Legal and Regulatory Risks Involving Data Centers

Norton Rose Fulbright warns businesses involved in the development, financing, or operation of data centers that they must navigate a complicated legal and regulatory environment.

Regulatory compliance with these evolving obligations is essential for investor and lender due diligence. Failure to comply can result in severe penalties and jeopardize the project’s viability.

Key challenges include energy consumption, data sovereignty, trade tariffs, scrutiny of foreign investment, and evolving securitization structures. Each of these issues is crucial for minimizing risk and maintaining operational resilience.

The background to these complexities lies in the rapid growth of the data center industry and its designation as critical infrastructure.

As data centers increasingly underpin cloud computing and artificial intelligence, they require continuous, high-capacity electricity amid mounting pressure to decarbonize.

Simultaneously, governments are enacting laws aimed at securing sensitive data, managing trade relationships, and protecting national security. 

Regulators in both the EU and UK are setting stricter benchmarks for energy efficiency and disclosure, while also scrutinizing mergers, acquisitions, and foreign investments.

Key developments include the UK’s Office of Gas and Electricity Markets’ TM04+ reforms to accelerate power grid access, as well as new EU directives imposing stricter energy standards, such as Germany’s mandate for full renewable energy sourcing by 2027.

Global trends in data sovereignty, especially in China, India, and Saudi Arabia, are reshaping infrastructure decisions.

Tariffs have increased costs for developers and supply chains, while antitrust considerations are increasingly affecting labor and partnership agreements.

Fragmented European regulations limit the adoption of securitisation models used in the US.

Lawyers advising clients in the data center space should stress the importance of early-stage regulatory diligence and the need to stay ahead of jurisdiction-specific developments.

Legal teams must help clients craft adaptive, cross-border strategies that manage compliance risks in areas such as energy use, data governance, trade exposure, and investment scrutiny, while preserving business agility.