Insights from our future of data centres series

Legal roadmap for data centre developmen

• Consenting and zoning requirements vary significantly between jurisdictions. For example in the UK, development is plan-led, with industrial or brownfield sites near urban edges favoured for new facilities. In continental Europe, zoning is often more prescriptive, with specific data centre districts and exclusion zones channelling development sites.
• The common and emerging bottleneck for new development is securing power and grid connection. Developers require certainty of power supply before committing to major investments; this means that grid connection (and the connection queue position), or onsite power options need to be understood and scoped up-front.  Grid connection constraints are acute in Ireland, where data centres consume 22% of national power and a moratorium on new connections has been in place since 2021. Operators are moving towards flexible grid agreements and onsite generation, including gas turbines and hydrogen-ready systems, to future-proof operations and support grid resilience. Even in the Middle East where power availability has been less of an issue, developers are considering renewable energy sources amongst other sources.
• Water and cooling are emerging pinch points. In water-stressed jurisdictions such as Spain and France, regulators are pushing developers towards air or hybrid cooling. In the Middle East, water availability for cooling systems is critical and companies are considering alternate technologies including recycling systems. Additionally, the EU Energy Efficiency Directive has made heat reuse a major planning lever, and early engagement with district heat networks and industrial users is necessary to successfully navigate this. 
• Construction risks for data centre projects include coordination in securing grid connection, long lead times for critical equipment (9-18 months), and complex integration of IT and construction scopes, often using construction contract templates which are not fully fit for purpose.  Care is therefore required in planning projects to manage all of these points, and include appropriate contractual protections so that the various scopes of work can form a well-integrated whole. 

Business Models, Financing, and Future Trends

• AI-driven demand is reshaping data centre business models. Traditional data centres relied on hyperscalers or single large users as anchor tenants, with enterprise SaaS, networks and other smaller tenants rounding out the model.  AI is changing the logic of this model: latency is less important for AI training, and instead key factors in data centre location include power price, grid capacity, cooling, and fibre connectivity, and long-term power agreements are a critical part of the development. For AI inference, low latency is the driving factor, so proximity to users, data, and networks are instead the critical factors.
• Obsolescence is a particular risk in this sector (and long-term investors will be mindful of this), as technologies and equipment in data centres can become outdated or require more frequent upgrades compared to other building types. 
• There is no single financing model for data centres, and the financing structures are evolving, with combinations of project finance, real estate finance, and hybrids increasingly common for data centres. The variety of financing models means there is room for a variety of investors entering the sector; including private equity, infrastructure funds, and real estate funds. An increasing trend is private capital being increasingly deployed in data centres. The sector offers scope for operators to adapt to changing customer needs and advances in technology. This adaptability and income diversity make data centres a secure and appealing choice for investors.
• Bankability assessments will consider the asset type, offtake contracts or alternative revenue streams, long-term contracts, sponsor experience, and access to power, grid, water, and cooling. The main issues for lenders are usually related to connectivity and energy supply, which (as noted above), is rapidly becoming the critical issue in successful data centre development and financing. 

Disputes and Risks in data centres

• Disputes in the data centre sector commonly arise from network modernisation and expansion, supply chain disruption, technology disputes and reliance on specialist subcontractors. 
• The nature and extent of interdependencies in construction can create delays and cost overruns; this is particularly acute for data centre developments given the overlaps and complex interfaces between the scope of work for construction and IT contractors.  The specialist scopes of work required for data centre development means that reliance on specialist subcontractors can have a disproportionate impact and become critical to successful delivery.  This can be exacerbated by supply chain disruption, particularly where there are long-lead time components. The pace and complexity of data centre projects means that strong contract governance is vital, with prompt resolution of issues essential to avoid delays and uncertainty.
• Operations carry additional and different risks. Cyber security regulation is increasing worldwide and starting to target data centres. In the UK (for example), legislation has been introduced to expand the current Networking Information Security Regulations, specifying particular levels of cyber security protection and incident notification obligations, with penalties and restrictions on data centre operators who don’t comply with these requirements. 
• There are increasing risks posed by data localisation and data sovereignty requirements, with different jurisdictions taking different approaches on this. Emerging solutions include data embassies (where data is hosted by another country, it is governed by the law of the country of origin) and sovereign cloud options, but this requires bilateral agreement between both countries and careful legal structuring. Data centres operators need to remain alive to the evolving legislation in this space, and draft suitable contractual protections for these matters.

 Conclusion

The data centre sector stands at the intersection of technology, energy, law, and finance. Developers and investors must navigate complex consenting regimes, grid constraints, environmental regulation, and rapid technological change. Success will depend on integrated legal strategies, robust contractual management, flexible business models, and proactive engagement with regulators and stakeholders. As AI and quantum computing drive demand, the sector must adapt to ensure resilience, sustainability, and continued growth.