Charging Forward: Navigating the Complexities of EV Infrastructure in Real Estate Development
Electric vehicle charging infrastructure isn't an absolute requirement for successful real estate development, but it’s quickly starting to become a standard along with other amenities despite the technological pace of the industry. Deploying electric vehicle infrastructure isn’t as simple as a handshake with a fast-talking CPO salesman or getting a property owner to say “yes!”, but despite that reality, it can be done quite successfully.
Electric vehicle charging equipment is a real estate infrastructure asset just like a cell phone tower, a billboard, or a wind turbine. Its deployment requires a professional level of advance planning, due diligence, and good ‘ol fashioned homework.
Infrastructure vs. Traditional Real Estate Contracts
Real estate infrastructure contracts differ from traditional real estate contracts in quite a few meaningful ways. They frequently contain short terms (e.g. 5 years) with several automatic renewals, provide little in the way of termination rights unless you are the provider of the infrastructure, require 24/7 access, and impose a variety of specialized responsibilities on the property owner and infrastructure provider for insurance, liabilities, maintenance, and access to the equipment.
However, what’s frequently missing from EV charging deployment contracts are requirements for uptime and reliability, dedicated spaces for EVs, and significant penalties for lack of compliance with those obligations.
Challenges and Best Practices for EV Charger Deployment
There are countless examples of EV chargers being placed in the middle of nowhere; chargers with cables and plugs that aren’t reachable; chargers that don’t fit the use case of the location where they are located; chargers in the right locations that haven’t worked for a lifetime; non-EVs using EV parking spaces; EV owners leaving their cars for hours or days beyond their allotted charging time. Unfortunately, these examples drive a lot of negative headlines.
It should be standard operating procedure to include a short maintenance window into any EV deployment contract. Any failure to comply with that timeframe should result in a time bound default. A good contract will not only specify what rises to the level of a default, but it will also impose meaningful penalties for lack of compliance to incentivize accountability. Without those kinds of incentives, the incentive is to be unaccountable.
Every single EV infrastructure project is going to be unique to the location and the use case. To guarantee that an EV infrastructure project is going to be a success, it’s critical to choose the best hardware, software, vendor relationships, and business and legal terms to match up appropriately.
Level 3 fast chargers are best suited along major mobility corridors between long(er) distance locations that people regularly travel to and from, such as a suburban neighborhood and a business district in a nearby, but not that close, city. Level 3 chargers don’t make sense at a local gas station that’s situated right outside a gated community of single-family homes (real example). The L3 looks cool, it’s certainly a high-end piece of equipment, and it conveys good “green" credentials. But unless that location is also a place that will attract drivers undertaking a long-distance drive between chargers, it’s pointless.
Level 2 chargers are ideal in places like shopping centers and parking garages where EVs typically park for a few hours at a time. They don’t make sense in a ride share pickup line at an airport, or in the drive through of your local fast-food/coffee shop (additional real examples).
Level 1 chargers are ideal for locations where EVs charge up at home, or locations where they sit idle for hours overnight, such as a long-term parking facility. Despite slower, and significantly cheaper charging speeds, the lengthy idle time is perfectly sufficient to result in a fully charged EV in the morning. A level 1 charger wouldn’t make much sense in a highway rest stop, even though it’s certainly the least expensive and least power draining option.
Business models vary too, and they don’t subscribe to a one-size fits all solution either.
Evaluating the Pros and Cons of Owning EV Charging Equipment
Buying EV charging equipment outright maximizes control over the equipment and the amount of upside direct revenue earned from EV chargers placed on a property. However, that decision also results in the largest capex expenditure, the longest time horizon for a reasonable ROI, and an extensive amount of legwork which may otherwise be provided by most Charge Point Operator’s (CPO’s).
How many EV owners live in the neighborhood or travel to the vicinity of your installation? Is there sufficient power available to match the expected demand of EV utilization? What does the local power company charge for the power they will be supplying? How much extra fees do they charge at peak hours? Will consumers tolerate the fees that will inevitably be charged by the property owner to generate a reasonable ROI? How to ensure that only EVs use the dedicated EV spaces? What enforcement mechanisms are in place to incentivize good and profitable behavior? How is maintenance going to be handled? Repairs? Payment processing? If the primary focus of your business is running a shopping center or a parking garage, or you aren’t equipped to be in the EV charging infrastructure business, you may quickly discover that it’s not worth it for you to “own” anything, despite the level of control and upside that you’re looking for.
Considering the Option to Rent EV Charging Equipment
If a property owner isn’t willing to or can’t make the capital expenditure for an outright purchase of EV charging infrastructure, “renting” the equipment may be a viable option. In this scenario the CPO will cover all costs associated with the deployment, and the property owner pays a monthly fee generally calculated on a per charger basis that covers and spreads out the costs of installation, maintenance, repair, software, and payment processing. In this “reverse rent” scenario, the property owner may or may not own the equipment at the end of the contract, share in the charging fees, or even have access to the data from those EV customers using the equipment. It’s critical to not only read the contract, but make sure you negotiate those terms appropriately.
Exploring Revenue-Sharing Models with Charge Point Operators
In some situations, charge point operators may pay rent to a property owner in exchange for allowing their charging infrastructure to be deployed on a particular property. However, for a CPO to be willing to do something like this, the property must be an ideal location that fits into their business model of high utilization fast charging. At some point in time the economic constraints of EV charging will improve, and more CPO’s may start to offer rent, but until then, and unless you have the perfect location (i.e. a unicorn), being paid rent by a CPO isn’t going to be very common.
Other CPOS’ (e.g. Tesla), don’t frequently offer to pay rent. What these companies offer is to literally drive more EV traffic to a particular location. For example, when people see a row of Tesla superchargers, they know they are going to work, and they will stop by and charge up. In exchange, the property owner provides Tesla with free space, free advertising, and the opportunity for Tesla to gather more data points on their own customers. Tesla isn’t going to and doesn’t share that data with you, and it isn’t yours for the taking, unless you figure out a way to gather it on your own. How many cars show up, at what times of the day, how much time do they spend charging, what are the drivers doing while the cars are idle? Are they watching Netflix, scrolling through their Facebook feed, or sending emails while they wait? Or are they leaving their cars and spending that time and their money shopping in your mall?
One of the more common business models being offered by CPO’s is a share in the revenue they generate from charging fees. The local utility company charges a fee based on Kw usage, and the CPO makes money on the spread between what they pay per Kw to the utility company and what they charge the customer. The spread is where the “revenue sharing” piece comes from. But this model may not be as straightforward as it sounds. If a property owner has chosen the reverse rent model – of paying down the cost of the equipment, or renting it from the CPO, any revenue share is going to be adjusted against any other fees that are being paid to the CPO. This setup can be lucrative providing that there’s a significant amount of utilization and turnover of EVs plugging in, but if the data modeling you reviewed was overly optimistic, or the expected droves of EVs don’t materialize, the revenue share may not be that significant.
Importance of Due Diligence
Regardless of the EV charging deployment business model, there are also a few common legal contract structures to consider.
An outright equipment purchase is likely to be covered by a procurement contract, but if you’ve decided to go with any of the other aforementioned business models, you’re going to be looking at a lease, a license, or perhaps an easement, or some combination of all three.
While most traditional real estate infrastructure agreements take the form of a lease or a license, they almost all contain, and should contain, an (exclusive or non-exclusive) easement within the leased or licensed space, and an easement on or across the property for access and utility runs. It’s not that uncommon to see a straight easement for real estate infrastructure agreements because it provides a legal right to use a portion of a property for that very specific purpose. An easement is as close as you can get to property “ownership” without owning the property. But with that “ownership” comes due diligence obligations that must be undertaken just as if you purchased the property to own it. A title search and survey are obligatory, as is reviewing the corporate documents of the parties to the transaction (even if your legal structure isn’t an easement) and recording your interest via a memorandum of the easement (not the easement itself) with the local jurisdiction.
A title search, survey, and a review of the corporate documents, will reveal things like whether there is another easement on the property, if there are liens, judgments, mortgages, or mistakes in the chain of title; does the entity signing the contract own the property, does the signer have the authority to bind the ownership entity to the signing of the contract; will the chosen deployment location be landlocked; is it encroaching on a neighboring property; whether the planned easement will be going exactly where it’s expected to go, or whether there are other restrictions and issues that could adversely impact the interest you are planning to acquire or sell.
For CPO’s, doing this level of due diligence is just as important even if it’s not in the context of an easement. It can take significant amounts of time, planning, and money to properly deploy EV charging infrastructure. Discovering that a deployment location is landlocked only after the neighbor puts up a fence, or having no recourse against the property owner for defaulting on contractual obligations because the wrong person signed the contract are far less than ideal times to make those discoveries.
I recently attended an EV charging conference where I had the following exchange with one of the vendors:
“So, if __________ Company gets into a hot mess with a deployment, you can extricate us. Correct?”
“Of course. But wouldn’t you rather put yourself into a position where you don’t get into the hot mess in the first place?”
Do your homework!
DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.