers while the CPO retains the profits.

Rent

The rent to be paid by the CPO to the landowner should also be clearly detailed in the lease.  This may be calculated in several different ways. 

The parties may opt for a fixed rent. If so, the parties will need to decide whether one fixed rent will be paid for the whole EV charging development, or whether it should be calculated on a per-EV charging point basis. If the latter, it may be appropriate for the fixed rental figure per EV charging point to vary according to the charging speed or quality of that EV charging point. It should also be established whether any such fixed rent would be subject to rent review, such as an index-linked annual or five-yearly uplift.

If the parties were to instead choose a profit share rental arrangement, the calculation of the profit on which the rent is to be charged – such as the costs to be subtracted from the CPO’s gross revenue to establish the relevant 'profit’ – needs to be very clearly defined in the lease, as do the periods of time over which the CPO’s profits are calculated, and the final headline percentage of profit which is used to calculate the rent payable.  

Such a profit share rental arrangement would allow a landowner to potentially benefit from the CPO’s commercial success at the relevant site. However, if the CPO’s charging points end up being less profitable than expected, the landowner may receive less rent through a profit share than it otherwise might have done had it negotiated a more stable, fixed base rent. As a result, the landowner may seek to agree a minimum base rent or a share of turnover.

It is also essential to establish when the rental payments will commence. For example, will the CPO start paying rent immediately on entry into the lease when it takes possession of the site and starts installing its charging points? Alternatively, the CPO might seek a rent-free period during the installation works, and might argue that it should only start paying rent once the EV charging points are installed and are up and running. These are commercial matters which the landowner will need to be comfortable with in the context of the overall deal with the CPO.

Insurance

The lease should also clearly define who is to be responsible for insuring the lease’s demise and the EV charging points themselves. Usually, the landowner will already have insurance for its wider site in place, and would carry on maintaining such insurance. The CPO would then be responsible for obtaining new insurance for the EV charging points themselves, together with ancillary equipment. The CPO will also usually be responsible for maintaining public liability insurance in respect of the EV charging points.

The capital expenditure involved in installing EV charging points can often be very significant. If the lease does not clearly allocate such responsibility for insurance, the parties could find that either the lease demise or the EV charging points and equipment are not insured and, if damaged, that the significant financial losses this might entail are not covered by insurance. 

The parties should also carefully consider the clauses in the lease which relate to rent suspension, reinstatement and termination of the lease in the case of damage to the lease demise or EV charging points by an insured risk, including the exact circumstances in which such clauses would be activated. If these matters are not adequately provided for in the lease, the parties may find themselves locked into the lease or rental arrangements long after the lease demise or EV charging points have been damaged or destroyed by an insured risk, which could lead to costly disputes between the parties when seeking to extract themselves from such arrangements

Co-written by Paul Roberton of Pinsent Masons.