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On April 21, California Gov. Gavin Newsom announced that the state has sold more than 1.5 million zero-emission vehicles — two years ahead of its original 2025 goal.

With 21% of all new cars sold in the state now zero-emission, electric vehicle charging stations are a common sight in California’s parking lots. These public charging stations at shopping centers, entertainment districts and other destinations are a testament to the impact of the state’s increasingly ambitious initiatives on clean energy.

Among the 50 states, California is home to the largest number of EVs, and consequently, the most extensive vehicle charging infrastructure. The Golden State leads the country in all EV market metrics including the highest level of public funding — nearly $2 billion in incentives have been provided to help Californians go electric — and the largest EV market share percentage — nearly 18%.

Additionally, California has the highest number of EV charging stations — 15,182 — making up an impressive 29% of all charging stations in America. In fact, it has nearly double the number of EV chargers in New York (3,085), Florida (2,858) and Texas (2,419) combined.

The state’s robust motor vehicle emission control rules are designed to achieve Newsom’s 2020 executive order mandating that all new cars and light trucks sold in the state be zero-emission by 2035. And with the approval of the Advanced Clean Cars II regulations set by the California Air Resources Board, the number of EVs on the road in California is poised to increase dramatically.[1]

Starting with model year 2026, the Advanced Clean Cars II regulation imposes the next level of low-emission and zero-emission vehicle standards and sales requirements on automakers through its ZEV program, and implements more stringent exhaust and evaporative emission standards through its LEV program, to ensure the complete phase out of internal combustion engines by 2035.

California is where 40% of all zero-emission vehicles sold in the U.S. are purchased, and state officials claim that 12.5 million electric vehicles are expected on California’s roads by 2035. Yet even though California is the tip of the spear in the adoption of EV use, charging infrastructure is woefully inadequate to meet even current demand.

The explosion in the popularity and number of electric vehicles will fuel an expanding and immediate need for even more universal charging stations — and the corresponding grid capacity to support them — as power levels are increased to accommodate more speed in charging. According to the California Energy Commission, it is estimated that by 2030, California will need 1.2 million charging stations.

In December 2022, the California Energy Commission announced a record $2.9 billion clean transportation investment plan, with Newsom declaring, “California is bringing our roads and highways into the 21st Century with electric vehicle chargers in every community, in every corner of our state.”

Add to that the state’s broadening consumer-incentive programs — including boosted rebates for low-to-moderate-income people who purchase low and zero emission vehicles — and the increasing competition among EV charging network providers for installing charging stations on commercial properties is on.

Clearly, many commercial developers and landowners are electing to be proactive in preparing for the growing demand for public charging — and increased governmental regulation that will come with it. Already, the state is requiring all cities and counties in California to streamline permitting processes for EV charging stations.

With the governmentally mandated transition to clean transportation, and commercial enterprises seeking to go green, the pressure is now on real estate developers and owners to provide facilities with the land resources and public access required to accommodate new infrastructure that supports EVs.

And while design, installation and operation of EV infrastructure is still largely in its infancy, it does offer unique opportunities for creative developers and landowners to further monetize and add value to their commercial real estate assets.

For example, offering EV charging stations may be a way for real estate owners to differentiate their properties from others, based upon sustainability factors that more and more tenants demand. Additionally, EV charging stations will generate additional revenue streams from monthly fees and rents — and will drive traffic and people into commercial projects, since EVs require a minimum of 20 minutes to charge.

Finally, EV charging stations may result in certain tax savings and incentives, and will undoubtedly be a catalyst for the development of new retail enterprises that support their users.

Existing retail shopping centers and other commercial properties are the most logical and convenient sites for the installation of EV charging stations. However, installation of EV charging stations at these locations is relatively complex, and often requires additional permits and site documentation.

For example, all jurisdictions in the San Diego region currently require physical inspections of installed EV charging stations, and governmental sign-off and occupancy agreements required by the EV network can be cumbersome. These requirements have unintended consequences for the sale, financing and operational control of common areas and parking facilities of commercial projects of which EV chargers are a part.

The following are legal and business issues to keep in mind when considering installation of commercial EV charging stations:

• Evaluate revenue opportunities;
• Evaluate tax incentives;
• Evaluate vendors — including hardware and software providers and charge point operators;
• Review community or design guidelines;
• Review zoning requirements;
• Review existing use permits;
• Evaluate electrical source, metering and grid capacity;
• Review parking and signage requirements;
• Review permit and inspection fees; and
• Review charging station documentation and risk and maintenance allocations.

Cost may be the biggest obstacle for commercial property owners considering the installation of EV charging stations independently, as opposed to entering into a service provider agreement with a third-party network provider. This requires investing in equipment and materials — and most property owners are hesitant or unwilling to spend money on infrastructure that doesn’t necessarily offer clear, fast returns.

This is particularly true for owners who plan to sell their property in the next five to 10 years, or who do not otherwise have the time to recover installation costs through revenue from tenants or EV drivers. However, since EV chargers may be shifting from an expensive luxury to a must-have amenity, without at least a couple of chargers, owners of commercial and multifamily properties without chargers may be at a competitive disadvantage — and could lose customers and tenants who drive EVs.

Luckily, there are a few options that allow commercial property owners to remain competitive in this evolving space. First, the owner can elect to engage a third-party developer or utility company to help design, finance and install EV chargers on their land, while maintaining operational control over the EV charging stations.

The third-party network developer or utility company may agree to provide ongoing support for the charging stations. Institutional commercial property owners may be able to take advantage of economies of scale by entering into portfoliowide agreements with such third-party developers or utility companies.

By teaming up with third-party developers or utility companies, commercial property owners can reduce the risk and capital costs of installing public EV charging stations, while still maintaining operational control and offering an essential amenity to customers.

Another possible solution for office and commercial properties is to lease or license the use of parking facilities to a third-party EV charging network provider, who would design, finance and complete the installation of EV charging infrastructure, and thereafter operate, maintain and repair it for the term of the agreement.

Most third-party EV charging network providers are well versed in EV charging station regulations, and are comfortable with the market risk of being wholly reliant on having enough EV drivers choosing to use their network services to recoup their upfront investment. These third-party networks charge EV users a subscription or service-based fee.

Although commercial property owners lose an element of control over their property under this model, the costs and risks of the installation and operation of EV charging facilities are transferred almost entirely to a third-party EV charging network.

Sharing the risk of an emerging market in this manner could expand the scale of charging stations on commercial properties to build infrastructure that retail and other destinations will need in the future. Of course, property owners should carefully document the terms and conditions of any such occupancy and use agreement.

For now, we are witnessing only the beginning of the EV revolution, and together with the ongoing reinvention of retail and office spaces, innovative commercial property owners and developers will need a proactive approach in preparing for the electricity-driven future. In any scenario, it is important to analyze whether a landlord can offset the costs of offering EV charging stations to their tenants.

For more information on EV charging station development in California, the Governor’s Office of Business and Economic Development has a website that lists California vehicle and infrastructure incentive programs that can be accessed by individuals and business owners.[2]

[1] To ensure that these regulations become law, California must obtain a waiver from the U.S. Environmental Protection Agency to adopt the new rules pursuant to the state’s exemption under the Clean Air Act. Under the act, other states may adopt California’s pollution standards, which are more aggressive than federal standards. Many states adopted the previous Advanced Clean Cars regulations, and several — including New York, Washington, Massachusetts and Oregon — have already promulgated the rule.

[2] https://business.ca.gov/industries/zero-emission-vehicles/zev-funding-resources/.

The article was published in Law360(subscription required).