Grid congestion as a contractual issue

The Dutch power grid is at capacity. That is hardly news anymore, except when an entire city like Utrecht can no longer handle any more, as became apparent last month. What is new, however, is that grid congestion has shifted in two years from a technical grid operator problem to a legal contractual problem, and that the logistics real estate market is not yet sufficiently geared towards this. Anyone who, as an investor, developer, or tenant, closes a transaction today without seriously addressing the legal dimension of capacity is pricing in risk, not value.

Until recently, the connection to the electricity grid was a final item in a transaction. The
The grid operator delivered, sooner or later, and the price was factored in. In the current market, the reverse applies. In large parts of Brabant, Gelderland, Limburg, Utrecht, and Flevoland, a large-scale consumer connection is no longer a given, with waiting times running up to seven or ten years. Physical reality forces parties to build legal infrastructure themselves where grid operators are unable to do so. In our practice, we see that this has consequences in four areas that are barely provided for in standard contracts and standard deeds.

Affiliation and legal entity

An awarded connection and transport agreement is registered in the name of a legal entity, not a parcel of land. In an asset deal, that capacity cannot simply be transferred. A party that does not explicitly regulate this in a purchase agreement—with the consent of the grid operator, with clear obligations of cooperation between buyer and seller, and with a contractual fallback option—can purchase a building without the electricity that makes it profitable. In a share deal, this is less of an issue, but there we observe that the capacity, as an independent asset on the balance sheet, is insufficiently reflected in the guarantee clause. Connection capacity has effectively become a tradable, limitedly transferable, and legally fragile asset, and ought to be treated as such in due diligence and the deed.

We are seeing an increase in transactions where delivery or the commencement of the lease is legally linked to the acquisition of transport capacity. That sounds reasonable, but the implementation is delicate. A resolutive condition without an end date renders a contract practically unenforceable; a suspensive condition without a clear allocation of risk during the waiting period places disproportionate pressure on one party. Who bears the costs of an empty property if the connection arrives two years later than promised? Who pays the construction costs if the tenant ultimately withdraws? In standard models, this risk is implicitly placed on the owner with some regularity, without being factored into the price or the rent. That is not a contractual provision; that is an implicit subsidy from the owner to the counterparty.

Energy hubs

The most interesting legal question of the moment arises from the practice of energy hubs and cable pooling. When adjacent owners share capacity, connect roofs full of solar panels to cold storage or battery storage, or manage a joint connection, a legal structure emerges that has no obvious place in either the Civil Code or standard deeds. Increasingly, combinations of easements, qualitative obligations, restrictive covenants, and separate operating agreements play a role in keeping these hubs afloat even after sale, bankruptcy, or refinancing. This must be done carefully: a hub that operates as long as all participants remain cooperative will collapse at the first change of ownership. And the first change of ownership always occurs. In logistics parks with multiple owners and tenants, this is no longer a marginal phenomenon, but becomes the core of the operating structure.

Risk allocation

The fourth and most underestimated question is who bears the risk of delay. A logistics property that connects a year later than planned generates no rent, but does incur costs: interest, maintenance, security, taxes, and insurance. In the current market, we observe that parties very frequently implicitly leave this risk with the owner. An explicit contractual arrangement, including a tiered system, fallback mechanism, and clear agreements regarding who bears which costs at what time, belongs in every logistics transaction nowadays, whether it involves purchase, lease, sale-leaseback, or forward funding. The [date] is the natural moment to formalize these agreements, not the preceding email exchange.

The physical infrastructure in the Netherlands will be reinforced in the coming years, but that takes time. We can build the legal infrastructure today. For logistics real estate, that is no longer an option, but a prerequisite for transactions to succeed. The party that treats capacity as legally and contractually mature will receive a price advantage in the coming years. The party that views it as a technical detail will pay the price for a grid operator that will be unable to deliver for years to come.