Navigating hyperscale lease terms and termination rights: New risks for developers and lenders

Recent activity in the data center market has renewed focus on the tension between the long-term nature of hyperscale leases, which often span 15 to 20 years, and tenants’ growing demand for termination rights. In response, provisions are increasingly being used to manage construction delays, operational uncertainty, and changing business priorities.

In several notable cases this year, tenants have exercised termination rights or withdrawn from major lease commitments. These decisions have left developers with unoccupied facilities and lenders facing increased exposure, illustrating how termination clauses can directly affect the financing and marketing of data center projects.

As the sector continues to evolve, lease structures must carefully balance tenant flexibility with the stability required by landlords and capital providers. The growing use of termination rights is prompting a reassessment of how these agreements are negotiated and underwritten.

For a video on practical guidance on hyperscale lease negotiations and termination rights from Stacy Osmond, please visit DLA Piper's Data Center Video Series.

DLA Piper has advised on multiple transactions involving these issues and continues to support clients in structuring commercially viable and financeable lease terms. If you are considering a new data center lease or need to review your existing agreements, please contact us to discuss how DLA Piper can help you address these critical issues and protect your interests.