What Is in a Data Center Lease?

If you have never seen a data center lease, the shortest description is this: it is a real estate contract with an infrastructure contract built into it. The law firm Carpenter Wellington describes a data center lease as setting forth the term, the rent obligations and a description of what constitutes the premises, with the landlord owning the facility and supplying infrastructure and power. The document may also be called a colocation agreement or a services agreement, depending on the operator and the size of the deal.

We should be clear about our role. TAG is a tenant-side real estate brokerage working in office, clinical and industrial space. Data center contracts are a specialty, engineers size the power and cooling, and specialist attorneys should review the paper. This guide is meant to help a founder or operator follow the conversation. Our companion guide on how a data center lease differs from an office lease covers the comparison, so here we stay with what is in the document.

Like any lease, this one identifies what you are getting and for how long. The premises can be a rack, a cage, a suite or something larger, and the document may also grant rights to use shared areas and equipment.

On term, Morgan Lewis notes that providers often seek multi-year commitments, sometimes up to a decade, and warns about automatic renewals with strict notice requirements. Pricing may also reset at renewal, so the renewal section deserves the same attention as the opening rate.

This is usually the most important section, and the one that looks least like an office lease. Morgan Lewis calls power one of the most critical and expensive components of a colocation agreement, and says agreements should clearly define the power allocated to the relevant equipment. ArentFox Schiff advises spelling out in the lease the minimum and maximum power the tenant can expect, and making sure usage is separately metered.

Expect to find these topics, in some form.

• Allocated capacity. How much power you have reserved, and how it is delivered to your equipment.
• Billing basis. Morgan Lewis points to the question of whether you pay for reserved capacity or actual usage, and to charges when you go over.
• Efficiency. The same article mentions PUE (power usage effectiveness), a measure of how much of a facility's power goes to overhead such as cooling, as a point to address.
• Density limits. Morgan Lewis also flags derating and limits on increasing density, which matter for GPU equipment.
• Redundancy. ArentFox Schiff recommends a main utility feed, a backup from a second substation if possible, and generators and batteries. How the backup is designed, and what the document says about it, is what an engineer should review.

Your engineers should set the power number and read this section. A contract can promise a figure on paper that does not suit how your equipment actually draws power.

An SLA, or service level agreement, is the operator's written promise about performance. Morgan Lewis says SLAs may define uptime guarantees, power availability, cooling standards and response times, with remedies that are often tiered. Pillsbury adds repair timelines, and notes that an SLA can track environmental attributes such as temperature.

You will often see uptime expressed in nines. ArentFox Schiff explains that frameworks for redundancy include the tier system (one to four) and the nines system, where 99.9% is less reliable than 99.999%. Those are shorthand, and the actual promise is in the wording.

The remedy section is just as important as the number. Pillsbury advises including meaningful credit amounts if the provider misses a commitment. Read what is measured, how you claim a credit, what is excluded, and whether repeated failures let you leave.

A data center is only useful if your equipment can reach networks. A cross-connect is a physical link from your equipment to a carrier, cloud provider or another customer, usually arranged through a shared area known as a meet-me room.

Morgan Lewis says the agreement should address the availability and pricing of interconnect and cross-connect services, along with meet-me room availability and carrier restrictions, and warns that recurring interconnect fees can become significant. ArentFox Schiff suggests lessees seek the ability to establish circuits and cross-connects without added cost, and check any limits on which carriers may enter. How much of that a given operator will agree to is a matter of negotiation.

The remaining sections usually decide how the relationship plays out over time.

• Expansion. Carpenter Wellington lists the tenant's ability to increase power usage at a pre-negotiated rate among the points to negotiate. Growth rights tied only to floor area may not help if the power is not there.
• Equipment and managed services. Pillsbury suggests defining maintenance, replacement, liability and ownership of equipment. If a third-party managed services provider is involved, its terms need to fit too.
• Liability. Morgan Lewis notes that providers typically limit their liability, often capping damages and excluding consequential losses, and calls the interplay of caps and SLA credits among the most heavily negotiated areas. Insurance is part of the same conversation.
• Termination. Carpenter Wellington lists the events that trigger termination as a key consideration.
• Exit. Morgan Lewis lists early termination rights and fees, timelines for equipment removal, data destruction and holdover. Pillsbury recommends the right to a clean exit, including rights to extend for predetermined periods at predetermined cost, because moves take time.

• ✓What exactly are we reserving, and what would it cost if we used less than that?
• ✓Who on our side has verified that the reserved power and density fit our equipment?
• ✓What is measured in the SLA, what is excluded, and what do we receive if it fails?
• ✓Which networks can we reach, and what will each connection cost every month?
• ✓If we need more power in a year, is there a right to it, and at what price?
• ✓When does the agreement renew, what notice is due, and can the price reset?
• ✓How long would moving take, and does the agreement give us that long?
• ✓What is the most the operator would owe us after a serious failure, and how does our insurance respond?
• ✓Which specialist attorney and engineer are reviewing this document?

Most AI and technology companies also need ordinary workplace space, and that part sits within what we do. TAG handles the office, flex and industrial lease and works alongside the people responsible for infrastructure, so the two commitments line up on timing and location.