Authors: David Rosen, Partner, Real Estate, London and Alex Wright, Trainee
With new technology comes new property uses, and with new uses comes new challenges for developers. Nowhere is this more aptly demonstrated than in the growing demand for datacentres. Datacentres are spaces in which companies house their IT infrastructure including computers, servers and telecommunications for storage, processing and distribution of data on a large scale. For those interested in developing, owning or using datacentres, an understanding of the issues posed by datacentres is crucial.
The first question when developing a datacentre is ownership: freehold or leasehold? Datacentre occupiers will often find it advantageous to own, rather than lease. This provides advantages in terms of control over installations and alterations, ownership of plant, fixtures and equipment, responsibility for building services and insurance arrangements, and a number of other considerations that are often relevant to such a specialist building use. Where long leasehold is concerned (as is often the case in many business estates), it will be necessary to limit landlord controls to the greatest possible extent.
Related to the form of ownership is the question of guaranteeing a power source for the datacentre. It is fundamental to the operation of the datacentre that the premises benefits from a robust and secure multi-feed power supply. Where such a supply passes through third party land, the datacentre occupier will want suitable rights with its title to safeguard the power supply and ensure access in case of power loss. In addition, a data centre occupier will wish to enter directly into a customary electricity supply agreement to buy the requisite power so as to ensure they (as opposed to a landlord) have control over supply. Furthermore, in order to protect against network power outages, the datacentre occupier may also wish to invest in a captive power plant at the datacentre site. Such back-up generators may create further real estate and regulatory issues.
Central to any application will be the question of the number of operatives employed at the datacentre. Where there is a small headcount of staff in relation to the volume of floorspace, planning authorities can bridle at the take-up of allocated employment land for a relatively inconsequential number of jobs. This will be location-sensitive and therefore it is advisable to engage with senior officers at local authorities at an early stage in the planning process.
The environmental impact of developing a datacentre should also not be ignored. Datacentres will typically operate 24/7 and can in the process create large levels of noise, heat and light, which – in addition to other environmental consequences typically associated with development – may cause the requirement of an Environmental Impact Assessment. Consultancy input and risk mitigation should be addressed early on to avoid negative implications to any planning application.
Datacentre construction will typically be procured by adopting a traditional procurement or a design and construct strategy. Traditional procurement allows appointment of a contractor to build to a detailed specification. Conversely, a design and construct strategy pushes responsibility for design, workmanship and materials on to the contractor. The question of what procurement method should be adopted therefore is a question of how much control the owner requires over the design of the datacentre.
The technicality involved in datacentre construction and the obsolescence rate of expensive equipment also tends to lead datacentre developers to place separate contracts for the building envelope and mechanical/electrical equipment. This approach creates issues concerning design clashes and separate liability that will have to be dealt with in the contracts. Moreover, the long lead procurement time of key components such as HV capacitor, chillers, back-up generators and other plant material will likely require the developer to place orders direct, before transferring to a contractor once appointed. How risk is dealt with between developer and contractors will therefore need to be carefully negotiated.
Where the entity developing the datacentre is UK taxpaying, 100% capital allowances (tax depreciation) may be applicable for expenditure on plant and machinery where the datacentre is located in a 'designated assisted area' or where the plant and machinery is energy-saving/environmentally beneficial.
Going forward from development, the electricity usage at a datacentre will need to be included in reporting by existing participants in the CRC Carbon Reduction Scheme until that scheme comes to an end in 2019. If the datacentre is occupied under a lease where it is the landlord who is responsible for providing the power supply, it is likely to be the landlord rather than the occupier of the datacentre who is obliged to buy allowances in respect of the centre's energy consumption, for yearly surrender to Environment Agency. The landlord will expect to have a right to recoup the cost of these allowances from the occupier. However, detailed advice should be taken due to the complexities of the scheme.
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