The developer does not want to buy your land. It wants to lease it for 40 years, maybe 70 with extensions, and it has sent a letter of intent with a rent number that looks very good. Before you sign, understand what you are actually agreeing to. A data center ground lease can be a better deal than a sale. It can also leave your family owning land it cannot use, carrying risks it never priced.
For generations, Texas ranch families have leased land for grazing, hunting, farming, and oil and gas. A data center ground lease looks like one more lease. It is not. A grazing lease lets someone use your land. A data center ground lease lets someone build a billion-dollar facility on your land, finance it with a lender you never met, run it around the clock for decades, and then, unless the lease says otherwise, walk away from whatever is left.
I have practiced Texas real estate and water law for more than 28 years. The documents developers send to landowners are written carefully, by lawyers working for the tenant and its lenders. Most of what matters in them is not the rent. It is what the lease says about water, taxes, easements, the tenant’s lender, and the last day of the term.
This guide is for the landowner who has been offered a ground lease, or expects to be. If you are being asked to sell outright, start with A Texas Landowner’s Guide to Selling Property for a Data Center. Many of the same issues come up, but the answers are different when you keep the land.
What This Guide Covers
- The short version
- Should I lease or sell my land to a data center?
- What a data center ground lease actually does
- Who is your tenant, really?
- Rent, rent commencement, and who can walk away
- Property taxes and the ag valuation rollback
- Your groundwater and surface water under a lease
- Easements that outlive the lease
- The tenant’s lender and your mortgage
- Environmental risk stays with the land
- What happens when the lease ends?
- What if the tenant goes bankrupt?
- Purchase options and rights of first refusal
- Protecting the land you keep
- Questions to ask before signing
- Frequently asked questions
The Short Version
A ground lease lets you keep the land and collect rent, but only if the lease is written for you. A typical data center ground lease runs for decades, lets the tenant build and finance the facility, and gives the tenant far more rights to end the deal than it gives you.
The rollback tax is usually your problem unless the lease says otherwise. When land under an agricultural (1-d-1) valuation changes use, Texas Tax Code Section 23.55 imposes an additional tax for the three preceding years, and a lien attaches to the land. The lease should make the tenant pay it.
Your groundwater is real property, and the lease decides who uses it. Under Texas Water Code Section 36.002, you own the groundwater beneath your land. A lease that is silent, or loosely worded, can hand the tenant a large share of it for the full term.
Easements you sign for the tenant may outlast the tenant. Utility, access, and drainage easements the lease requires you to grant can burden your land permanently, long after the lease ends.
Texas has no data center decommissioning law. Wind, solar, and battery storage agreements are covered by statutory removal and financial-assurance rules. Data centers are not. If the lease does not require removal, restoration, and real security, you may inherit the building.
A tenant bankruptcy caps what you can recover. Federal bankruptcy law limits a landlord’s claim for future rent, so letters of credit, guaranties, and removal bonds matter more than the headline rent.
Should I Lease or Sell My Land to a Data Center?
There is no universal answer. It depends on what your family wants from the land over the next two generations, and on the terms each offer actually contains. What I can tell you is how the two structures differ, because the differences are larger than most landowners expect.
| Issue | Sale | Ground lease |
|---|---|---|
| Ownership | Ends at closing, subject to anything you reserve | You keep the fee title for the entire term |
| Payment | Lump sum at closing | Rent over decades, as long as the tenant pays and the lease continues |
| Credit risk | Ends when the money is in the bank | Continues for the life of the lease |
| Rollback taxes | Usually negotiated in the contract | Assessed against land you still own; must be allocated in the lease |
| Groundwater | Conveyed unless expressly reserved | Retained unless the lease grants use of it, but often granted broadly |
| Environmental exposure | Largely shifts to the buyer | You remain the owner of the land throughout |
| End of the deal | None; the buyer owns the land | You get the land back, in whatever condition the lease requires |
| Family legacy | Land leaves the family | Land stays in the family, encumbered for decades |
A lease is often pitched as the option that lets you keep the ranch. That is true in a legal sense. In a practical sense, a 40-year lease with extensions may run past the lifetimes of everyone who signs it. The land your grandchildren get back will be whatever the lease’s end-of-term clauses make it.
A lease is also a credit decision. When you sell, the buyer’s financial strength matters until the money clears. When you lease, it matters every month for decades. That changes which provisions deserve the most attention.
What a Data Center Ground Lease Actually Does
In a ground lease, you lease unimproved land. The tenant builds on it at its own expense, owns and finances the improvements during the term, and pays rent for the ground. The structure is common in commercial real estate. What makes a data center lease different is scale, duration, and what the facility needs from the land around it: power, water, access, drainage, and buffers.
Most data center ground leases share several features:
- An option or due diligence period before the lease term begins, during which the tenant tests the site, seeks approvals, and confirms power. It can usually terminate during this period for any reason.
- A long initial term with several tenant renewal options, often totaling many decades.
- Broad use rights covering the data center and “related” or “ancillary” uses, which can include substations, on-site generation, battery storage, fuel storage, and water facilities.
- Free assignment to affiliates, lenders, and successors.
- Leasehold mortgage protections that let the tenant’s lender step in if the tenant defaults.
- Limited landlord remedies. Many forms bar the landlord from terminating the lease for anything short of an uncured failure to pay rent.
None of those features is unreasonable on its own. A data center cannot be financed without some of them. The question is whether the balance between the parties is fair, and whether the protections you need are actually written in.
A lease for more than one year must be in writing and signed to be enforceable under the Texas statute of frauds, Business and Commerce Code Section 26.01(b)(5). The tenant will also record a memorandum of lease in the county real property records to protect its interest against later buyers and lenders under Property Code Section 13.001. Read the memorandum as carefully as the lease. It is the part of the deal the public, and every future title examiner, will see.
The letter of intent is where the deal is really set. Developers often describe it as non-binding, and much of it usually is. But the business terms in the LOI, such as the rent structure, the length of the option period, and who pays the rollback taxes, become the starting point for the lease. Changing a term the LOI already settled is much harder than getting it right the first time. Also check whether the LOI contains binding provisions, such as confidentiality, exclusivity, or entry for testing, before you sign it.
Who Is Your Tenant, Really?
The company whose name is on the news release is rarely the company that signs the lease. Data center projects are usually held by single-purpose LLCs formed for one site, with no assets except the lease and whatever gets built on it. The lease will also usually let the tenant assign to affiliates, to lenders, and to buyers of the project without your consent.
That matters because a single-purpose LLC that stops paying rent in year 12 may have nothing for you to collect. Before signing, find out:
- Which entity is the tenant, where it is formed, and who owns it.
- Whether a creditworthy parent will guarantee the lease, and for how long.
- Whether the tenant will post a letter of credit or other security, and whether it increases once construction starts.
- Whether the original tenant is released when it assigns the lease, and what financial standard an assignee must meet.
An assignment clause that releases the original tenant on assignment to “any entity” is a clause that can quietly swap a well-capitalized tenant for an empty one.
Rent, Rent Commencement, and Who Can Walk Away
The rent number in the offer letter is the part of the lease landowners focus on. It should be. But the timing and durability of the rent often matter more than the amount.
When does rent actually start?
Many data center leases pay modest option payments during the due diligence period and full rent only after a “commencement date” tied to construction or to the tenant’s receipt of approvals and power. Power is the critical path for these projects. Grid interconnection timelines in Texas are long and uncertain, and state regulators are scrutinizing large new loads, as I discussed in Abbott’s Data Center Pause: What It Means for Texas Landowners. Local restrictions are a live risk as well, as covered in Can Texas Cities and Counties Ban Data Centers?
If full rent starts only when the tenant says power is available, you may be tied up for years at option rates. Push for an outside date on which full rent begins regardless, or on which the tenant must either commence or release the land.
Escalations
Over a 40-year term, flat rent loses much of its value to inflation. Look for fixed periodic increases, adjustments tied to an index, or periodic reappraisal, and confirm they continue through every renewal term. A renewal at the same rent as year one of the original term is a gift to the tenant.
The termination asymmetry
This is the provision I look for first. A typical tenant form gives the tenant several ways out: during the option period, if approvals or power are not obtained, after casualty, and sometimes on notice at stated intervals. The landlord’s right to terminate is often limited to uncured nonpayment, and even that right is subject to lender cure rights.
Some asymmetry is inherent in a financed project. But if the tenant can terminate at will after year 10, you do not have a 40-year lease. You have a 10-year lease with a 30-year option held by the tenant. Price it that way, and require a meaningful termination payment and full restoration if the tenant exercises that right.
If you have an LOI or a draft ground lease in hand, the provisions that decide whether it is a good deal are usually not on the first page. Have them reviewed before the business terms are locked in.
Call 210-354-7600.
Representing Texas Land Owners. Not Data Center Developers.
Property Taxes and the Ag Valuation Rollback
Most rural land in Texas that is being leased for data centers carries an agricultural appraisal under Article VIII, Section 1-d-1 of the Texas Constitution, what most people call the “ag exemption.” That appraisal ends when the land stops being used for agriculture. When it does, a rollback tax follows.
What the rollback is and how far back it reaches
Under Tax Code Section 23.55(a), when the use of land appraised as agricultural land changes, an additional tax is imposed equal to the difference between the taxes actually imposed and the taxes that would have been imposed at market value for each of the three years preceding the year the use changes. Under Section 23.55(b), a tax lien attaches to the land to secure payment.
Three points follow for a landowner who leases rather than sells:
- The lien is on your land. You still own the land, so the tax lands on it, even though the tenant’s construction caused the change of use.
- Only the portion that changes use is affected. Under Section 23.55(d), if only part of a parcel changes use, the additional tax applies only to that part. If the tenant leases 300 acres of your 1,000, the lease and the appraisal district’s records should make clear which acres changed use and when.
- The chief appraiser decides. Under Section 23.55(e), the chief appraiser determines whether a change of use has occurred and must notify the owner, who has the right to protest. Keeping ag use going on land that is not yet under construction may preserve the appraisal on that land, but that depends on the facts and on the appraisal district.
Ongoing taxes on a billion-dollar improvement
After construction, the taxable value of the leased tract can increase dramatically. The lease should require the tenant to pay all taxes attributable to the leased premises and improvements, including rollback taxes, directly and before they become delinquent. It should give you the right to cure and be reimbursed if the tenant does not. It should also address who controls a protest, and it should require the tenant to seek a separate tax account for the leased premises where the appraisal district will allow it, so your retained land is not on the same bill.
Ask the tenant to pay the rollback tax as an express lease obligation, not as a reimbursement of whatever you pay. Include interest and penalties. If the tenant terminates before construction but after the use has changed, for example after clearing and grading, make sure the obligation survives termination. A rollback bill that arrives after the tenant is gone is yours to pay.
Your Groundwater and Surface Water Under a Lease
This is where a data center lease is most different from a ranch lease, and where I see the most dangerous drafting.
You own the groundwater, and the lease decides who uses it
Under Water Code Section 36.002(a), a landowner owns the groundwater below the surface of the land as real property. The Supreme Court of Texas confirmed that landowners have a constitutionally protected interest in groundwater in place in Edwards Aquifer Authority v. Day, 369 S.W.3d 814 (Tex. 2012). I cover the ownership rules in more depth in Who Owns the Groundwater Under Texas Lands?
A ground lease grants the tenant the use of the leased premises. Whether that includes the right to drill and produce groundwater depends on how the lease is written. Tenant forms often grant “all rights appurtenant” to the premises, or expressly allow wells, without limits on volume, aquifer, or purpose. Some data centers use very little water. Others, depending on cooling design, can use a great deal. The lease should say which one you are signing up for.
At a minimum, the water provisions should address:
- Whether the tenant may drill at all, and if so, how many wells, in which formations, and for which uses.
- Volume limits, stated in acre-feet or gallons per year, and a prohibition on selling or exporting water off the premises.
- Whose name is on the permit. Groundwater conservation districts issue permits under Chapter 36 of the Water Code. The lease should address who applies, in whose name, and what happens to the permit and any historic-use record when the lease ends.
- Your retained acreage. Some districts tie permitted production to the acreage a permit holder controls. Make sure the tenant cannot count your retained land toward its production, or reduce what you can produce from the land you keep.
- Monitoring and replacement. Baseline testing of your existing wells, periodic monitoring, and an obligation to deepen or replace a well the tenant’s pumping impairs.
If your land is within the jurisdiction of the Edwards Aquifer Authority, withdrawal rights are governed by the Authority’s own statute and rules, and they carry their own transfer and use requirements. A lease that touches Edwards rights needs to address them expressly. I discuss how the Authority fits into local development in Medina County Data Centers: What Landowners Need to Know.
A reminder from a different context: a reservation of minerals does not reserve groundwater, as I explain in Mineral Reservation in Deed Doesn’t Reserve Groundwater. Water rights are only protected when they are addressed specifically.
Surface water is the State’s, not yours to lease
Water in a creek or river is state water. Under Water Code Section 11.121, no one may appropriate state water without a permit from the Texas Commission on Environmental Quality, except under specific exemptions. A lease cannot grant a tenant surface water rights you do not hold. If you do hold an existing water right, the lease should say whether the tenant may use it. The default answer should be no.
Drainage from the leased tract
A data center site involves acres of roof, pavement, and graded pads. Water Code Section 11.086 prohibits diverting or impounding the natural flow of surface water in a manner that damages another’s property. If the tenant’s site sends water onto a neighbor, or onto your own retained land, the lease should require the tenant to design, maintain, and pay for drainage and to indemnify you. I cover the diversion law in detail in What Happens When Data Center Construction Floods My Land? and Water Diversion and Section 11.086 Texas Water Code.
How a large new pumper can affect wells nearby, including your own on retained land, is covered in Will a Data Center Drain My Water Well?
Water terms are where a data center lease can quietly transfer value that never shows up in the rent. If your land has groundwater worth protecting, address it in the LOI, not after the lease is drafted.
Call 210-354-7600.
Representing Texas Land Owners. Not Data Center Developers.
Easements That Outlive the Lease
A tenant can only grant rights in what it has, which is a leasehold. Utilities, pipelines, road authorities, and neighboring owners usually want rights that will not end when the lease does. So data center leases routinely include a clause requiring the landlord to “cooperate with” and “join in” easements the tenant needs for access, utilities, water, wastewater, fiber, and drainage.
That clause deserves close attention, because an easement you sign as the fee owner is typically a permanent burden on your land. It can survive the lease, survive the tenant, and dictate where your future roads, fences, and homesites can go. I explain why easement location and scope matter in Vague Easement Location Must Be Specified, and how access disputes arise in our easement and access dispute practice.
A landowner-protective lease will usually:
- Require your consent to any easement over land outside the leased premises, with location, width, and purpose approved in advance.
- Require that easements over the leased premises terminate when the lease ends, where the grantee will accept that.
- Give you separate compensation for easements over retained land, rather than treating them as covered by the rent.
- Require the tenant to restore the surface after construction and to indemnify you for the grantee’s use.
The Tenant’s Lender and Your Mortgage
A leasehold mortgage is normal. Subordinating your land is not.
The tenant will finance construction with a mortgage on its leasehold. The lease will give that lender notice of defaults, extra time to cure, and the right to step into the lease or obtain a new lease if the tenant fails. Those provisions are standard and usually necessary to get a project financed.
What you should not agree to is subordinating your fee title to the tenant’s lender. If your land secures the tenant’s loan, a default by the tenant can put your ownership at risk. Read the financing article of the lease for words like “subordinate,” “join in the mortgage,” or “encumber the fee.” They should not be there.
If your land already has a mortgage on it
If your land is already subject to a deed of trust, your lender’s lien is ahead of the lease. The tenant will want a subordination, non-disturbance, and attornment agreement from your lender so its lease survives a foreclosure on your loan. Your loan documents may also require your lender’s consent before you lease. Talk to your lender early. A lease signed in violation of your loan documents creates a problem with your own bank before it creates one with the tenant.
Environmental Risk Stays With the Land
Data centers store large volumes of diesel for backup generation, and many include battery systems, transformers, and cooling chemicals. Most of it is handled safely. When it is not, the question becomes who pays.
Under the federal Superfund statute, 42 U.S.C. Section 9607(a), the current owner of a facility where hazardous substances were released can be liable for cleanup costs even if someone else caused the release. As the landlord, you remain the owner of the land throughout the lease.
The lease should require:
- A baseline environmental site assessment before the tenant takes possession, so there is a record of the land’s condition.
- Compliance with all environmental laws, including state rules for petroleum storage tanks administered by the TCEQ.
- An environmental indemnity from the tenant, backed by the guarantor, that survives the end of the lease.
- An exit assessment and remediation obligation at the end of the term.
What Happens When the Lease Ends?
This is the question that separates a good ground lease from a costly one, and it is the one tenant forms handle most loosely.
Who owns the buildings?
During the term, the tenant usually owns the improvements. At the end, many forms say the improvements “become the property of Landlord.” That sounds generous. It may not be. A 40-year-old data center building, designed around equipment that will be obsolete, may have no economic use and substantial removal cost. Owning it can be a liability, not an asset.
The better approach is to give yourself the choice. The lease should let you elect, near the end of the term, either to keep specified improvements or to require the tenant to remove them and restore the land.
Texas has no data center decommissioning statute
The Legislature has addressed this problem for other kinds of energy infrastructure. Leases and easements for wind facilities under Utilities Code Chapter 301, solar facilities under Chapter 302, and, since September 1, 2025, battery energy storage facilities under Chapter 303 must include removal obligations and financial assurance for the landowner.
As of this writing, there is no comparable statute for data centers. Whatever protection you have at the end of a data center lease is the protection you negotiate. If the project includes on-site solar or battery storage, those components may fall under the statutes above, but the data center itself does not.
A removal and restoration clause should specify:
- What must be removed, including foundations, below-grade utilities, and fuel systems, and to what depth.
- The restoration standard, such as returning the surface to a condition suitable for agricultural use.
- A deadline after the lease ends, with the tenant paying holdover rent until it is met.
- Financial assurance, such as a bond or letter of credit, sized by an independent engineer’s estimate, updated periodically, and in place well before the end of the term.
- Your right to do the work and draw on the security if the tenant does not.
Removal security is most often put off until “year 30.” By year 30, the tenant may be an assignee you never met, and the original guarantor may have been released. Require the security to be posted earlier and to increase over time, and make it a condition of any assignment that the assignee replace it before the original tenant is released.
What If the Tenant Goes Bankrupt?
Long leases outlive business plans. If the tenant files bankruptcy, federal law controls what happens next, and it is not generous to landlords.
Under 11 U.S.C. Section 365(d)(4), a debtor tenant must decide whether to assume or reject a nonresidential real property lease within a limited period, generally 120 days, which the court can extend for cause. If the lease is rejected, 11 U.S.C. Section 502(b)(6) caps the landlord’s claim for future rent at the greater of one year’s rent or 15 percent of the remaining rent, not to exceed three years, plus unpaid rent already due.
For a 40-year lease, that cap means the rent stream you were counting on may convert into a limited unsecured claim. The practical protections are the ones that do not depend on the tenant’s estate: a creditworthy guarantor, a letter of credit, removal security held by a third party, and a lease that returns the land to you in usable condition.
Purchase Options and Rights of First Refusal
Some ground leases include a tenant option to buy the land, or a right of first refusal if you decide to sell. These provisions turn a lease into a potential sale, often on terms set decades in advance.
A fixed purchase price that looks fair in 2026 can look very different in 2046. If you agree to an option, tie the price to a current appraisal at the time of exercise, with a floor, and limit when it can be exercised. A right of first refusal can chill your ability to sell the land to anyone else, because buyers know the tenant can match. I explain how those rights work in What Is a Right of First Refusal? If you are seriously considering a sale, the terms that matter are covered in our guide to selling property for a data center.
What about minerals?
If the minerals under your land are owned by someone else, the mineral estate is dominant, and the tenant’s facility may be exposed to the mineral owner’s reasonable use of the surface, subject to the accommodation doctrine the Supreme Court of Texas recognized in Getty Oil Co. v. Jones, 470 S.W.2d 618 (Tex. 1971). Tenants usually require the landlord to address this, often through surface use agreements or waivers. Make sure the lease does not make you warrant things about the mineral estate that you do not control.
Protecting the Land You Keep
Most landowners who lease to a data center keep some land: the house, the rest of the ranch, a pasture along the road. You will live next to the facility you leased to, and the lease is your best chance to set the rules for that relationship. It is far easier to negotiate them as the landlord than to litigate them later as a neighbor.
Consider including:
- Setbacks and landscaped buffers from your retained land and homesite.
- Equipment placement, such as generators, cooling equipment, and substations, away from your house.
- Measurable noise limits at your property line and downward-directed, shielded lighting.
- Road use, repair, and gate obligations during construction and operation.
- Fence standards and livestock protection.
The kinds of impacts neighbors experience are covered in Living Next to a Data Center: A Texas Landowner’s Guide, When Data Center Lights or Noise Interfere With Your Property Enjoyment, and Will a Data Center Next Door Lower My Property Value? The value of your retained land after the facility is built is part of the economics of the lease, not a separate question.
Questions Every Texas Landowner Should Ask Before Signing a Data Center Ground Lease
About the tenant
- Which entity is the tenant, and who guarantees its obligations?
- What security will the tenant post, and when does it increase?
- Can the tenant assign without my consent, and is it released when it does?
About the money
- When does full rent begin, and is there an outside date?
- How does rent escalate, including during renewal terms?
- When can the tenant terminate, and what does it pay if it does?
- Who pays the rollback tax, and does that obligation survive termination?
About the water
- May the tenant drill wells, and if so, how many, into which formations, and for how much water?
- In whose name will any groundwater permit be issued, and what happens to it at the end of the lease?
- Can the tenant count my retained acreage toward its production?
- Will my existing wells be tested and monitored, and who pays if they are impaired?
About the land
- What easements will I be required to sign, and will they end when the lease ends?
- Is my fee title being subordinated to anyone’s lender?
- What environmental baseline and indemnity protect me?
- What must be removed at the end, what security backs that obligation, and when is it posted?
- What protections apply to the land I keep?
Do not sign it to “hold your place.” Keep the envelope, the cover letter, and every email. Note any stated deadline, and do not let it drive the decision. Find out whether any part of the document is binding. Pull your deed, your current appraisal district record, and any water permits or well records. Then have the document reviewed before you respond with changes, because your first response sets the tone for everything that follows.
A data center ground lease will shape how your family uses its land for decades. Before signing the developer’s first document, understand what it does to your water, your taxes, your retained land, and the day the lease ends.
Call 210-354-7600 to talk through your offer.
Representing Texas Land Owners. Not Data Center Developers.
Related Guides
- Texas Data Center Landowner Attorney, the hub for this series
- A Texas Landowner’s Guide to Selling Property for a Data Center
- Living Next to a Data Center: A Texas Landowner’s Guide
- Will a Data Center Drain My Water Well?
- What Happens When Data Center Construction Floods My Land?
- Will a Data Center Next Door Lower My Property Value?
- Can Texas Cities and Counties Ban Data Centers?
- Can I Stop a Data Center Next to My Texas Property?
- Medina County Data Centers: What Landowners Need to Know
- Who Owns the Groundwater Under Texas Lands?
Frequently Asked Questions
Is it better to lease or sell my land to a data center in Texas?
It depends on your goals and the actual terms. A sale ends your ownership and your exposure in exchange for a lump sum. A ground lease lets you keep the land and collect rent, but it exposes you to the tenant’s credit for decades, leaves you owning the land for tax and environmental purposes, and returns the land in whatever condition the lease requires. A lease is only better than a sale if it includes real security, clear water terms, allocation of rollback taxes, and enforceable removal and restoration obligations.
Who pays the ag exemption rollback tax if I lease my land to a data center?
Under Texas Tax Code Section 23.55, when land under an agricultural valuation changes use, an additional tax equal to the savings for the three preceding years is imposed, and a lien attaches to the land. Because you still own the land under a lease, the tax is assessed against your land unless the lease makes the tenant responsible. The lease should require the tenant to pay rollback taxes directly, including interest and penalties, and that obligation should survive termination.
Can a data center tenant use the groundwater under my land?
Only if the lease allows it. Texas Water Code Section 36.002 recognizes that a landowner owns the groundwater beneath the land as real property. A ground lease can grant the tenant the right to drill and produce that water, and tenant forms often do so broadly. The lease should specify whether wells are allowed, volume limits, whose name any groundwater district permit is in, what happens to the permit at the end of the lease, and protection for your existing wells.
What happens to the data center building when the ground lease ends?
Whatever the lease says. Many tenant forms give the improvements to the landlord at the end of the term, which may leave you with an obsolete building and its removal cost. Texas has statutory removal and financial-assurance requirements for wind, solar, and battery storage agreements, but not for data centers. A landowner-protective lease lets you choose whether to keep or require removal of improvements, sets a restoration standard, and requires a bond or letter of credit to back it.
What happens if my data center tenant goes bankrupt?
Federal bankruptcy law gives a debtor tenant a limited time to assume or reject a nonresidential lease, and if the lease is rejected, 11 U.S.C. Section 502(b)(6) caps the landlord’s claim for future rent at the greater of one year’s rent or 15 percent of the remaining rent, not to exceed three years. For a long ground lease, that makes guaranties, letters of credit, and third-party removal security far more important than the headline rent.
Will I have to sign easements for the data center if I lease my land?
Probably. Data center ground leases usually require the landlord to join in easements the tenant needs for access, utilities, water, fiber, and drainage, because a tenant can only grant rights in its leasehold. An easement signed by the fee owner can permanently burden the land and survive the lease. The lease should require your approval of location and scope, termination of easements with the lease where possible, and separate compensation for easements across land you keep.
Can the tenant’s lender take my land if the data center defaults?
Not if the lease is properly drafted. The tenant’s lender normally takes a mortgage on the leasehold, not your land, and receives notice and cure rights. The landowner should not agree to subordinate the fee title to the tenant’s financing. If your land already has a mortgage, the tenant will usually want a non-disturbance agreement from your lender, and your loan documents may require the lender’s consent to the lease.
Do I need to record a data center ground lease?
The tenant will almost always record a memorandum of lease in the county real property records to protect its interest against later purchasers and creditors under Texas Property Code Section 13.001. A lease longer than one year must also be in writing and signed to be enforceable under the statute of frauds. Review the memorandum carefully, because it is the document future title examiners and buyers will rely on.
