Leased Property
Dear Landlord
I recently advised a food and beverage company that is aiming to decarbonize its product delivery fleet. As part of their internal planning process, they omitted about half of their fleet vehicles from consideration. Why? The company leases all of their properties, and they omitted any vehicle that domiciles on a property where the lease term was expiring in the next three years. Their approach is rational on the surface, but we will never achieve the large-scale transition that we’re looking for if every company that leases property simply walks away from the problem.
It turns out lots of companies (of all sizes) operate on facilities they don’t actually own. These companies are obviously reluctant to invest money into properties where they may not operate in a few years, and landlords are a mixed bag in their willingness to invest in the development of charging infrastructure on their properties. The diverging of interests between landlord and tenant is one of the most critical barriers to large-scale fleet electrification, and it must be addressed strategically.
Coming back to our friends at the food and beverage company, the time-bound nature of their decision making was appropriate but their conclusions were not. If we assume an 18 month window to procure and install charging stations, it makes little sense to start an infrastructure project with a lease that ends in 1-2 years. If you’re looking for a positive ROI, that might not be achieved for 3-5 years (or longer) unless external funds are available. Yet, every internal combustion vehicle that’s procured within these short time horizons represents a commitment to pollution for the next 10-15 years. The good news is there are many potential alternatives to installing charging stations on short-term leased properties.
Generally, there are three charging options for EVs at any leased facility:
Plan A: Negotiate with the Landlord to install permanent charging infrastructure onsite
Plan B: Charge the vehicles somewhere else
Plan C: Deploy temporary charging infrastructure that can be removed and redeployed at the end of the lease term
In my experience, most organizations start and end on Plan A — some don’t even bother to engage with the landlord due to short lease terms and/or other relationship-based factors. Some organizations vaguely consider Plan B but most find reasons not to proceed. Few organizations ever contemplate Plan C. In reality, Plans B and C often represent the shortest time frames to execute, the most operational flexibility, and the greatest cost effectiveness. For these reasons, it is much more appropriate to consider alternative charging solutions than to simply give up on EVs at short-term leased facilities.
Plan A: Landlord Engagement
If the term on a lease is greater than about two years, it is probably worth exploring opportunities to work with the landlord. Tenant-landlord relationships and associated real estate decisions can be rather complex. Fleet electrification projects can get caught up in these broader issues, but, fundamentally, installing charging infrastructure represents a material improvement to a facility that increases property value and appeals to future tenants. So, a tenant’s negotiating position is generally strong. There are three general levels of engagement with landlords:
Landlord as a funder
Of course, the ideal case is that the landlord sees the merit of funding the development of charging infrastructure for the sake of increasing their property value and/or as a concession for lease signing and renewal.Landlord as a partner
A middle ground option is to work with the landlord to pursue external funding (e.g., utility make ready programs) to install charging infrastructure and split the remaining costs.Landlord as a tree stump
If your landlord is unhelpful, uninterested, or otherwise unpleasant to work with, it’s best to consider all options.
If a landlord falls under Categories 2 or 3, a business judgment must be made about the value of installing charging infrastructure considering the time remaining on the lease, likelihood of renewing the lease, and any restrictions the landlord might place on use of the property.
Rather than allowing these limitations to stall fleet electrification entirely, organizations must rethink how infrastructure is deployed. In particular, organizations should look to mobile charging systems as a solution. By avoiding the costly installation of permanent charging infrastructure, companies can deploy temporary assets that can be relocated once the current leases expire. First Student is the largest school bus operator in North America, and they have a very active fleet electrification program. However, their contracts with school districts often last 1-2 years — meaning they could not possibly justify installing charging stations at their depots, because they might not even have charging stations installed by the time their contract expires. Rather than throwing up their hands on electric school buses, they got creative. They designed First Charge, a modular, movable EV charging system that can be deployed and redeployed to multiple sites. While I haven’t verified this, they claim that the system can be installed and uninstalled in less than a week. There are several commercial solutions like First Charge currently on the market that, in my view, are vastly underutilized.
While the first step should always be stakeholder engagement, in this case it is helpful to know that technical workarounds do exist. In fact, the existence of mobile charging systems could be used as an additional lever to pull in negotiations with landlords. Regardless, the answer is certainly not to just give up. Leasing constraints no longer have to limit electrification—companies must start treating landlord negotiations and mobile charging solutions as a core part of their fleet electrification strategies.
Relive the Magic
Dig into the Stakeholder Soup of Fleet Electrification:
Products & Services: What Can I Do to Put You in an EV Today?
Leased Property: The Case of Furley v. Roper (Coming Soon)
Public Policy: The 250lb Orangutan in the Room (Coming Soon)
…And the Rest: People You Don’t Know You Should Know (Coming Soon)
Or, Skip to the Punchline: