Utility Week

18 | 2ND - 8TH FEBRUARY 2018 | UTILITY WEEK Operations & Assets Market view E lectricity is distributed in the UK from bulk supply points to primary substa- tions, which step down the voltage from 33kV to 11kV, and then via smaller sec- ondary substations that further reduce the voltage to 400/230V for customer use. Electricity substations are oen occupied on long leases (typically 99 years) and meet the qualifying criteria set out in section 23 of Part II of the Landlord and Tenant Act 1954 because the substation site is being used for the purpose of a business. This means the utility company will have security of tenure, essentially being a statutory right enabling it to renew tenancy at the end of the lease term or be paid compensation in the event of non- renewal. Utility companies should be aware that landowners and developers can request a term that compels the company to remove the substation, cables and make good the demised site at the end of the term (however it expires). Rent and rent review It is not unusual for substation leases to include peppercorn rent or other small yearly payment. This is because leases are oen subject to a tenant covenant that the utility company can only use the site for the pur- pose of a substation, and this does not justify a market rent appropriate to other uses. Despite this, utility companies should be aware that landowners may try to negoti- ate an upward market or other rent review clause, during negotiations, before the lease is first entered into, as case law suggests courts will refuse to imply this at a later stage. A one-off premium may also be pay- able to a landowner or developer on entering into the lease. Indemnity clause Generally, utility companies should refuse indemnities to third parties. Should an event occur resulting in a claim, the land- owner will have little choice but to rely upon common law remedies. As such, they may request the utility company take out insur- ance with a reputable insurer (or self-insure) against third party and public liability. Electricity substations deliver electricity via cables running from the substation to local end consumer properties. If landown- ers or developers intend to develop land through which these cables run (or on which the substation is located), they will seek to protect their interest in the land by includ- ing a "li and shi" provision. This allows the landowner to request the utility company relocate the cables or the substation in the future. Utility companies may agree to this provided the landowner offers a suitable alternative site or route and pays all costs associated with cable diversion or substation relocation. A li and shi provision may not provide complete protection for the land- owner, as utility companies have a right pur- suant to the Electricity Act 1989 (EA 1989) to apply to the secretary of state for a wayleave permitting it to install, keep installed and have access to maintain electricity cables under or across private land. Utility companies should request a formal easement (for the right to install, retain and replace cables) documented by deed (for a term in perpetuity), which is required to be completed by registration against the title register pursuant to the Land Registration Act 2002, to bind successors in title. Registration of leases at the Land Registry when a development site, on which a sub- station is to be located, is backed by lender financing. If a development is being financed by a lender through a facility agreement, typi- cally, under the terms of that agreement, any disposals relating to the development land or site will require prior lender consent and as such, any grant of a lease or easement to a utility company will require prior consent. Developers typically seek a "carve out" for this consent requirement in the facility agreement for a disposition made on arm's length terms, beneath a value threshold or to any utility company, to enable them to grant the requisite leases and easements to utility companies without having to seek protracted lender consent. While this means that a consent under the facility agreement may not be required for the actual lease grant or easement, prac- tically speaking, as any lease over seven years duration will require consent from the lender (and will therefore by subject to any restriction on title accompanying a lender's security registered at the Land Registry), and must be registered at the Land Registry, the true benefit of this carve out is to ensure con- sent for registration of the lease or easement at the Land Registry is not refused and that the relevant disposition can be properly reg- istered in due course. Compulsory purchase powers Lastly, utility companies have legal rights, under the Electricity Act 1989, to private property (following obtaining consent from the secretary of state) without current own- ers' consent via a compulsory purchase order in return for compensation, if the prop- erty falls within a public or private construc- tion project or scheme. Andrew Chapman & Rob Broom, Squire Patton Boggs Leasing substations Andrew Chapman and Rob Broom examine some of the fine print that should be considered by utility companies, landowners and developers when leasing land for electricity substations. Key points Electricity substations are oen sited on land with leases of 99 years or more. Because a substation is classified as a business, it has security of tenure. Not all leases have automatic renewal rights. Indemnity clauses should be avoided, but the relevant insurances may be required. Leases can incorporate a "li and shi" provision to allow for the development of land. The relevant easement provisions should be sought when negotiating the lease. Developers can seek a "carve out" provi- sion to ease consents procedures.

• Cover