What’s key in a UK data centre lease?

With the vast increases in data being consumed by the average individual, along with the recent exponential development of AI, data centres continue to be a fundamentally crucial asset class, with a number of specific features and characteristics. This becomes apparent when you start to consider data centre leases and the key clauses for negotiation.

Power and cooling

Starting with an obvious one, power. Data centres require huge amounts of energy to run all of the computer hardware. As a result, power, and in particular sufficient and reliable power, is a key requirement for a data centre. In your typical commercial lease of a warehouse, office or retail unit, a landlord will not be responsible for ensuring a sufficient power supply. However, the position differs in data centre leases where there will be a detailed service level agreement which will deal with matters including minimum performance thresholds, including the provision of power and cooling.

Typically, a failure to provide a sufficient level of minimum power will be considered a significant/critical breach, which will usually trigger an obligation to pay liquidated damages or to provide a service credit. In addition, a significant/critical breach will usually trigger a host of additional obligations on the landlord, including:

• Notifying the tenant of the occurrence of the breach and providing a report of the same;
• Providing estimated time scales for the resumption of full service; and
• Requiring the landlord to remedy the breach as soon as practical, taking steps to minimise the breach

Similarly, a failure to provide sufficient cooling, which will often be measured by reference to specified maximum temperatures, will be considered a significant/critical breach, and the same obligations referred to above in relation to minimum power requirements will be triggered.

It is also worth noting that, for the benefit of the landlord, there should be a requirement by the tenant not to exceed a particular level of electricity consumption. This is particularly important in shared data centres where there will be various tenants who will have their own minimum service requirements, including the provision of sufficient electricity. For the reasons explained above, a landlord is going to need to ensure that any given tenant does not use so much electricity that it will make it impossible for the landlord to fulfil the minimum service levels for other tenants.

Security

Another key matter will be security obligations for both the landlord and tenant. Data centres hold sensitive material and therefore physical and cyber security is paramount. The tenant will have specific security requirements, which will usually form a schedule to the lease, which both the tenant and landlord will agree to comply with. These provisions are likely to include:

• Requirements for the landlord to maintain a comprehensive security policy, covering the installation, maintenance and operation of a security system that manages both physical access to the building and protection of the IT systems. Compliance with relevant laws and regulations is essential to ensure the security is up to date and effective.
• Clear procedures must be established to address potential data breaches. This includes notification requirements to inform affected parties promptly and remedial actions to mitigate any damage. Additionally, there may be insurance requirements to cover potential liabilities arising from data breaches.
• Obligations on the landlord to notify the tenant of any changes to the infrastructure at the data centre. This ensures that tenants are kept fully aware of modifications that could impact security or operational efficiency.
• Obligations on the tenant to ensure its data security systems meet the current regulatory framework. This includes adhering to national and international standards, such as the UK General Data Protection Regulations and the Data Protection Act 2018.
• Obligations relating to compliance with ISO 27001 (the international standard for information security management systems). This standard provides a systematic approach to managing sensitive company information, ensuring it remains secure.

Requirements for the landlord to share certain documents relating to the extent of security measures at the premises.

Security is of particular importance in data centres where there are multiple occupiers as the shared environment necessitates stringent controls to prevent unauthorised access and data breaches. This focus on security naturally leads to considerations around access control.

Access and control

While no tenant, whatever type of premises they are letting, wants to allow the landlord free and easy access, this is a particularly important matter for data centre tenants, given the amount of sensitive data that will be processed and held at data centres.

Controlling access is extremely important, not least given the UK GDPR and the 2018 Act. Therefore, tenants will want to ensure that any landlord access is kept to a minimum. In certain circumstances, where access is required to certain key areas, certain tenants may insist on landlords being accompanied by a representative of the tenant.

Scaling

Flexibility in lease terms is key for data centre tenants, as their space and infrastructure needs can change rapidly due to technological advancements and business growth. Leases often include provisions that allow tenants to expand their operations seamlessly. This flexibility might involve options for tenants to lease additional space within the data centre as their needs grow without the need to relocate, which can be costly and disruptive.

Landlords may also commit to providing additional infrastructure support, such as increased power capacity or enhanced cooling systems, to accommodate the tenant’s expansion. The lease may also allow for the renegotiation of terms or the extension of the lease to align with the tenant’s evolving business requirements, providing a long-term business approach.

Repair and alterations

The repair and alterations clauses in data centre leases are critical due to the complex and sensitive nature of the infrastructure involved. These clauses must clearly delineate the responsibilities of both the landlord and tenant to avoid disputes and ensure smooth operations. Typically, the landlord is responsible for maintaining the structural integrity of the building and the core infrastructure, such as power and cooling systems, while the tenant is responsible for its own equipment, such as racking, cabling and other tenant-specific infrastructure.

Green leasing

Given how much water and energy data centres use, there is a push towards trying to make them “green”. This is no mean feat, given how much energy data centres consume. However, you will see in some data centre leases certain green lease provisions. For example:

• Some data leases may incentivise the use of renewable energy. In some cases, it may be possible for data centres to have direct access to solar energy generated from solar panels on the roof. However, in reality, this is not going to provide anywhere near the full energy requirement of a data centre.
• Like many commercial leases, there may be obligations in data centre leases requiring any construction works to be carried out in accordance with sustainable building standards, such as LEED (Leadership in Energy and Environmental Design) or BREEAM (Building Research Establishment Environmental Assessment Method).
• Some leases may include obligations relating to minimising water usage and/or re-using water.
• Some landlords and tenants will agree to monitor and report on energy and other resource consumption.

Also, while not something that is generally seen in data centre leases, there are specific examples of data centres being developed where the waste energy is to be used to power things such as swimming pools and homes. Waste energy from data centres is a major issue, and, as more and more data centres find ways to re-use their waste energy, we are likely to see additional obligations and requirements in data centre leases relating to waste energy.

As can be seen from the above, there are a number of considerations that are unique to data centres which need to be taken into account when negotiating a data centre lease. The above is by no means intended to be an exhaustive list, but serves to highlight the number of data centre specific issues that will need to be considered as part of any data centre transaction.

An earlier version of this article appeared in Estates Gazette.

Authored by Ben Willis, Clare King.