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Energy Considerations for Logistics and Industrial Transactions

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By Sally Morris-Smith


Published 17 April 2023


Sally Morris Smith, Real Estate Partner at international law firm DAC Beachcroft, shares how we are advising developer, landlord, and occupier clients working in this sector on works relating to energy supply. 

Electric vehicle charging points: With land supply for speculative logistics and industrial at a premium some changes to established access and design on site is required to factor in include installation of electrical vehicle charging points on new schemes. End user demand as well as planning conditions seem to be driving a requirement for capture of areas of what would previously have been car parking or public realm for this purpose. As well as obviously facilitating operational requirements with many operators converting to an electric vehicle delivery mechanism, vehicle charging onsite is seen as equally important in terms of an employee benefit, with the current dearth of reliable public charging points causing delays in commuting from site to site. For multi- tenanted developments sharing accesses and car parking, use of available infrastructure can be an interesting one to regulate and manage on site.

Power Purchase Agreements: we are now working with commercial colleagues to sign up PPAs with providers of solar power alongside development agreements. A number of enterprising local authorities we are working with are allocating land to renewable energy projects – seeing this as a vital investment to encourage regeneration. As an additional benefit, this ticks a number of boxes for government funding of development projects requiring a commitment to net zero carbon and sustainability.

Construction material price inflation is causing regears of a number of developments in the sector. Sustainable energy supply requirements from planners or end users are another factor frustrating appraisals at a time when developer profits are already under pressure.

Power upgrade pre-conditions: renewables aside, for more power hungry manufacturing occupier tenants, power upgrade pre-conditions (essentially additional substations) now feature within Heads of Terms for new leases. Even if the upgrade is a tenant deliverable it’s worth noting that electricity suppliers will very often require freehold transfers or long leases direct from the site owner even when the substation is within the demise. The specification for these in terms of planning and delay to fit out timetables needs to be factored in at Heads of Terms stage meaning more delays for Landlords before rental income comes onstream.

Additional rights and reservations: rights to install solar on roofs and in plant areas (normally outside the traditional internal only demise) are becoming standard lease rights at day one and we are recommending inclusion in new leases even if they don’t appear in agency standards yet. Existing tenants are seeking consents to retrofit these to retain flexibility. Landlords may need to consider ringfencing roof or bare land within estates for power provision. Alternatively they may consider potentially seeking to invest themselves and set up estate wide power agreements as are sometimes a planning requirement on larger mixed use schemes. (These can be controversial if they impose a requirement for tenants to sign up to take energy from a specific source). We are assisting various clients auditing their portfolios to identifying any restrictions preventing them from installing solar panels and EV charging points on site so as to remain in control of the infrastructure and potential income streams from excess energy generation.

MEES: the most recent deadline under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) has just expired and our team is engaged in delivering bespoke training to clients workshopping the implications. We are also updating portfolio and development precedents to include green lease provisions as well as extended rights and reservations to preserve flexibility and enhance tenant demand. As investment funds continue to target the industrial and logistics sector – with many commentators confirming the flight to quality – it is likely investment grade stock will include green lease provisions and a structured ability to recover the ongoing costs of this as a key feature.