The explosive growth of hyperscale and enterprise data center campuses has created a key structuring question: when a developer is undertaking a data center campus, with multiple buildings that may be owned, leased, financed and sold separately, but powered by one power purchase agreement or sharing certain infrastructure, what transaction structure is best suited to address the sharing of power costs and other critical infrastructure — including cooling, fiber, and backup generators?
Two potential structures are emerging. For those familiar with the energy industry, a shared facilities agreement ( SFA ) is a logical answer; however given the heavy real estate focus of a data center development, a condominium regime pursuant to the relevant state law has also been used. Choosing between the structures requires careful analysis of the commercial needs, risk allocation, long-term governance concerns, and applicable state law for the particular campus. This article provides a high-level comparison of both structures and key factors to consider in electing between the two.
The condominium association structure
Under the condominium structure, the developer forms a condominium by recording a condominium declaration encumbering the subject campus which creates condominium units that may be separately owned subject to the terms of the declaration. The relevant state statutes (e.g., in Texas, the Texas Uniform Condominium Act, Tex. Prop. Code §§ 82.001 et seq.) often set forth detailed requirements applicable to the formation and governance of a condominium regime. Each owner of a "condominium unit will also own an undivided interest in the common elements of the condominium (which in the case of a data center campus, could include shared infrastructure, such as substations, cooling systems, fiber risers, generator yards, and access roads). The ownership of such undivided interest in the common elements by one party would not always be subject to rejection through the bankruptcy of another party that also owns an undivided interest in the common elements.
While parties can customize the terms of the condominium documents, the condominium structure is generally less flexible than an SFA: the entire condominium declaration must be recorded, and the condominium regime is often subject to some level of governmental approval. These requirements can create greater administrative burden and limit the parties' ability to retain confidentiality with respect to certain terms. In addition, depending on the requirements with respect to governmental approval of the condominium, the lead time for necessary governmental approvals is another factor in the race to build data centers.
The shared facilities agreement
An SFA is a contractual arrangement among owners of separately titled parcels on a data center campus, by which those owners agree to share the use, benefits, costs, and expenses of specified infrastructure and allocate the costs of operating and maintaining such infrastructure. Such agreements are fully customizable, and parties can elect for a separate legal entity to hold and manage the shared infrastructure, with the individual facility or building owners holding an interest in such legal entity. This structure is commonly used in other sectors, including LNG terminals and co-located power projects. Typically, only a memorandum of the SFA is recorded in the public records; thus, the parties need not disclose sensitive negotiated details.
That said, one cannot simply record an SFA or memorandum and automatically make the agreement bankruptcy remote – i.e., ensure that the agreement will not be rejected in case of another party's bankruptcy and thereby preserve the agreed rights and allocation of risk. While the bankruptcy of a given party can result in the rejection of executory contracts, the bankruptcy cannot deprive another party of a real property interest recognized under applicable law. Accordingly, to insulate an SFA arrangement from bankruptcy risk, a party should take steps to ensure that its applicable interest under the SFA is an interest in land. For example, under Texas law, the following elements need to be satisfied at a minimum:
- the parties intend for the SFA to run with the land (courts look to objective manifestations in the instrument itself — MJR Oil & Gas 2001 LLC v. AriesOne, LP, 558 S.W.3d 692, 700–01 (Tex. App.—Texarkana 2018)) - express language stating that the covenant runs with the land and binds the parties' successors and assigns is the most reliable method of satisfying this prong;
- there must be privity of estate between the original parties (privity is established where there is a mutual or successive relationship to the same rights of property — Westland Oil Development Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 910–11 (Tex. 1982)) - satisfied, for example, by a recorded conveyance or assignment of an interest in the campus parcel; and
- the covenant touches and concerns the land (the general test is whether the covenant affects the nature, quality, or value of the burdened property, or affects the mode of enjoying it. Id. at 911; BK Park, Ltd. v. WBRE, LLC, 725 S.W.3d 462 (Tex. App.—Houston [14th Dist.] 2025)) - Inwood North Homeowners' Ass'n v. Harris, 736 S.W.2d 632, 635 (Tex. 1987).
Key considerations
In considering the appropriate structure, the following factors should be considered:
- Understanding of the statutory framework for condominium structures in the relevant state for the particular campus; the rules vary state to state. If the statutory requirements are too cumbersome for a given campus or arrangement, then a custom shared facilities agreement may be more appropriate.
- Incorporating other lender required terms, such as express mortgage and collateral assignment rights, notice and cure rights for lenders and specified lender consent rights.
- Whether the number of potential buildings is known up front and whether each building will have the same need for the same common elements. If these questions cannot be answered up front, an SFA may be more flexible and allow the developer to establish only the key principles to add on subsequent owners/units later.
- Large data center campuses generate significant environmental compliance obligations — particularly with respect to air quality, stormwater, and potential CERCLA exposure from on-site storage of diesel fuel, lead-acid batteries, and refrigerants. The condominium regime may, by statute, default to joint environmental liability for conditions in the common elements, even if their individual units are not the source of contamination. Consider whether and how the choice of structure may allocate such liabilities.
Practice pointers
As the size of data center campuses grow, developers would be well advised to spend some time structuring their project for ownership, financing and exit flexibility. To that end, any efficiencies gained from sharing utilities and infrastructure should be considered and documented to provide optimal bankruptcy protection. The condominium regime offers statutory certainty but in exchange for rigidity. The SFA may offer greater flexibility but could be subject to greater bankruptcy risk. The choice turns on the applicable state property laws, the specific facts of the project, the number and sophistication of owners, the financing structure, the tax incentive strategy, and the environmental profile of the shared infrastructure. Practitioners should consider these issues at the earliest stage of campus planning.
Key references:
- Tex. Prop. Code §§ 82.001–82.157 (Texas Uniform Condominium Act)
- Tex. Prop. Code § 13.001 (Bona Fide Purchaser Protection)
- MJR Oil & Gas 2001 LLC v. AriesOne, LP, 558 S.W.3d 692, 700–01 (Tex. App.—Texarkana 2018)
- Westland Oil Development Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 910–11 (Tex. 1982)
- BK Park, Ltd. v. WBRE, LLC, 725 S.W.3d 462 (Tex. App.—Houston [14th Dist.] 2025)
- Inwood North Homeowners' Ass'n v. Harris, 736 S.W.2d 632 (Tex. 1987)
- 42 U.S.C. § 7661a (Clean Air Act Title V Permitting)
- 42 U.S.C. § 9607(a) (CERCLA Liability
Amro Al-Ahmar (White & Case, Associate, Houston) contributed to the development of this publication.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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