As artificial intelligence (AI), cloud computing, and data analytics accelerate the digital economy, the foundational components of these technologies are in high demand. This demand has made data center development more critical and complex than ever. More traditional data centers built for colocation and hyperscale typically cannot handle the demands and requirements of high-performance computing (HPC), Edge computing, and high-density AI-hyperscale.

These new demands – of scale, sustainability, and security – require data center owners and operators to anticipate and navigate a new range of challenges at every stage of the process. What was once a straightforward real estate or colocation transaction has evolved into a multidisciplinary negotiation involving property acquisition, zoning and land use, environmental assessments, leasing, power sourcing, project finance, joint ventures, tax incentives, government relations, procurement, technology transactions, permitting, and regulatory compliance.

At every stage, companies must understand the technological challenges unique to the rapidly evolving innovative technologies that this new breed of data centers will serve.

New partnerships are emerging to meet these evolving challenges

To meet these multidimensional challenges, many AI hyperscale tenants, Google, AWS, Microsoft, and CoreWeave, for example, are partnering with investors, property owners, developers, operators, service providers, and local stakeholders to bring new data centers online. The number and relationships of parties in these transactions create new financial, performance, and legal risks that must be carefully vetted and negotiated. Compute needs are only one factor.

Attorneys and development teams now assess power availability and reliability, including renewable energy opportunities such as battery energy storage systems (BESS) that can help flatten out peaks and valleys in hourly prices as fluctuations occur on the grid or paired solar generation facilities. BESS and other energy resources can also be located either “in-front-of-the-meter” or “behind-the-meter”, allowing data center owners options in terms of contracting directly with an energy supplier or to interconnect with the grid.

Other considerations for data center legal and development teams include network proximity, environmental constraints, tax incentives, workforce availability, and regulatory oversight as part of the design/build process. In addition, impacts to local communities and public relations are increasingly playing a role in how data centers are developed.

Likewise, because regulatory requirements and environmental considerations are rising, legal and regulatory analysis begins earlier than ever. Multidisciplinary teams must oversee due diligence on environmental permitting, energy sourcing, and land use; negotiating contract contingencies that address the real possibility of construction delays, power shortages, or community opposition at the site level. Demand for next-generation computing, especially for AI workloads, has also upended traditional deal structures. HPC infrastructure now requires power loads of 50-100kW or more per rack, compared to the 5-10kW requirements of a decade ago. This shift necessitates corresponding changes in cooling (e.g. direct liquid cooling), floor and structural loads, and fire protection standards, as well as investment in power capacity.

New, often more complex deal structures have emerged

As a result, modern data center deals are less about simply “leasing space” and more about managing risk across vendors and providers, equipment performance, uptime, and sustainability. Data center leases – which have long included baseline service level agreements (SLAs) – now routinely include detailed power delivery service level agreements, sometimes incorporating indexed power pricing, price hedging, abatement rights, or even clauses that allow termination if required megawatt increments aren’t delivered on schedule.

Cooling and operational risks are also addressed, with responsibilities clearly defined for issues like cooling system failures and other environmental factors, facility security, hardware loss, and the maintenance of necessary redundancies.

Sustainability, such as emissions reduction and green leasing terms, as well as compliance obligations, have become standard parts of these agreements, with explicit provisions for renewable energy procurement, commitments to water efficiency, and measurable climate targets written directly into the contract terms.

Cybersecurity and data privacy requirements, including physical and logical controls, are embedded in leases and O&M agreements, reflecting heightened concern over privacy and resilience.

All of this is happening against the backdrop of a growing sophistication gap between large hyperscalers and smaller data center operators. Large, monied tech companies, supported by large law firms and sophisticated in-house infrastructure teams, can negotiate long-term anchor leases, design/build and build-to-suit agreements, and joint venture agreements with bespoke risk-sharing, expansion options, and “step-in” rights if things go awry. Their leverage allows them to shape facility design and equipment providers, demand customized SLAs, transfer risk, and set the terms for long-term relationships.

Smaller operators, on the other hand, often lack the resources, contractual clout, or bandwidth for highly negotiated projects. Often, the template agreements used by middle market operators are more standardized and less responsive to rapidly shifting technical, energy, and sustainability needs of HPC. To remain competitive, many must seek consortium models, enter JVs with large private equity investors, develop niche specializations (such as Edge computing or crypto mining), or pool resources with others.

Like the facilities, legal requirements for data centers are more complex than ever

So, what does all this mean for data center companies and the attorneys who support them? The landscape is shifting toward more creative partnership structures, with joint ventures and risk-sharing development agreements becoming increasingly common; particularly in regions where power, land, or water resources are limited.

Legal due diligence is also evolving, as teams are now expected to look beyond current requirements and anticipate emerging demands in areas like sustainability, environmental justice, and security. Agreements themselves are growing more sophisticated and adaptive, with dynamic service level expectations that can adjust based on real-time operational data and evolving workloads. Smaller operators accustomed to using smaller, more localized law firms must rapidly professionalize their legal and compliance functions, either through hiring, alliances with larger players, specialization, or by developing agile responses to the requirements of next-gen deals.

For many in the data center industry, transactions are now a high-wire act, demanding close collaboration among legal, technical, and commercial teams. The winners will be those who can structure deals that are not only robust and risk-balancing but agile enough to last in a landscape where yesterday’s laws, workloads, and competitive advantages can change overnight. Data centers need legal counsel that is more than just the gatekeeper of risk, but a strategic partner in making tomorrow’s compute possible.

Rachel Conrad, senior counsel at Foley & Lardner LLP, also contributed to this article.