Data Center Developers Are Knocking—Are You Ready?

Written by Matt Turowski

Throughout Pennsylvania landowners are being presented with the following scenario.  One day there will be a knock at your door by someone you don’t recognize, but wants to talk to you about your property.   Unknown to you, the person has a lot of experience in real estate acquisitions and is very skilled in negotiation.  You on the other hand, may have only ever bought one property, and, perhaps never bought a property.  Rather, you may have inherited the family farm which was passed on through the generations.  The playing field is not level.

The person tells you an unidentified buyer is interested in possibly buying your property for a project, the description is vague, but the term “data center” is mentioned. Not being versed in real estate transactions, you don’t know understand a lot of the details.  The one thing, however, that does stand out is the amount of money being offered for your property.  It is substantial, in fact, it is so much that it can be generational wealth.  You say “I’m interested” and are told “we’ll get you the papers to sign in a couple of days.”  This starts the process of “hurry up and sign,” “wait” and then “hurry up (and maybe)  close.”

In a few days the “hurry up” process starts.  You receive one of two things, either a “Letter of Intent” or an “Option Agreement” and you are pressured to sign because the buyer has “deadlines” that they need to meet for their project.

The Letter of Intent is several pages and sets forth the basic terms and conditions of what the buyer says is the “deal” and gives a certain period of time to enter into a binding “agreement” (that they prepare).  The “Option Agreement” on the other hand, is a document, usually at least twenty pages, with a number of exhibits that, if signed, would be the binding agreement between the parties.  This give the buyer the option to purchase your property if certain conditions are met.

These types of transactions all have a “due diligence” period, where the buyer has the right to get all of their permits and approvals for their intended use of the property.   This is the “waiting” period and it can be very long, sometimes years.  If the buyer gets the necessary approvals, they then exercise their “option” to purchase and you sell the property and get paid.  Many times the closing follows very shortly after the approvals are granted (i.e. the second “hurry up” period).  If they don’t get their approvals, they can terminate, walk away and the money disappears.

At this point you have a choice: (a) proceed on your own to review what is presented and sign; or (b) get legal assistance from an attorney that has substantial experience in land use matters and negotiating  complex real estate agreements.   To protect your interests, choosing experienced legal counsel is the best course of action because the “devil is in the details.”

Data centers are a relatively new land use in Pennsylvania.  Many municipalities do not have ordinances regulating them or are in the process of drafting ordinances to address them. There is also a tremendous amount of pressure being placed on municipal officials by citizens who oppose data centers.   There will most likely be hearings before zoning boards and planning commissions on any data center application.  These hearings can be very contentious and go on for substantial periods of time with no assurance that the approvals will be granted during the due diligence period.  Sometimes these approvals are not granted.

There are many provisions that you can have included in these agreements which benefit you as the landowner.  Such items include: a limit on the due diligence period,  a non-refundable signing bonus, favorable allocation of realty transfer taxes,  reducing your restrictions on property usage until closing, limiting the scope of representations and warranties (including the duration following closing), liability for Clean and Green rollback, repair and restoration of damage to your property during due diligence and post-closing rights of occupancy of the property (if necessary).  The last item is very important because many agreements require a quick closing after the approvals are granted.  Others will be looking for replacement housing and list of available housing may be small. 

 What is needed is a carefully drafted agreement which addresses your unique, particular circumstances.  No two situations are alike.  Time needs to be spent drafting an agreement with the assistance of a skilled attorney to level the playing field and protect your interests. 

Before you sign anything, make sure your interests are fully protected. Contact MPL Law Firm to review your agreement and help you navigate these complex transactions with confidence.