To operate in the crypto or AI space, it is often necessary for parties to enter into a Hosting Services Agreement or Colocation Agreement to secure capacity in a data center.  Those agreements can contain landmines that erupt in litigation, and unless they are quickly and satisfactorily resolved, they can threaten essential operations and cause unintended consequences. 

Although the issues can vary depending on the specific terms of the Hosting Services Agreement, among the most common areas of dispute are:

Disputes over power

Power source and supply are normally the most critical and expensive components of a Hosting Services Agreement or Colocation arrangement, particularly with the rise of high-performance computing workloads, such as AI and crypto-mining uses. If a Hosting Agreement does not clearly define allocated power to the user’s equipment, how that power is delivered and used, and related billing issues, the parties can easily fall into dispute over how those features and costs are handled.  Misunderstandings over line loses can also be fertile ground for disagreements once the operations are fully underway.  And given the mission critical function of power delivery, use, and billing in hosting agreements, both parties will be heavily scrutinizing these aspects during the term of the agreement.

Performance Delays

Colocation or Hosting Agreements present significant litigation risk around performance delays, particularly tied to Ready-for-Service (RFS) timelines. Missed provisioning or operational deadlines can trigger disputes over lost revenue, operational disruption, and responsibility for delay. These risks are heightened where agreements lack clear mechanisms to allocate responsibility between customer and provider. Litigation exposure can be reduced by defining objective RFS milestones, incorporating tiered credits tied to delay severity, and specifying termination rights with clear causation standards so each party’s liability is predictable and defensible.

Disputes over Service-Level Agreements

Service level agreements (SLAs) and pricing structures are another frequent source of disputes because they tie technical performance metrics with financial consequences. Ambiguity in uptime guarantees, power availability, or escalation clauses can lead to disagreements over whether a breach occurred and what remedies apply. To minimize litigation risk, parties should draft SLAs with precise technical definitions, ensure remedies (such as credits) are clearly characterized as exclusive or non-exclusive, and align pricing escalation mechanisms with objective indices or agreed thresholds to minimize interpretive disputes.

The Role of Risk Allocation

Risk allocation provisions, particularly liability caps, indemnities, and disaster recovery obligations, are often central to litigation outcomes. Host entities often seek to cap liability and exclude consequential damages, while users attempt to preserve recovery for high-impact losses such as equipment damage or business interruption. Disputes frequently arise over the interplay between liability limitations, SLA credits, and catastrophic events like force majeure or prolonged outages. Parties can mitigate this risk by carefully negotiating carve-outs for gross negligence or specific hazards like fire, aligning insurance coverage with contractual risk allocation, and clearly defining responsibilities during force majeure and continuity events.

Dispute Resolution Options

Finally, financial distress, exit rights, and dispute resolution provisions present latent but high-stakes litigation risks. Insolvency scenarios can trigger conflicts over access to equipment, lien rights, and continued service, while poorly defined exit processes can lead to costly holdovers or disputes over decommissioning obligations. These risks are best addressed through explicit bailment language, lien waivers, objective financial triggers with cure periods, and detailed exit procedures. Equally important, parties should avoid boilerplate dispute clauses and instead adopt structured escalation procedures, consistent governing law across related agreements, and a deliberate choice between arbitration and litigation, ensuring that any future dispute is resolved efficiently and with minimal operational disruption.  And given that many disputes will likely feature some form of injunctive relief, some agreements reserve jurisdiction for those requests in state or federal courts rather than arbitration.

Contact:

Tom Van Arsdel I 713.650.2728 I [email protected]

Tom Van Arsdel is a persuasive, compelling, and determined litigator. His significant courtroom experience has earned him the reputation of an advocate who gets results. Tom’s broad-based practice includes litigation and counseling in intellectual property, business torts, employment and complex commercial disputes. He has represented clients from a full range of industries, including sports and entertainment, software, banking, energy, manufacturing and trading.