Indefeasible Right to Use Agreements IRUs: Key Legal Considerations

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Indefeasible Right to Use Agreements (IRUs)
Key Legal Considerations

• Alex Preiser
• Associate Counsel
• UCAR

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IRU Agreements

• IRU Defined
• Key Terms
• Considerations
• Strategies
• Summary
• Questions

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Definition

• Indefeasible Right to Use Agreement (IRU)
• An agreement whereby one party (the User)
  obtains the right to use specified network
  facilities and/or fiber of another party (the
  Grantor). Essentially it is a lease. The
  User is granted rights to use the facilities
  and/or fiber of the Grantor for a specified
  period of time.

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Key Terms

• Connection
• Acceptance Testing
• Maintenance
• Construction
• Fees
• Performance
• Property Rights
• Term/Usage Rights
• Payments/Taxes
• Force Majeure

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Connection

• What is agreement for?
• Fiber only vs. Fiber and Equipment
• What are the responsibilities of each party?
• Ensure that all responsibilities are clearly
  outlined
• Which party pays connection fees?
• Where is connection to occur?
• If at Grantors facility, what are Grantors
  rights at facility?
• User access
• What if Grantor loses rights at that facility
• Does Grantor own facility? If not, what is lease
  term?

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Acceptance Testing

• Extensive Specificity of Tests
• Make part of the contract
• Grantor is only going to do that which is
  required
• Ensure Tests Accurately Demonstrate Required
  Functionality
• Require Specific Timeframes/Levels of Effort
• Penalties and/or Credits
• Termination

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Maintenance

• Generally provided by Grantor
• In most cases User will not be allowed to access
  fiber
• Fines and/or criminal penalties
• Costs are expensive
• Understand what is being provided
• Should cover scheduled and unscheduled
  maintenance
• Penalties and/or Service Credits and the right to
  terminate should be included for User

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Construction

• Costs
• May be very expensive
• Often borne by the User
• Property Rights
• Who owns the property ?
• Who owns Fiber?
• If Grantor is to retain ownership of fiber, what
  rights does Grantor have beyond the rights
  granted to User
• If there is potential value to Grantor, costs of
  construction should be shared
• Penalties
• Time delays and cost over-runs are not uncommon
  and should be addressed in advance

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Fees

• Fees can be significant percentage of overall
  costs and to the extent possible should be
  negotiated in advance
• Management Fee May be as much as 50 of the
  costs incurred by Grantor.
• DPE Design, Planning, and Engineering
• Fees should not be profit center for Grantor

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Performance

• Maintenance/Outages
• Understand Grantor Obligations
• Penalties/Credits
• Re-routing
• Potential performance issue
• Could effect Grantors property rights

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Property Rights

• What are Grantors rights with regard to the
  Associated Property(Easements, Licenses, etc)?
• What if Grantor loses rights or has to pay
  unanticipated license fees?
• May be force majeure event (read carefully)
• Fees may be passed on to User
• Obtaining of Rights/Penalties
• Negotiate terms that ensure you are covered

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Term/Usage Rights

• Term
• Based on Users needs
• Useful life/Type of fiber
• Case-by-Case basis
• Usage Rights
• Does User have the right to lease to third
  parties?
• Strategies
• Balance term with usage rights/potential to enter
  into agreements with third parties and act as
  grantor
• Consider shorter terms with extension rights

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Payments/Taxes

• Lump Sum Payments vs. Monthly
• If making lump sum, should receive deep discount
• Grantor should put Bond or LOC in place to
  protect in the event of termination, bankruptcy,
  etc
• Taxes
• Almost all taxes will be borne by the User
• Understand all taxes up front. Grantor may
  provide accounting for previous year(s)
• Agree that Users tax liability will not exceed
  certain amounts or increase by more than specific
  percentages

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Force Majeure

• Understand all potential events covered
• Is losing Associated Property rights a force
  majeure event?
• In the case of force majeure events, what are
  Users rights/Grantors responsibilities?
• If fiber is damaged, understand maintenance
  ramifications is this carved-out?

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Summary

• Understand your goals and timeframes
• Do not try to cover every specific contingency,
  rather address the overall concerns
• Understand all your rights and obligations under
  the Agreement Even if they do not appear
  applicable

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Questions?