Data Centres, continue to prove popular as a property investment.

There is scope for creating considerable value by addressing issues pertinent to Data Centres and putting in place the correct legal structures. However, careful thought needs to be given to a number of matters:

  • A key component is the electricity substation(s) which will usually be on site given the large energy supply required by Data Centres. Should the substation(s) be included in the demise to the tenant or should these be left out of the tenant’s lease altogether? Whilst the electricity supply company will have a lease a landlord can gain considerable advantage by excluding these from the tenant’s demise.
  • The electricity supply contract(s) will be in the tenant’s name. There are also likely to be agreements which reserve future electricity supply. The landlord will wish to ensure that these are preserved at expiry of the lease for the benefit of the landlord or the future operator and must carefully consider how this is best achieved.
  • The tenant’s repairing obligation needs to extend beyond the usual “plain vanilla”. A tenant, whether it is operating the Data Centre itself or making space available to others, will be obliged to ensure there is compliance with the standards laid down by the Uptime Institute Inc or similar body. The landlord will need to ensure the tenant maintains the Data Centre to the requisite standard and at the end of the lease hands it back to the landlord as a Data Centre and not a shed! How this is best achieved will all need to be worked out.
  • A landlord will need to take an active role in ensuring that all equipment at the Data Centre is tested, maintained and kept in working order stipulated by the relevant manufacturer’s recommendations and requirements. Thought will need to be given to how active the landlord should be in this respect.
  • The alienation provisions will need to be sufficiently flexible to enable customers of the operator to share space.
  • The basis for the review of rent, open market rent (including the availability of comparables) or indexation needs to be considered with view to working out how maximisation of the investment value is best achieved.
  • On expiry, the tenant will be entitled to Landlord and Tenant Act rights. There is likely to be considerable adverse impact on the rental value if all the tenant’s improvements are disregarded. Consideration needs to be given as to what structures can be put in place to capture full rental value.