The Lease Is the Product
In colocation, you are not buying a rack. You are signing a lease that governs power delivery, cooling, connectivity, security, and financial obligations for 3-10+ years. The difference between a well-negotiated and poorly negotiated lease can represent millions of dollars and significant operational risk over the contract term.
Most data centre leases are presented as "standard" — they are not. Every material term is negotiable, particularly at scale (500+ kW).
The 15 Terms That Matter
### 1. Power Commitment (kW)
The contracted power capacity is the foundation of the commercial relationship. It defines your maximum IT load and determines your monthly base charge.
**Negotiate:** - Right to deploy below committed power without penalty during ramp-up (6-12 month grace period) - Metered power billing (pay for actual consumption, not committed maximum) versus fixed billing - Ability to increase committed power without lease renegotiation (expansion rights) - Minimum commit: Avoid locking in more capacity than needed for 12-18 months of projected growth
### 2. Base Rent and Escalation
**Current market ranges:** - Primary markets: $110-165/kW/month - Constrained markets: $160-220/kW/month - Emerging markets: $90-130/kW/month
**Escalation structures:** - Fixed annual escalation: 2-3% per year (most common) - CPI-linked: Annual adjustment tied to Consumer Price Index, typically with 1% floor and 4-5% cap - Step-up: Pre-determined rate increases at specific intervals (e.g., 5% at year 3, 5% at year 6)
**Negotiate:** CPI-linked with a cap is generally most favourable for the tenant. Fixed 3% escalation exceeds historical CPI in most years and compounds significantly over a 7-10 year term. A $130/kW/month rate with 3% annual escalation becomes $175/kW/month by year 10.
### 3. Term and Renewal
**Typical terms:** 3-10 years initial term with 1-3 renewal options of 2-5 years each.
**Negotiate:** - Renewal rate: Market rate at time of renewal (versus escalated contract rate). Some providers attempt to lock renewal at the escalated rate, which can exceed market. - Renewal notice period: 12 months is standard. Shorter is better for tenant flexibility. - Early termination right: Rare but valuable — typically requires 12-18 months' remaining rent as penalty. Worth negotiating for deployments >3 MW.
### 4. SLA Structure
**Uptime SLA (the headline number):** - 99.99% = 52.6 minutes of downtime per year - 99.999% = 5.3 minutes of downtime per year - Ensure the SLA covers the full power and cooling chain, not just utility power
**SLA credits:** - Typical: 5-30% of monthly recurring charges for SLA breach - Aggressive: 100% of monthly charges for extended outage (>4 hours) - Negotiate: Credits should be automatic, not requiring tenant to file a claim. Credit caps should not exist or should be at least 100% of monthly charges.
**What the SLA does NOT cover (read the exclusions):** - Scheduled maintenance windows (negotiate: maximum 12 hours/quarter, weekend only, 30 days' advance notice) - Force majeure events - Tenant-caused incidents - Individual circuit or cabinet failures (some SLAs only cover facility-wide events)
### 5. Power Density
**Standard allocation:** 5-8 kW per cabinet in most colocation facilities.
**Negotiate:** - Right to deploy higher density per cabinet (15-30+ kW) without surcharge, subject to cooling capacity - Liquid cooling provisions: Who pays for CDU installation, piping, and coolant? Is the infrastructure provided, or does the tenant build it? - Power factor requirements: Standard is 0.95+. Ensure your equipment meets this or negotiate tolerance.
### 6. Cross-Connect Pricing
Cross-connects at $200-500/month each are high-margin revenue for the provider and a significant cost for tenants with dense interconnection requirements.
**Negotiate:** - Volume discounts: 10-20% discount above 20 cross-connects, 20-30% above 50 - Included cross-connects: 2-5 cross-connects included in base rent (common at scale) - Virtual cross-connect access: Right to use software-defined interconnection platforms as an alternative - Cross-connect installation fees: Waive or cap at $500 (standard installation fee ranges from $500-2,000)
### 7. Expansion Rights
**Right of first refusal (ROFR):** Priority access to adjacent space as it becomes available.
**Right of first offer (ROFO):** Provider must offer adjacent space to tenant before marketing it externally.
**Negotiate:** Specific expansion capacity (e.g., "tenant has ROFR on adjacent 2 MW") with defined pricing terms (at the then-current contract rate, not market rate).
### 8-15. Additional Critical Terms
**8. Insurance requirements:** Standard is $5-10M commercial general liability. Ensure requirements are achievable without excessive premium.
**9. Assignment and subletting:** Right to assign the lease to an affiliate or successor without landlord consent. Subletting rights with landlord approval (not to be unreasonably withheld).
**10. Access:** 24/7/365 unescorted access for authorised personnel. Defined badge issuance and visitor escort procedures.
**11. Audit rights:** Right to audit metered power consumption, PUE calculations, and SLA compliance data.
**12. Environmental compliance:** Provider responsibility for facility environmental compliance. Tenant indemnification for provider's environmental violations.
**13. Decommissioning:** Defined process and timeline for equipment removal at lease end. Provider should not charge for standard decommissioning.
**14. Governing law:** Negotiate for a jurisdiction favourable to your legal team. Arbitration versus litigation preference.
**15. Data destruction:** Provider assistance with secure media destruction. Certification of destruction for compliance purposes.
Leverage Points
**Tenant leverage increases with:** - Larger deployments (1 MW+ commands significant concessions) - Longer initial terms (7-10 years) - Creditworthy tenant (investment-grade tenants receive best terms) - Multiple facility options (competitive bids from 3+ providers) - Willingness to commit to expansion
**Provider leverage increases with:** - Low vacancy markets (sub-5% vacancy) - Unique connectivity or location - Specialised infrastructure (liquid cooling, high density) - Limited competitive alternatives in the market
Compare facilities and market conditions on our directory and market pages. For lease negotiation advisory, contact our team.