Data center owners and landlords face significant risks when leasing highly specialized facilities to technology companies, cloud providers, telecommunications companies, and other data-intensive businesses. Transactions frequently involve sophisticated counterparties, substantial capital investments, and leases that extend across jurisdictions.
RRD advises data center owners and landlords nationwide on negotiating and structuring data center leases and related protections designed to safeguard their investments and maximize recovery if a tenant defaults or files for bankruptcy. We draw on the experience of our seasoned attorneys across interdisciplinary practices, including Utilities, Energy & Telecommunications, Real Estate, Litigation, and Bankruptcy and Creditor’s Rights. This collaborative approach allows us to address the legal and business considerations that can affect the value of a data center investment.
Data Center Lease Protections for Owners and Landlords
Our attorneys help data center owners and landlords identify and address financial, operational, and legal risks before they become disputes. We assist with:
- Letters of credit and other security arrangements
- Third-party guaranties
- Lease provisions addressing tenant defaults and bankruptcy
- Bankruptcy and lease rejection issues
- Tenant and guarantor credit and financial diligence
- Default, enforcement, and recovery strategies
Protecting Data Center Landlords in a Tenant Default or Bankruptcy
The most effective time to protect a landlord’s interests is before a tenant defaults or files for bankruptcy. Our attorneys help owners structure letters of credit, guaranties and other protections and incorporate those protections into leases and related agreements.
Properly drafted letters of credit may provide an independent source of payment that is generally not subject to the tenant’s bankruptcy estate. The language governing the letter of credit and lease is critical, including provisions addressing draws, notice requirements, and expiration dates.
Our attorneys also advise landlords on third-party guaranties, which can provide an additional source of recovery when a tenant enters bankruptcy.
Data Center Service Agreements
Data center owners and operators need to identify risks which result in system downtime.Because data center downtime can translate quickly into significant financial losses, our attorneys can assist in the review, drafting, and negotiation of data center service agreements, including master service and service level agreements, to ensure that the physical infrastructure (power, cooling, security, and connectivity) is reliably maintained under strict financial penalties. We also provide practical guidance to the various stakeholders involved in data center development and utilization, assisting with the development of necessary colocation leases and power agreements, interconnection and cross-connect agreements for proper risk allocation and liability protection.