Charged Up: Practical Tips for Negotiating Shopping Center Charging Station Agreements
The electric vehicle (EV) market in the United States continues to break records. In 2021, there were an estimated 607,600 EV sales, an approximate 83% increase from 2018. In 2022, EV sales constituted almost 6% of all vehicles sold. These trends are anticipated to accelerate, as federal and some state governments are creating incentives for the continued production and consumer purchase of EVs. Given the anticipated surge in EV accessibility and sales, demand for EV charging stations is expected to experience an accompanying increase.
Parking lots of shopping centers and other commercial projects can be an ideal location for EV charging stations, as there is an inherent, synergistic connection for EV drivers to conveniently charge their EV while the developer and retail operators benefit from the drivers’ patronage of the shopping center. Additionally, the mere presence of charging stations can be used as an amenity to attract customers to a particular property while simultaneously providing the EV charging station operator (“operator”) with a built-in customer base.
Shopping center EV charging stations present new legal issues that differ in many critical ways from the legal issues that typically arise in shopping center retail matters. As the proliferation of EV charging stations in shopping centers continues, owners/developers of shopping centers and retail projects (“developers”) and operators need to understand the unique legal issues involved in the installation and presence of charging stations, and structure charging station lease or license agreements (“agreements”) to protect each party from the various complications that may arise. This article analyzes some of the threshold concerns and objectives of each party and presents a few tips to developers and operators in structuring and negotiating these agreements.
Matters of Record & Existing Tenant Leases
One of the key legal considerations for developers in determining whether charging stations can be installed at their projects is analyzing any matters of record (CC&Rs, reciprocal easement agreements, etc.) and existing tenant leases, as they may restrict or limit the installation of charging stations. For instance, a retail tenant lease may include a so-called “control area” or “no-build zone” where the developer-landlord is prohibited from installing (or leasing to a party who will install) improvements in a particular area of the parking lot. Alternatively, major tenant leases may include an area of the parking lot where charging stations can be installed or a limit on the number of parking spaces that can be converted to charging stations.
In addition, matters of record and existing tenant leases may include requirements that all parking spaces in the shopping center be provided on a “non-exclusive” basis. If parking spaces are converted to charging stations, an existing tenant could claim that the parking spaces now being utilized for EV charging are no longer available to the tenants and invitees of the property on a non-exclusive basis. A successful claim by a tenant that the charging station is prohibited by the terms of its lease could be detrimental to both the developer and operator. As such, a savvy developer should include a concept in the agreement to make clear that the charging station must remain available at all times on a non-exclusive basis for use by all of the customers and invitees of the tenants of the property. Relatedly, developers may consider updating their form leases to include a tenant acknowledgement that the developer can convert any parking spaces to charging stations.
Ultimately, since developers are bound by the terms of the matters of record and existing tenant leases, developers may want to obtain any consents or approvals required under those documents before entering into a formal agreement with an operator. However, since it is not always practical to obtain these approvals in advance, the parties could consider agreeing to a post-execution period for the developer to obtain required consents and approvals. Operators tend to be amenable to this arrangement, as they understand these approvals may be required for the operator to use the charging station for its intended purpose. This enables the operator to avoid the undesirable scenario where they build but then cannot operate a charging station.
Due Diligence Considerations
The State of California has enacted legislation designed to preempt the authority of any city or municipality to delay or deny charging station projects by imposing a clear duty to ministerially approve charging facilities. In particular, Gov. Code Section 65850.7(b) mandates that “[a] city…shall administratively approve an application to install [EV] charging stations through the issuance of a building permit or similar nondiscretionary permit” and clarifies that the city’s review is “limited to those standards and regulations necessary to ensure that the [EV] charging station will not have a specific, adverse impact upon the public health or safety.” However, other states may not have established such specific guidelines regarding charging station permits. Even in California, some municipalities have conditioned or delayed issuing building permits or similar nondiscretionary permits to operators by imposing various development standards unrelated to public health or safety.
Accordingly, since expeditious receipt of permits is not guaranteed, a shrewd operator will not commit to building the charging station and paying rent until it knows it can receive the necessary permits. One solution is to incorporate a “due diligence period” or “permit contingency” into the agreement, where the operator receives a predetermined amount of time to pursue the necessary permits or terminate the agreement. Some developers may not be keen on providing this termination right, as there is an opportunity cost associated with entering into and then terminating an agreement with the operator. However, if the developer has a post-execution period to obtain approvals required under the matters of record and existing leases, then most developers and operators will agree that it is mutually beneficial for each party to have some post-execution period to obtain their respective approvals.
As mentioned above, the government is incentivizing the installation of EV charging stations by providing various credits, rebates, benefits and other consideration. An astute operator will want to derive the benefit of these incentives and will use the agreement with the developer to clarify that, as between the parties, the developer does not have any ownership in the charging station and its facilities, and is not entitled to receive any incentives from the construction, ownership, use or operation of the charging station. Most developers will not object to the operator being entitled to the incentives earmarked for the operator. However, since EV charging station development is a relatively new area where new government incentives can be created at any time, developers may want to attempt to retain ownership of any incentives attributable to or given in connection with a property owner entering into an agreement with an operator to provide charging stations at a commercial property. As the world of government incentives and charging stations evolves in unpredictable ways, the charging station agreement is the optimal legal document to set forth the parties’ agreement as to incentives.
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As is evident from the items discussed above, a charging station lease or license agreement between a developer and an operator is different in many material ways than a retail lease in a shopping center. Since charging stations are likely to become ubiquitous in shopping centers, it is critical that developers and operators understand the complexities and nuances involved in negotiating these agreements, which will help ensure a smooth and successful business relationship.