While EV charging installations have been around for some time, the sector is by no means mature. We are still working out what the lifetime problems and issues will be between landowners, operators, the grid and others. There are some really good contracts out there, but the contractual forms and negotiating points will continue to develop.
That kind of development is sometimes from good lawyers, but also often happens in response to issues that arise. There haven't yet been many full-on litigated disputes in this space yet, but they will come.
I have been involved in some clashes which didn't get to full blown litigation (always a victory) including between some of the biggest and best-known charging station operators on one side and, on the other, some key landowners on the UK road network. The contracts were fairly standard form from the operators at the time and some of those forms have changed since, with good reason. From those disputes all sides learned new things which will inform new contracting and planning.
When the contracts were signed everyone was happy, but the contracts had 15-20ish year terms and within the first few years it became clear that they didn't really work for either side after new developments and changes in commercial direction. We had to renegotiate – the questions were, as ever, where the power lay - who would achieve more profit and who would bear any loss. It was key for the operators to be present on these sites, but also key for the landowners to make sure they achieved value and didn't prejudice their wider businesses.
In the spirit of trying to improve contracting and avoid disputes below are my resulting top ten issues arising from the early EV charging contracts. Some have been addressed in new contract forms but some definitely remain. If you disagree or have other things to add, please let me know.
1. Term and termination
- Do you want a long term? There are clear benefits to a long agreement but the majority of the problems I set out below also are affected by the difficulty of having a really long-lasting contract in an area where change is happening so fast.
- For landowners the ability to switch between operators after a shorter contract term has more clearly evident benefits. But shorter contracts may well have benefits for operators too. If the infrastructure is in place there is a reason for landowners to renegotiate good terms to avoid the upheaval of change. Shorter contracts also reduce the potential effect of issues with upgrades, new regulations, price changes etc that are (see below) associated with a really long term.
- 10 year contracts seem to be the market standard now, driven by the need for payback for the operators on their capex. Options for landowners to buy out the contracts from about years 6 – 7 onwards are becoming increasingly commonplace too.
- In the circumstances I worked on, 15-20 year contracts in reality only actually lasted a few years before the differences between the parties, the changes in the market and, importantly, the legal pressure the landowner could bring to bear resulted in re-negotiation (though the points themselves remained the same).
2. Grid Connection
- While responsibility for connection and to negotiate with a DNO can be quite clearly assigned, the problems we saw came from the inclusion in the contract of aspirations toward a bigger network of charging stations.
- When setting up the contract the parties had been clear about the capacity and availability of relevant infrastructure at the ‘initial’ sites.
- However, a (totally justified) desire to expand the network over the 15-20 years of the contract meant that there was a lot more ambiguity about the obligations on each side for ‘new’ charging stations.
- A number of ‘new’ stations had been set up and there was a question about whether the landowner had the same obligations to keep these available, when the obligations as to the initial stations were much clearer.
- There was also an open question about how strong the obligations of the operator were to install and connect agreed ‘new’ stations. Where these new stations had been agreed through the contractual process the onus was (largely) on the operator to procure grid connection. Where that was excessively delayed (in this case by the DNO) or became impossible, was it a breach of contract by the operator? Did it mean that the landowner was able to offer those spots to a different operator? Arguably yes.
- The learning point here is perhaps to have a stronger system for future developments, that does not rely as heavily on loose concepts of good faith or reasonable endeavours, and perhaps includes both longstop dates and the ability to notify deemed impossibility without threatening the contractual structure.
3. End of life
- There is no easy solution to this one. The question of what happens to infrastructure at end of life, particularly if an operator has gone insolvent or assets have been sold, is a thorny one. The ownership of the cabling and grid connection infrastructure are often the bigger issue than the chargepoints themselves.
- I have seen examples where an operator agrees that the infrastructure becomes property of the landlord upon termination of the lease. However where the landowner has no expertise in such matters and does not want to take on the risk of maintenance, removal or liability the issue is more complex.
- In our contracts the obligation on termination (for any reason) was for the operator to promptly dismantle all equipment and to make good all damage caused by that removal. That proved a useful negotiating point for landowners as the cost of doing so would have been high, so the threat of termination on any basis, rather than re-negotiation, was made more powerful.
4. Payment for power
- In one of the contracts we looked at the landowner agreed to pay 30% of the power costs without a revenue stream in return. The reasons for that were complex but essentially boiled down to short term thinking. They had obtained what was otherwise a decent deal.
- However, the landowner had no way of hedging against changing energy prices; no protection against increased usage or new charging innovations; and an open-ended agreement as to the number of charging stations to be installed.
- Leaving to one side the revenue problems, this issue made possible breach and termination of the contract for the landowner a much harder risk to accept. It would have meant a possible liability to reimburse the operator for (30% of) the costs of 15-20 years of power for numerous stations. That kind of loss in one go could have been business threatening.
- This was an early contract, and I doubt anyone is ignoring this issue now, but it remains a salutary lesson to be very aware of how much power might be used and who will be paying for it.
5. Payment models
- Some of the contracts we reviewed provided for access to the charging stations to be free of charge to end users. All well and good, but the contract also envisaged that where the operator wanted to charge in the future the parties would “agree commercial terms with both Parties acting reasonably”.
- It should have been no surprise when the operator decided as part of a wider business plan to start charging end users.
- The provision in the contract is likely to be properly understood as mostly an unenforceable agreement to agree.
- However, by starting to charge end users without even attempting to agree commercial terms the operator was likely in breach of the contract. The contract further provided that until agreement was reached on a revenue split the landowner could prevent the operator from charging end users. That ended up being a very large bargaining chip as the landowner could just refuse to agree. It wasn’t commercially viable for the operator to have carve-outs from its charging policies and as such the landowner could use the breach to renegotiate better terms.
- This issue seems to have been largely ironed out on the road network, but it remains important to consider on destination charging,
- This one should be obvious but it seems it wasn’t in our scenarios. Some of the contracts provided for a particular number of charging points/bays in the car park but not where they were sited. The difference between the prime sites near retail units and the back of the reserve car park is huge.
- For the ‘initial’ sites the chosen locations may have been agreed and there would be practical restrictions at some sites. However, the lack of wording or clarity meant that for ‘new’ sites the landowner could put pressure on the operator to install new charging stations in poor or uncompetitive locations, requiring a high cost outlay for limited return.
7. Upgrades and changes
- Equipment is going to change over a long contractual term, so the contracts we looked at did have provision for upgrades and changes. However, the landowner ended up with what amounted to a veto on any changes. As upgrades were included in the definition of ‘Equipment’, and the operator was not permitted to make ‘any alternations, changes or additions to the Equipment’ without the prior consent of the landowner, the landowner could effectively prevent anything that wasn’t routine maintenance.
- These things only get raised when the parties are at odds and so of course it came up when renegotiation was on the table. It gave the landowner two pressure points: 1. The operator had, without seeking specific permission, added an additional connector option; 2. The landowner suggested that it would not agree to any upgrades in the future.
- Again, this gave the landowner significant leverage in negotiation, as otherwise the operator could have been forced to remove upgrades and see out the remainder of the long term with obsolete or at least sub-prime equipment
- The concept of exclusivity is quite well understood, you either have it or you do not. That said, there are some pitfalls.
- If you don’t have exclusivity and there is limited power available, whose chargepoints have priority?
- Who has primacy in advertising?
- What happens if the car park is remodelled? Who gets the prime bays?
- Is access exclusive? Where to? Who has to maintain or organise the substation connection or any other group infrastructure?
- Can particular charging points currently be used only for the vehicles of a certain manufacturer or plug type? What if that changes? Will that affect power usage and change the competitive profile of the charging station portfolio?
- There is only ever so much horizon-gazing that can usefully be undertaken when entering a contract, but if we are talking about a prime site with high expected use for years then the time and cost spent planning out these issues is likely to be well spent.
9. Good faith
- The concept of good faith seems to have been implanted into UK EV charging contracts from use in other jurisdictions, where it is stronger and better defined. That makes sense. As I have set out in this article, there are often a lot of unknowns when entering a long contract in this area and good faith obligations to attempt to resolve issues gives some comfort.
- Even though good faith is useful, parties should not get too comfortable. The English Courts have been very reluctant over a long period to give too strong an effect or meaning to ‘good faith’ obligations. They are not going to make an exception for the EV industry.
- Good faith is often interpreted to mean that the parties have to act in the ‘spirit’ of the contract and observe reasonable commercial standards of fair dealing. It also means that they have to be faithful to the ‘agreed common purpose’, likely here to take reasonable actions to achieve the purpose of installing or operating charging stations.
- Just from reading that legalese paragraph it is obvious that evidence, proof and clarity are not going to be easily found.
- Even if a breach of ‘good faith’ can be shown or is a risk, it is extremely doubtful that a party has to agree anything that clearly prejudices its own commercial interests. Good faith therefore has its place, but it can also be a rubber sword or a paper shield.
10. The shifting sands of statute
- At the moment we are operating under the Alternative Fuels Infrastructure Regulations 2017 which are relatively easy to account for in a contract.
- However, in addition to the constant possibility that new regulation may appear, we also have the uncertainty of The Automated and Electric Vehicles Act 2018. At the moment that Act doesn’t do that much (though it has recently become more effective as to autonomous vehicles and related issues), but it has the capacity to make sweeping or certainly expensive changes to requirements including as to (amongst other things) methods of payment; performance; maintenance; co-operation between operators; standardisation of data and technical specification. A consultation by the Office for Zero Emission Vehicles ran from February to April in that regard.
- While the operators will be aware of the likely changes and risks, it would make sense for landowners to be at least a bit informed and aware of possibilities. Some changes may put costs burdens on landowners that they would wish to shift to the operators. Contracts could also, for example, provide for changes or upgrades as required by statute/regulation without consent being required.