III. The Terms of the Lease and the First Amendment to the Lease

A. Terms of the Original Lease

Since neither Sempra nor SDG&E sought previous approval of the underlying lease with ADP, under Section 851, we must review the lease terms to determine if extension of the lease is in the public interest.²

SDG&E has agreed to lease ADP approximately 20.9% of the rentable space in the building (the leased area) solely for use as a data center.

ADP pays SDG&E rent on a monthly basis. The base monthly rent for the leased area was set at $38,310 per month, effective February 15, 2000, in the original lease. However, the lease provides for an annual 3% increase in rent, effective March 1 of each successive year. ADP is also responsible for paying a proportional share of the increase in taxes or operating expenses for the property, as compared to the taxes and operating expenses in effect during the base year of the lease. Under the lease extension approved in this decision, ADP will pay SDG&E $45,744.14 per month in rent, as well as 20.9% of the increase in taxes, insurance and maintenance, as in the previous years of tenancy.

ADP is permitted to have access to the portions of the building operated by SDG&E, the exterior of the building, and parts of the property other than the leased area only as necessary to construct, install, maintain, repair, or inspect tenant improvements or to take other actions necessary to exercise ADP's rights or fulfill ADP's obligations under the lease. However, ADP shares the parking lot with SDG&E and has the right to use 30 paved spaces and may use the loading dock during certain hours.

Except in emergencies, ADP must give SDG&E reasonable advance notice of its need to enter the portion of the building occupied by SDG&E.

SDG&E must maintain the property, except for tenant improvements, in good repair.

ADP has the right to make tenant improvements to the leased area, after obtaining SDG&E's advance approval. ADP must maintain these improvements in good repair at its own expense. Tenant improvements remain the sole property of ADP.

SDG&E must maintain insurance covering the entire building and property during the lease term. ADP must also maintain insurance on its own property and tenant improvements during the lease term.

ADP has agreed to indemnify, defend and hold SDG&E harmless from any and all claims, liability or damages arising from the death or personal injury of any person or damage to SDG&E's property, except when the death, personal injury, or property damage results from the negligence or willful misconduct of SDG&E, a violation of law by SDG&E, a structural failure of the building, or any condition in the building that ADP is not obligated to repair under the lease.

SDG&E has agreed to indemnify, defend, and hold ADP harmless from any and all claims, liability or damages resulting from the death or personal injury of any person or damage to any property, except to the extent that the death, personal injury or property damage results from the negligence or willful misconduct of ADP, a violation of law by ADP, breach of ADP's duty to make repairs under the lease, or any condition in the building that SDG&E has no duty to repair under the lease.

Both parties have agreed to comply with all laws and regulations affecting the condition, use and occupancy of the building, including legal requirements related to the use, storage or disposal of hazardous materials and hazardous wastes. The parties have indemnified each other from all claims, damages and liability that may result as a result of failure of the other party to comply with legal requirements related to hazardous materials or hazardous wastes.

So long as ADP is not in default, ADP may continue to occupy the leased area during the lease term and the term of any extensions. A default occurs under the lease if:

· Either party fails to pay an amount due for longer than 10 days after receiving written notice from the other party;




· Either party fails to perform any condition, covenant or lease provision that it is required to perform under the lease for more than 30 days after receipt of written notice from the other party. However, if more than 30 days is needed for the party to come into compliance with the lease terms, a default will not occur so long as the party begins corrective action within 15 days of receipt of the notice and diligently works to complete the corrective action.

In the event of a default by ADP, SDG&E may terminate the lease and seek damages, continue the lease and enforce its rights, or pursue other legal remedies.

The lease also terminates as to any part of the property that is taken through eminent domain. Under certain circumstances, the parties may also terminate the lease if more than 10% of the floor space of the office building is condemned or sold, and the premises cannot be made operational, or if condemnation or sale materially interferes with the ability of a party to conduct its operations. In addition, the lease terminates if the building is totally damaged so that it is not operational, or under certain circumstances, if the building is partially damaged and the damage is not covered by SDG&E's insurance.

ADP may not assign, transfer, mortgage, sublease or encumber the leased area without SDG&E's consent. If ADP subleases or assigns the lease, ADP remains primarily responsible for payment of the rent and the performance of lease obligations.

If SDG&E assigns its interest in the lease, the assignee must agree in writing to honor ADP's rights under the lease. If SDG&E leases any other portion of the building or the property, the lease shall require the new tenant to honor ADP's rights under this lease.

B. Terms of the First Amendment to Lease Agreement

Under the First Amendment to Lease Agreement (Lease Amendment), which took effect on March 1, 2005, the parties agreed that SDG&E would apply to the Commission for authorization to extend the lease term from March 1, 2006 through February 28, 2007. SDG&E will notify ADP if the Commission approves the application. ADP may then opt to extend the lease through February 28, 2007, upon the same terms as the original lease, so long as ADP is not in default. SDG&E would continue to receive a 3% increase in the rent for each additional year under the lease.