Table of Contents
In Short
- Subscription agreements often include automatic renewals and price increases, which can lock businesses into unwanted long-term commitments.
- Inflexible termination clauses can make it difficult to exit an agreement when business needs change.
- Legal review is crucial for identifying and mitigating these risks in subscription agreements.
Tips for Businesses
Always carefully review subscription agreements for automatic renewals, price increases, and termination clauses. Seek legal advice to fully understand the terms and negotiate more favourable conditions where possible to avoid unexpected financial and legal complications.
Using certain services on a subscription or rolling basis can benefit your business. Businesses, especially those in the technology sector, can often rely on business-to-business subscription agreements to access key services. For example, your company might order goods or services on a subscription basis for an extended period, which rolls on rather than terminating after a certain period. For instance, your company may enter a long-term subscription for SaaS services. However, it is essential to note that subscription agreements can pose various risks, which could lead to unexpected expenses and complications for your business in the long run. Understanding and mitigating these risks is essential for your business when entering into subscription agreements. This article will explore some key risks to watch out for in your subscription agreements and how to address them confidently.
Why Should Your Business Review Subscription Agreements Carefully?
Your business may enter various contracts during its journey, particularly for technology-related services.
Subscription agreements can be particularly complex. They could raise various risks that your business needs to be aware of and consider carefully.
When your business enters a subscription agreement, you could commit to specific terms with long-term legal and financial implications. While ongoing access to services on a subscription might seem appealing, you will need to fully understand the relevant subscription agreement and its risks, taking legal advice to understand or negotiate the agreement where necessary.
By carefully reviewing these agreements, your business can identify potential legal risks and prevent future disputes and financial setbacks.
Critical Considerations in Subscription Agreements for Your Business
Depending on the type of contract and its terms, your business may need to consider several risk areas in subscription agreements.
Here are some general risks to watch out for in your subscription agreements:
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Automatic Renewal Clauses
Automatic renewal clauses can be common in subscription agreements – you may see them in contracts for services like SaaS and cloud services. These clauses mean the contract automatically renews once the initial term ends unless your business terminates the agreement correctly. Without careful contract management and control, your company could end up tied into a long-running contract, even if the service no longer aligns with what your business needs and you want a quick exit.
The legal risks to watch out for here include paying for a service that no longer benefits your company and potentially facing less favourable terms or increased rates over time. Disputing contract renewal terms or attempting to exit the contract early can lead to problems and, in the worst case, legal disputes for your business. To mitigate these key risks, your business should carefully review any subscription agreements for renewal terms before signing them to ensure you are comfortable with them before proceeding to sign up.
Automatic Price Increases
Some subscription agreements allow your suppliers to increase prices automatically upon renewal, which could quickly increase your costs over time. You should be aware of this, as without adequately reviewing the cost and payment terms, your business may be left to pay higher fees than anticipated.
Your company should, therefore, scrutinise the agreement for clauses related to price changes and discuss or negotiate any terms with the supplier if you are not comfortable with them.
Inflexible Termination Rights
Subscription agreements may make it difficult for your business to exit the service—particularly after an automatic renewal. Your suppliers might demand lengthy notice periods or a complex termination process, which can be a big issue if your business changes requirements over time and no longer needs the services.
If your business cannot quickly terminate a subscription agreement, it may end up needing to pay for a service that no longer serves its needs. If you attempt to terminate the agreement too early, this could lead to disputes, which can be costly and stressful. To protect your business, you should ensure the agreement has a clear and simple exit process that your business is comfortable with.
The Importance of Legal Advice and Review for Your Business
It may be difficult for your business to grasp the critical risks in subscription agreements and how you should tackle them. As such, working with a solicitor to review subscription agreements before your business commits can add significant value.
A lawyer can review and advise you on any complexities in these contracts, helping your business understand critical terms such as renewal clauses, price increase terms, and exit procedures. A lawyer will also help you to identify risks that might not be immediately apparent, ensuring you understand them before signing. This can be particularly important in the context of technology subscription agreements with large suppliers, whose terms may be non-negotiable whatsoever. A solicitor can also seek to negotiate more favourable terms on your behalf where possible. It is important to remember that while you can try to negotiate certain subscription agreements, some large suppliers may have standard, non-negotiable terms, which they will not budge on. As such, understanding these terms is critical for your risk management.
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Key Takeaways
Subscription agreements can carry a range of legal risks, so it is vital that your business carefully reviews and understands any subscription agreements it seeks to enter into. For instance, your subscription agreements could give rise to risks such as automatic renewals, price increases, and inflexible termination terms. By reviewing agreements carefully and understanding potential legal implications, your business will be in a better position to avoid unexpected risks such as financial burdens and the potential for disputes. Working with a lawyer can provide vital support to help you navigate these complex agreements and help safeguard your business’s interests.
If you need help with reviewing or negotiating a technology subscription agreement, our experienced IT lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Technology subscription agreements may include risky clauses and unfavourable terms which put your business at risk. For instance, automatic renewals and price increases that lock your business into paying for services it might no longer need in the long-run, potentially leading to financial strain and disputes. As such, it is important that you take the time to carefully review and understand these agreements and what they mean for your business.
Legal advice can be a big support for your business and play a key role in helping your business handle subscription agreements, particularly where they are long and complex. A lawyer can help by reviewing your agreements thoroughly and helping ensure that you understand their terms and implications. For instance, a lawyer can help you identify key risks and negotiate these agreements on your behalf where possible.
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