Leasing to a Data Centre – Considerations

A data centre is, in short, a facility that stores a multitude of computers, machinery, and hardware. The facility acts as a hub for hosting internet servers, data storage, network equipment, and various digital data. For many companies, a data centre is the most important part of the building, and accordingly, must be protected. However, protecting a data centre does not mean simply having security guard its accessibility from trespassers. Rather, a data centre must also be protected with proper cooling systems, sufficient air flow, and reliable and constant connectivity to power. Accordingly, a landlord who allows a tenant to operate a data centre in their building will realize the new and steep costs associated with its operation.

While it is common for companies to have their data centre in a location away from their building of operation, some companies may choose to have their data centre, or a portion of it, within the building the operate from. Landlords and tenants must be conscious of provisions in a lease which may or may not allow the premise to be used in such a manner.

1. Utilities: Data centres require vast amounts of cooling and proper airflow, which increases the demand for electricity. When leasing out a premise to a tenant who desires a data centre, a landlord must prepare for the increasing costs, and determine how to proportion it appropriately (a simple proportionate share based on rented space may not be enough). Installing a submeter to a building to appropriately gauge the electricity consumption by the tenant may be required (a cost that could be passed onto the tenant if needed)
2. Heating Ventilating Air Conditioning (HVAC): Tenants should be aware of any rights to install additional or alter existing HVAC systems to sufficiently cool the data centre facility. As stated above, data centres demand extreme amounts of power, which results in significant heat being expelled. Cooling the room will be a necessary priority to ensure that the room remains operational. Parties should be aware of any HVAC related considerations. Landlord’s should ensure that tenants are keeping the premises heated and cooled to a temperature that will regulate humidity and prevent frost.
3. Infrastructure: Though rather self-explanatory, tenants should be aware of the space required to build, support, and operate a data centre. A tenant should be aware of what parts of the premises are allowed to be utilized for such purpose and giving consideration to not overloading floors. Tenants should consult with structural engineers prior to entering into a binding agreement to lease to ensure that the flooring can sustain the weight of such equipment. Consideration must also be given to fire suppression systems and whether generators will need to be installed to mitigate the chances of power failure.
4. Financial Stability: A landlord may want to take additional precautions by reviewing the financials of prospective tenants who propose utilizing the premise as a data centre. Data centres, given their highly demanding nature, require sufficient capital to run continuously. If a tenant is unable to financially support the operation of data centre, they may not be able to perform and meet their obligations under the lease.
5. Service Level Agreements (SLAs): SLA is a contract or agreement between a service provider and a client that outlines the level of service the client can expect to receive. It defines the specific services to be provided, as well as the measurable performance standards that the service provider must meet. SLAs are commonly used in various industries, including technology, telecommunications, and outsourcing, to ensure that both parties have a clear understanding of their roles, responsibilities, and expectations. Landlord and Tenant should be clear on which SLAs have been entered into to anticipate expectations for data centre uptimes. What is to happen if service is required on the power to the building (which can interrupt the power supply to the data centre). Consideration should be given to how much notice is to be provided to the Tenant in the event that any utility requires maintenance.
6. End of Lease Requirements: Given the high costs of building a data centre, weight of the equipment, and space the equipment will take up, it will be important for the parties to discuss the costs and removal of such upon the lease’s conclusion.

Ultimately, allowing a premises to be used as a data centre can be a challenging, but lucrative venture for Landlords by providing tenants with a space to meet their needs. The above noted list is not meant to be exhaustive but a guideline and a nudge to think outside the box when it comes to this newly prevalent business style.