Thinking legally & logistically
Welcome to our September quarter edition of Thinking Legally & Logistically. Once again, we will be discussing key industrial sector themes, and in particular this quarter we will focus on the interplay between solar PV panels and power agreements, electric vehicle charging points and a quick summary of a recent logistics case which went to trial and on which we acted.
Making use of roof space – Solar Power Purchase Agreements
In our previous quarterly bulletin, we set out I&L-specific lease amendments to ensure that landlords have sufficient rights and protections to protect the building's structure in the installation of photovoltaic (PV) panels. The terms of supply in respect of the electricity generated by those panels, however, are typically dealt with in a separate Power Purchase Agreement (PPA).
Careful consideration is required when drafting a PPA, particularly the interplay between that and the lease itself.
A PPA sets out the terms on which the tenant buys electricity from the landlord's installation. With rooftop solar, there is a direct physical connection between the generator and the buyer. This allows electricity to be supplied on a 'behind the meter' basis, avoiding transmission and distribution charges. Approaches to pricing will vary, and commercial offers need careful consideration, but there are benefits to the generation of electricity in this way in terms of a reduced price and/or less exposure to market volatility. There are also benefits in decarbonising the electricity supply, as part of general greenhouse gas reporting.
Where the tenant is not able to take the benefit of all the generated electricity then the landlord will want to be able to export the balance. This will depend on the grid connection and technical advice is necessary as part of the application process for connecting generation or battery storage to the electricity system.
Landlords should also be careful not to guarantee the amount of generated electricity – that is dependent on a number of factors outside of its control, and there should be no liability for poor weather over the British summer! The tenant should therefore still retain its own grid connection and a supply agreement with a licenced electricity supplier for top-up electricity.
The generation, distribution and supply of electricity in the UK is a licensed activity, unless covered by an exemption. Specialist legal advice is required to determine whether a licence or exemption is required, and the activities which fall within the Class Exemptions.
EPC ratings and EV chargepoints
As electric vehicle (EV) ownership increases, we are seeing more requests for licences to alter from logistics tenants, enabling them to install EV charge points.
A common query and point for debate in our negotiation of these licences recently has been the impact of these EV charge points on the premises' EPC rating. As a result of this matter cropping up in various negotiations, we have investigated the point independently with various surveyors and energy assessors. The view at present is that as long as these EV charge points are situated entirely outside of the building, they will have no impact on the premises' EPC rating.
This position may, however, change as they become more commonplace and the infrastructure used for them becomes more integrated within buildings. Consequently, a licence for the installation of these charge points should not exclude tenant liability in relation to the EPC rating of the building. This will ensure that landlords are protected if the EPC rating position changes in future.
Logistics case watch!
Clipper Logistics plc v Scottish Equitable plc 
We recently acted on this case, representing an institutional investor landlord of an industrial unit in an unopposed lease renewal under the 1954 Act.
At the core of the dispute was the level of rent payable and the length of the term - the tenant arguing for five years, the landlord seeking a 10 year term with a break at 5 years. The landlord's expert evidence was provided by Edward Neaves of Junction 10 Consulting, relying on comparables applicable to the precise factual context of the industrial unit, its location, transport links, physical features relevant to its value (docking bays, loading doors, racking, ratio of office space etc).
At trial, our landlord client achieved the precise level of rental it sought, along with interim rent at the same level.
A term of 10 years with a break clause was also awarded. Other drafting points were considered including flexibility around sharing of occupation with third parties, ensuring sufficient safeguards for the landlord, and provisions regarding EPCs. A resounding victory for the landlord and various drafting points learnt which we will be carrying through into logistics precedent leases.
Junction 10's expert evidence was fundamental in this case in being able to demonstrate sound evidence and comparables to support a strong rental level. Our I&L Real Estate team have worked closely with various sector specialists in compiling our I&L precedent banks. Should our I&L specific clients require introductions to our I&L sector specific experts, please do not hesitate to let us know.
What our I&L sector group are up to
In addition to our I&L sector transactional work, over the summer we have been focusing on:
- Thought leadership: Working closely with a variety of external consultants (I&L property consultants; I&L specific rent review surveyors; and automation and robotics providers) in developing and progressing suites of new I&L documents, including the creation of an entirely new logistics specific transactional structure which will be create new precedents in this sector. Watch this space!
- Events: We're looking forward to the first logistics event of the autumn and shall be attending the Last Mile logistics conference in London in October, whilst also hosting a table at the IPF Midlands Annual Dinner.
- Our Energy and Sustainability team shall speaking at Solar and Storage Live 2023 in Birmingham in October, with some of the themes above captured.
- Client bespoke quarterly bulletins: We have continued to prepare quarterly client-specific bulletins for our key I&L clients, focussing on relevant case law changes or lessons learnt from complex document negotiations.