Key Clauses in a SaaS Agreement

As businesses increasingly adopt Software as a Service (SaaS) solutions, a robust and precise SaaS agreement is essential for your SaaS customer relationships. SaaS agreements form the framework of the commercial relationship with your customers, setting out key legal terms to protect your business from risk when delivering your services. This article explores critical clauses typically found in a SaaS agreement and why they are essential.

Why are Your SaaS Agreements Important?

SaaS agreements are service contracts that differ from software licences. Instead of owning the software, customers generally subscribe to a cloud-based service. Suppliers (especially those managing large customer bases) often use standardised contracts when rolling out their SaaS services to multiple customers. However, depending on the customer’s negotiating power, they may agree to negotiate specific terms. A strong SaaS agreement will help your business prevent disputes, set clear expectations to help manage your customers, and ensure both parties understand their rights and obligations.

SaaS agreements are crucial for suppliers because they protect their business interests and software assets. Suppliers need these contracts to limit liability, manage risks, and define how customers can use their services. Suppliers can maintain control over their intellectual property by using a well-drafted agreement, ensuring compliance with legal rules, and specifying key commercial terms around their services. By formalising these key issues in a contractual agreement, businesses delivering SaaS services can safeguard themselves from unexpected liabilities, especially when serving multiple customers in different markets.

Key Clauses in a SaaS Agreement

A watertight SaaS agreement should include several vital clauses defining the relationship between the supplier and customer to ensure transparency and prevent misunderstandings during the commercial relationship. 

Some standard clauses include the following: 

Charges and Payment

SaaS agreements typically follow a subscription model, where customers pay fees based on the number of users or the chosen service level. The agreement must clearly explain all applicable fees, e.g., whether fixed or subject to adjustment, as well as the payment schedule and terms. By defining payments clearly, both parties avoid confusion and the potential for payment disputes. 

Service Levels and Performance Guarantees

Service-level terms are common and will commit the supplier to specific performance standards, such as uptime guarantees and support response times. Although suppliers typically standardise these commitments across their entire customer base, these service levels can help ensure reliable customer service. If the supplier fails to meet these standards, the agreement may offer customers remedies, such as service credits. 

Usage Rights

Suppliers must clearly define the customer’s usage rights, such as specifying geographical or user limitations. The agreement should also detail how the service can be used, so the customer has to follow explicit rules. Additionally, suppliers often want the right to audit customer usage to ensure compliance with the agreed terms, ensuring customers stay within authorised use without paying. 

Ownership of Intellectual Property 

The agreement must clarify that the supplier retains full ownership of the intellectual property rights related to the SaaS software. While customers receive a licence to use the software under agreed conditions, they should not own it.

Clauses around intellectual property use help ensure that customers cannot claim ownership over any part of the software and the supplier’s intellectual property rights. 

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Data Protection Compliance

Data protection is critical to SaaS agreements, especially when suppliers act as data processors, processing customer data on behalf of the customer as a controller. 

The agreement should detail how the supplier manages, stores, and protects customer data to comply with the UK GDPR. Mandatory clauses about data processing, customer rights, and data security safeguard both parties and help maintain compliance with data protection law requirements.

Term, Renewal, and Termination

SaaS agreements usually span a specific term, such as 12 months, and automatically renew unless the customer opts out within a defined notice period. The agreement should clearly explain the renewal process and provide enough time for the customer to opt out if desired. 

Limiting Your Liability 

Suppliers often include clauses that limit their liability for contract breaches, particularly when they serve a large customer base. These clauses protect suppliers from being overly exposed to significant financial risks arising from legal claims from customers. This is one of the most critical clauses under any commercial agreement. Without it, a supplier’s liability will be unlimited and this is a major risk point when trading. 

Key Takeaways

A well-drafted and robust SaaS agreement is vital for suppliers. This agreement helps to ensure that both parties clearly understand their obligations by addressing critical clauses such as payment structures, service levels, usage rights, intellectual property ownership, and data protection. Suppliers can significantly benefit from limiting their liability and protecting their intellectual property, while customers can receive transparency and security in their service use. 

If you need assistance with SaaS contracts, our experienced data, privacy and IT lawyers can help through our LegalVision membership. For a low monthly fee, you’ll have unlimited access to lawyers who can draft, review, and answer questions about your documents. Call us today on 0808 196 8584 or visit our membership page.

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