1. Indefeasible Right to Use Agreements (IRU’s): Key Legal Considerations
Alex Preiser
Associate Counsel
UCAR

2. IRU Agreements IRU Defined Key Terms Considerations Strategies Summary
Questions

3. 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.

4. Key Terms Connection Acceptance Testing Maintenance Construction Fees
Performance
Property Rights
Term/Usage Rights
Payments/Taxes
Force Majeure

5. 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 Grantor’s 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?

6. 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

7. 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

8. Construction Costs Property Rights Who owns Fiber? Penalties
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

9. 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.
DP&E: Design, Planning, and Engineering
Fees should not be profit center for Grantor

10. Performance Maintenance/Outages Re-routing
Understand Grantor Obligations
Penalties/Credits
Re-routing
Potential performance issue
Could effect Grantor’s property rights

11. Property Rights
What are Grantor’s 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

12. Term/Usage Rights Term Usage Rights Strategies Based on User’s 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

13. Payments/Taxes Lump Sum Payments vs. Monthly Taxes
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 User’s tax liability will not exceed certain amounts or increase by more than specific percentages

14. 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 User’s rights/Grantor’s responsibilities?
If fiber is damaged, understand maintenance ramifications – is this carved-out?

15. 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

16. Questions?