Transcript LEGAL AND BUSINESS ISSUES IN DATA CENTER LEASES AND SERVICE LEVEL AGREEMENTS American Bar Association, Real Property Trusts & Estates Section, Leasing Group January 16,

LEGAL AND BUSINESS ISSUES IN
DATA CENTER LEASES AND SERVICE
LEVEL AGREEMENTS
American Bar Association,
Real Property Trusts & Estates Section, Leasing Group
January 16, 2014
By: Jeffrey A. Moerdler, Esq.
Mintz Levin Cohn Ferris Glovsky and
Popeo PC
666 Third Avenue, New York, NY 10017
Tel. 212-692-6700 – Fax 212-983-3115
E-mail [email protected]
• WHAT IS A DATA CENTER*
– Specialized facility where an organization's critical computing resources
are maintained and data is stored and processed
– Requires a highly controlled environment
– Maintained by specialized personnel
– In a very secure environment
– With multiple redundant power, cooling and data networking systems
– It is a mission critical facility that should never be interrupted
* From Newton's Telecom Dictionary 24th Edition
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• WHAT IS A SWITCH OR CARRIER HOTEL
– A facility housing multiple telecom carriers and internet companies
– Where interconnection and transfer of voice and data between carriers
occurs
– Usually a legacy ILEC (Incumbent Local Exchange Carrier) Central Office
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• PHYSICAL BUILDING ATTRIBUTES
– Tremendous power availability, preferably from multiple power plants or
substations over diverse transmission lines
– Multiple levels of redundant backup power
– Cooling sufficient for high volume of heat generated
– No single point of failure
– Access to multiple fiber optic data providers using alternative pathways
– High floor loading
– High ceilings
– Column free space
– No wet pipes (use dual pre-action or dry pipe sprinkler system)
– Special very early fire detection systems
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• PHYSICAL BUILDING ATTRIBUTES (cont'd)
– High level of physical security
• Fences
• Vehicle barriers
• Man traps
• Biometrics
• Visitor escorts
– Low profile, no signage
– Easy access to central business district
– Large, high capacity elevators for equipment
– Generator, fuel tank and water tank space
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• LEVELS OF RELIABILITY
− Uptime Institute Tier Standards
 Tier I: a single path for power and cooling distribution, without redundant
components, such as a typical corporate server room with 99.671%
availability or 28.84 hours of downtime per year
 Tier II: a single path for power and cooling distribution but with N+1
redundant components and with 99.741% availability or 22.70 hours of
downtime per year
 Tier III. Multiple power and cooling distribution paths, but only one path
active, with N+1 redundant components, facility is concurrently
maintainable allowing repairs without service interruptions and with
99.982% availability or 1.58 hours of downtime per year
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• LEVELS OF RELIABILITY (cont'd)
− Tier IV: multiple active power and cooling distribution paths, has minimum
N+1 redundant components and may be N+2 or 2N, with all servers
powered by primary and secondary power supplies and is fault tolerant for
single events with 99.995% availability or 26.29 hours of downtime per year
− Reliability Assurance
 How was facility marketed?
 What are customer's expectations?
 How much scheduled downtime is there and is it for maintenance
 What is the likelihood that there will be unscheduled downtime
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• TYPES OF TRANSACTIONS
− Lease vs. license agreement vs. master services agreement
− Cloud Agreement
 Public vs. private cloud
 Need to define technical specifications and availability levels of services
provided
− Colocation Agreement
 Rent by the server, rack or cage
 Landlord provides all services down to the rack or server
 Includes large managed services component
− Modular or Container Unit Lease
 Lease a pre-built, fully self sufficient containerized or modular unit in a
data center or on client's property
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• TYPES OF TRANSACTIONS (cont'd)
− Enterprise, Turn-Key or Plug and Play Data Center Space
 Lease a powered and cooled room
 Landlord is responsible for all infrastructure to the PDU and CRAH and
security to the room
− Powered Shell or Wholesale Space
 Lease a shell space with utilities brought to the space
 Landlord is only responsible for power substation and site security
 Frequently users are managed services, cloud or colocation providers
who have the capital to build out their own spaces
 Faster availability and lower capital expense to developer/landlord
− Single Tenant Build to Suite or Net Lease
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• COMMON LEGAL ISSUES
− Alterations
 Installing computer equipment and racks connection to power sources,
cross connects, etc.
 Non-structural alterations
 Structural alterations
− Equipment ownership and financing
− Transfer rights
− Services provided
− Utility billing
− End of term equipment removal and restoration
− Reasonable approvals and remedies
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• COMMON LEGAL ISSUES (cont'd)
− Expansion and renewal options
− Additional power options
− Conduits to expansion spaces and telco rooms
− Use
− SNDA
− Access
 For tenant
 For landlord
− Tenant remedies and self help rights
− Force Majeure
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• SERVICE LEVEL AGREEMENT (SLA)
− Comfort assurance on technical and performance issues
− Set detailed expectations for both parties and metrics to measure
performance
− Below is a Chinese menu of possible items to address
− What is appropriate for each transaction will vary by size and nature of
transaction and negotiating leverage of the parties
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• POWER SLA
− Initiate investigation and report for:
 Interruption to either primary or secondary power supply to any
equipment
 Failure on the load side of any PDU to comply with ITIC (formerly known
as CBEMA) 2000 specs for acceptable power curve
− Outage
 Actual failure or shut downs of both A and B power cords to any
equipment
 Voluntary good faith shut down to protect equipment
 Was outage as to specific equipment, loaded cabinets or entire space
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• COOLING AND HUMIDITY SLA
− Temperature event
 ASHRAE Thermal Guidelines for Data Processing Environments:
 2004 Standard was 68°F (20°C) to 77°F (25°C)
 2008 Standard is 64.4°F (18°C) to 80.6°F (27°C)
 Future standard changes?
 Market is moving to cold aisle 85-90°F (29.4-32.2°C) and hot aisle
without limitation
 Initiate immediate investigation and report
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• COOLING AND HUMIDITY SLA (cont'd)
− Humidity event
 ASHRAE Guidelines:
 2004 Standard was 40-55% relative humidity
 2008 Standard is 60% relative humidity and 59°F (15°C)
dew point
 Future standard changes?
 Initiate immediate investigation and report
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• COOLING AND HUMIDITY SLA (cont'd)
− Measuring temperature and humidity events
 Outside standards for 15 minutes
 Results in failure or actual shut down of equipment
 Voluntary good faith shut down to protect equipment
 Customer has not loaded heat loads outside designed average density
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• SECURITY SLA
− Comply with building security protocols
 Number of guards
 Frequency of inspection
 TV monitors
 How long tapes will be kept?
 Remote access
 Biometrics
− Comply with reasonable tenant security protocols
− Sign reasonable non-disclosure agreements if requested by tenant
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• ACCESS SLA
− Building admission time for pre cleared employees or contractors
− Building admission time for non-cleared parties
− Landlord access to tenant space limited except in emergency
− Number of main points of contact
• DELIVERY OF ADDITIONAL POWER CIRCUITS OR CAPACITY
− Committed phase-in or additional power options
− How fast to deliver?
− Maximum available
− Landlord approval?
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• TELECOM CARRIER AVAILABILITY SLA
− Are telecom services provided by landlord?
− Number of carriers available
− Are Tenant’s corporate national carriers available?
− Latency
− Redundancy
 No single point of failure
 Truly redundant routes
 The realities of shared fiber and conduits
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• MAINTENANCE AND REPAIRS SLA
− Regular testing of generators, switches and systems
− Keep fire protection system in compliance with NFPA 75
− Satisfy all manufacturer recommended maintenance requirements
− Use manufacturer authorized service company
− Advance notification and tenant control over timing of scheduled
maintenance
− Audit right
− Note: maintenance and repairs often reduces redundancy
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• REPORTING SLA
− Web portal access
− Notify by email of alarms
− Notification and change management procedures
− Event escalation process
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• FACILITY CERTIFICATIONS AND AUDITS SLA
− Uptime Institute Tier Certification
 How often are these standards actually met
 How do you address facilities that don't meet these standards exactly
− AICPA Certifications
 Formerly used SAS 70 – Type 1 or 2 (superseded by SSAE 16)
 SSAE 16 (effective June 2011)
 Type 1 addresses if systems are properly described and suitable to
achieve the objectives as of a point in time (but without any testing)
 Type 2 adds if the systems operated effectively during the specified
test period to achieve those objectives based on auditor's tests
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• FACILITY CERTIFICATIONS AND AUDITS SLA (cont'd)
 SOC 1, 2 or 3 – Type 1 or 2
 SOC 1 reports on internal controls over financial reporting
 SOC 2 reports on controls over security, availability, processing
integrity, confidentiality or privacy
 SOC 3 adds compliance with additional principals
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• OUTAGE AND EVENT REMEDIES
− Immediate investigation, root cause analysis and address issues
− Tenant’s right to audit investigation and analysis
− Regular communication with tenant
− Credits for failure to meet agreed standards
 Liquidated damages, not a penalty
 Painful disincentive
 Not actual damages compensation, indemnity or reimbursement for
losses (if there are any losses)
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• OUTAGE AND EVENT REMEDIES (cont'd)
− Limited self help rights
 Only affecting equipment in or exclusively serving tenant's space
 For large tenant's possibly a right with a group of authorized providers to
service building equipment
 Make available list of manufacturers authorized service and service
contractors
− Termination Rights
 Who gets them?
 Major events
 Minor events
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• QUESTIONS
• FEEL FREE TO CONTACT ME WITH QUESTIONS IN THE FUTURE
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Jeffrey A. Moerdler
• Head of the Real Estate and Communications practices in New
York
• General commercial real estate attorney for almost 30 years
• Clients include large national companies, particularly in the hightech, telecommunications, financial services, health care,
supermarket, and oil and gas sectors as well as numerous smaller
local clients
• Member
• New York
• 212.692.6700
• [email protected]
• JD, New York University
• BA, Columbia University
• Real estate practice is both national and local and includes
representation of landlords and tenants in all types of leases;
counseling owners and developers in the acquisition, sale,
development, and renovation of property; advising lenders and
borrowers in commercial loans; and the representation of all parties in
real estate litigation
• During the past 20 years, has developed a unique specialty practice
in the intersection of real estate with technology, communications, and
energy issues
• Extensive experience representing landlords, tenants, and
communications service providers in the leasing, purchase, sale, and
financing of data centers and switch facilities, collocation facilities,
radio and television broadcast antennas, distributed and in-building
antenna systems, rooftop antennas, and fiber-optic transactions as
well as the wiring of buildings for broadband communications access
• Devoted a considerable portion of his practice to power and energy
issues related to real estate and other technology matters, including
large solar and wind installations and bulk power purchases
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