The hosting agreement as a financeable contract

Once the stack is separated, the layers are no longer held together by the fact that one party owns everything. They are held together by contracts, and the hosting agreement is the principal one. It binds layer 4 — the compute — to the building, the power and the land underneath it.

That makes it structurally load-bearing in a way its drafting rarely reflects. Hosting agreements are typically produced as operational documents: space, power, cooling, connectivity, service levels, escalation procedures. All of that is necessary and none of it is what a financing party reads the document for.

Two parties read it as credit, from opposite directions.

The facility's capital reads it as revenue. A building financed on cash flow is financed on the fees these agreements produce, and the same tests applied to any contracted income apply here: is the obligation firm, how long does it run, and can the counterparty pay.

Whoever financed the equipment inside reads it as the precondition for every remedy they have. Their collateral sits in someone else's building, powered by someone else's supply, behind someone else's locked door. If the agreement does not give them a route in, their security is a document rather than a remedy — the point made at length in [collateralizing compute](/compute/collateralizing-compute).

Those two readings are not in conflict, but they are not automatically compatible either. A clause that protects the facility's revenue can impair the equipment financier's access, and vice versa. Where both parties are financing against the same building, the agreement has to be drafted knowing that — which in practice means it is negotiated as a financing document, with a direct agreement alongside it, rather than signed off as an operations schedule.

One distinction to hold throughout: this is not the compute customer's contract. The obligation of a customer buying compute is a different document with a different counterparty, read in [compute offtake as credit](/compute/compute-offtake-as-credit). A transaction can carry a strong customer contract on top of a hosting agreement that will not support anything.

The most efficient way to review one of these agreements is to take each clause and ask what it means to each of the two financing parties. Where the answers conflict, that clause is the negotiation.

From the building's side, the agreement is an income stream and it is tested exactly as any contracted cash flow is tested.

Is the obligation firm? Fees payable on committed capacity, whether or not it is consumed, are contracted revenue. Fees payable only on usage are a commercial relationship with an expected value. Both are legitimate; only the first supports capital in the way sponsors usually assume.

Does the term match the capital? A building financed on a long horizon, let under short agreements with no renewal obligation, has a recontracting position rather than a contracted one. Where the terms cannot be matched, the gap is a real exposure and should be identified rather than assumed away with an occupancy forecast.

Can the counterparty pay, under stress? The ordinary credit questions apply, and they are frequently skipped because the occupier is well known. Whether the contracting entity is the entity with the resources; whether payment depends on the occupier's own continued fundraising; whether termination rights are broad enough to make a firm-looking commitment soft.

Is the capacity the facility promised actually available to it? This is the sector-specific one. A hosting agreement committing power for longer than the facility's own supply arrangements run is a promise the building cannot keep. The commitment has to be checked against the interconnection position and against any generation supply agreement behind it — which is why [who holds the interconnection position](who-holds-the-interconnection-position) is a question about revenue and not only about the site.

Do the agreements survive a sale? A facility whose hosting contracts terminate on a change of ownership is a facility that cannot be sold with its income intact, which has direct consequences for a [sale-leaseback of the envelope](sale-leaseback-of-a-powered-shell) or for any refinancing that involves a transfer.

From the equipment side, the agreement is not income at all. It is the set of rights that determine whether a security position over hardware in someone else's building is worth what it appears to be worth.

The items that do the work are usually recorded in a direct agreement between the facility operator and the equipment's financier or lessor, agreed alongside the hosting agreement rather than derived from it:

• Acknowledgement of ownership. The operator accepts in writing that identified equipment belongs to a party other than the occupier. This is what prevents a claim arising against it in the operator's own insolvency, and it is the most valuable line in the document.
• Waiver or subordination of the operator's own rights. Rights to detain equipment against unpaid fees — whether contractual or arising by operation of law — sit ahead of a great deal of carefully drafted security unless they are dealt with expressly.
• Access on default. A right to enter, inspect and remove, with a defined process, defined notice and named contacts. Rights that require the occupier's cooperation are worth little in precisely the circumstances they are needed.
• Notice and cure. The operator agrees to notify the financier before terminating for the occupier's default, and to allow it a period to cure by paying the fees itself. This converts a termination into a decision the financier can make rather than an event it learns about afterwards.
• Continuity on operator failure. What happens if the facility operator, rather than the occupier, is the party that fails. Whether the equipment can be reached, and whether the site keeps running long enough for that to matter.
• Step-in or assignment. The ability to take over the occupier's position under the hosting agreement, so the equipment keeps operating and keeps producing revenue rather than being removed into a market that may not want it.

The test is the one that generalises across the whole security discussion: if this had to be enforced next month, who would have to agree, and has anyone asked them? On hosting arrangements the answer is usually the facility operator, and usually nobody has.

The recurring ways this document disappoints the people relying on it:

• It was drafted as an operations document. Detailed on cooling and escalation paths, silent on assignment, insolvency and access. Nothing in it is wrong; the financing questions were simply never asked.
• The direct agreement was never sought. The equipment financier relies on the occupier's own contract, to which it is not a party and under which it has no rights. This is the most common defect in a compute security package and the easiest to fix before signing.
• Term mismatches in both directions. A hosting term shorter than the equipment financing leaves the hardware homeless; a hosting term longer than the facility's power position commits capacity the building may not have. Both are found by reading three documents against each other, and both are missed when they are read separately.
• Committed capacity that is not committed. Power described in terms that read as an obligation and are drafted as an expectation. The distinction only surfaces when capacity is short, which is the moment it matters.
• Termination for convenience. A right to leave on short notice, held by an occupier whose payments the building's financing is sized against.
• Operator liens nobody waived. Discovered at enforcement, ranking ahead of the security, and by then non-negotiable.
• Change of control on either side. A sale of the facility that lets occupiers leave, or a sale of the occupier that lets the facility terminate. Either can unwind a structure that was sound on the day it was signed.

Continuum advises on how these agreements are structured and coordinates the parties negotiating them. It does not operate facilities, provide hosting, or act as a bank, broker-dealer or direct lender, and it does not hold client funds.