Quebec is booming with the arrival of several data center operators. Indeed, Quebec offers many advantages, including an affordable and abundant source of energy from Hydro-Québec’s power grid and a cooler climate. What’s more, Montreal’s worldwide reputation for artificial intelligence adds to the attractiveness of Quebec markets.
Data center operations involve a number of legal considerations. For present purposes, we will analyze three of them.
- Identification of the nature of the contract between the operator and the customer;
- Guarantees on assets; and
- Maintenance and breakdowns
1. Identify the nature of the contract between the operator and the customer
One of the first questions to ask is the legal nature of the contract by which the data center operator grants a right of access and use to a customer. This contract is usually defined as a lease, license or access agreement.
In a nutshell, the customer pays rent to use a defined space for a defined period. The lease would therefore be the preferred mechanism. However, a lease entails specific legal obligations for the operator, as set out in the Civil Code of Quebec, as well as granting the lessee specific rights (including the right to publish a notice of lease).
The granting of a right of access or license by the operator to the customer therefore represents a mechanism better adapted to the operator’s commercial realities, providing greater flexibility in terms of accessibility to the space occupied, while allowing the customer to have access to a predefined space.
We therefore urge you to be careful when drafting your commercial agreements with your customers, to distinguish clearly between a lease, a license or a right of access.
2. Granting of guarantees on assets
Contracts entered into by the operator must clearly stipulate that the customer may not grant, directly or indirectly, any guarantee or right to a creditor or third party targeting the assets of the operator or the rest of its customers.
It’s common for customers to finance their own equipment or offer it under warranty. Some customers will also request the latitude to carry out their own installation work. Customers must therefore be informed that they cannot, under any circumstances, grant broad guarantees covering data center assets (e.g. common facilities), or allow legal construction mortgages to be published on the operator’s building.
Any failure to do so must give rise to an obligation to pay compensation to the operator, in addition to giving it the discretion to terminate the access contract.
3. Maintenance and faults
Accessibility to a source of energy is a central concern for customers. As such, the operator must ensure a constant supply of electricity and provide guarantees to its customers. Indeed, the potential damage to customer activities is significant.
These guarantees often take the form of a service agreement (or service level agreement) which governs the availability of service, the operator’s scheduled maintenance periods and their duration. This same agreement also governs breakdowns, emergency maintenance and the time allowed for the operator to repair the problem. If breakdowns or emergency maintenance continue beyond the predetermined duration, the operator will offer service credits calculated on the basis of the breakdown duration and monthly payments.
The operator’s offer of service credits must therefore be clearly defined and limited. Service credits must represent liquidated damages and be the only source of recourse for customers. Indirect damages such as loss of data or financial loss must be specifically excluded.
The service level agreement must also exclude any maintenance planned by the operator’s technical team, external problems not attributable to the operator, customer-specific problems (software problems, disconnection) and force majeure.
By Audrey Robitaille
