EV Charging Leases: Is Covenant Strength Overrated?
Landlords often place significant weight on covenant strength when evaluating EV charging lease proposals. But in the fast-moving world of EV infrastructure, does financial covenant really tell the full story?
At Prop Sustainable, we help landlords look beyond the surface. Today we are unpacking why infrastructure delivery and residual value may matter more than traditional tenant risk metrics.
What happens if the operator goes insolvent?
In the event of an insolvency, the landlord does not lose everything. In fact, they may gain leverage. With grid access, planning consent, and physical infrastructure already in place, an incoming operator would theoretically face much lower capital expenditure and could be willing to pay a higher premium.
Key landlord benefits:
The substation lease remains in place and landlords can benefit from provisions that allow existing cabling and infrastructure to remain.
CapEx for the new CPO is reduced, with much of the heavy lifting already done. In some cases, up to 70% of the costs may already be covered.
Rental values may have moved on. The market may have shifted since the original lease was signed, offering the opportunity for landlords to capture higher premiums outside the limits of standard CPI or RPI indexation.
Residual value stays with the landlord
If a CPO exits the site, they typically leave behind the grid connection and hardware. These assets do not disappear. Instead, they stay with the site, creating an opportunity rather than a risk.
Why this matters:
Grid capacity and infrastructure are site-fixed, retaining long-term utility regardless of the tenant.
Upfront investment is already made, reducing entry barriers for new operators and increasing the value of the opportunity.
Landlords gain usage data over time, which helps demonstrate site value and command stronger rental terms with future operators.
So is covenant strength overweighted?
We think so. In many cases, landlords focus heavily on financial covenant, but overlook what is truly valuable in EV charging deals: delivery on the ground.
Consider this:
Perceived strength can be misleading. Many household-name energy brands sign leases via SPVs with thin balance sheets.
Track record matters more. Operators with a proven ability to deliver infrastructure often present less risk than those with a strong financial covenant but limited execution history.
A well-structured lease provides protection. Legal safeguards can ensure landlords remain in control, even if the tenant's financial position changes.
Physical works have real value. Substations, cabling, planning permission, and grid connections remain in place regardless of who signed the lease.
In summary
Sites with infrastructure already delivered hold residual value. In the EV charging sector, it is the groundwork that unlocks long-term commercial opportunity - not just the covenant of the first tenant.
