SaaS agreement negotiations can present significant legal and operational challenges for businesses that rely on cloud based software to power a business's services. With many agreements favouring the supplier, it is important that you make sure your agreements reflect your business needs, protect your interests, and manage long term risk.
The legal nuances can be complex and high stakes, from understanding permitted use and service levels to negotiating fair termination terms and data protection compliance.
Our SaaS agreement solicitors work with SaaS providers and purchasers across various industries to review and negotiate clear, balanced agreements. Whether you are assessing an agreement from a global vendor or drafting bespoke terms for your business's solution, we can help protect your commercial and legal position from the outset.
Here we’ll be covering:
- Have you clearly defined the scope of the SaaS agreement?
- Are the commercial terms in the SaaS agreement fit for purpose?
- Does the SaaS agreement deal appropriately with data and intellectual property?
- Have service levels been agreed in the SaaS agreement?
- Has the SaaS agreement fairly allocated risk and liability?
- Does the SaaS agreement provide flexibility if circumstances change?
- What happens when the SaaS agreement ends?
- What are the most common mistakes when negotiating a SaaS agreement?
- Summary
Have you clearly defined the scope of the SaaS agreement?
Addressing exactly what the supplier is providing and what the customer expects to receive is key at the outset. Many contractual disputes arise because the parties have different expectations about the services being supplied. Defining the scope of the arrangement clearly reduces uncertainty and provides a stronger foundation for the rest of the agreement.
What services will be provided?
The agreement should describe the software and any associated services with sufficient detail. For some suppliers, the agreement may simply cover access to a hosted software platform. Others may also provide implementation services, configuration, migration support, user training, ongoing consultancy or technical support. Where additional services are included, the agreement should explain whether they form part of the subscription fee or are charged separately.
The parties should also identify any assumptions that underpin the project. For example, implementation may depend on the customer providing information within agreed timescales or making key personnel available during the onboarding process.
A detailed service description also helps define the supplier’s contractual obligations. If a particular feature, integration or service is important to the customer, it should be recorded in the agreement rather than assumed.
Who will be entitled to use the software?
The agreement should specify who may access the software, whether licences are granted on a named user or concurrent user basis and whether group companies, contractors or third parties may also use the platform.
Customers should ensure the licence reflects how the business operates both now and in the future. Suppliers should ensure the permitted use is clearly defined to protect their intellectual property (IP) and prevent unauthorised access.
The agreement should also explain whether additional users can be added during the subscription period and how any additional charges will be calculated.
If the customer expects its business to grow, it may wish to negotiate flexible licensing provisions that allow user numbers to increase without requiring an entirely new agreement. Equally, suppliers should ensure any expansion in usage is reflected in the commercial terms so that increased use of the platform generates appropriate revenue.
Are the commercial terms in the SaaS agreement fit for purpose?
Commercial terms are often the primary focus of negotiations. Both parties should ensure the pricing structure reflects the value of the services while providing sufficient flexibility for future growth.
A pricing model that works at the outset may become unsuitable if the customer’s business expands or the supplier introduces additional functionality. Commercial discussions should therefore focus not only on today’s requirements but also on how the relationship may develop over time.
How should pricing and payment be structured?
SaaS pricing models vary considerably. Charges may be based on user numbers, transaction volumes, storage capacity, usage levels or a fixed subscription fee. The agreement should explain exactly how charges are calculated and identify any additional fees that may apply.
Customers should understand whether implementation costs, training, integrations or premium support are included within the subscription price or charged separately. Suppliers should ensure their pricing structure allows them to recover the costs of delivering the service while remaining commercially competitive.
Payment terms should also be clear. The agreement should cover invoicing arrangements, payment deadlines, late payment interest and the supplier’s rights if invoices remain unpaid.
It’s also sensible to identify any circumstances in which fees may change during the subscription period. Transparency around pricing reduces the likelihood of disagreements and allows customers to budget more accurately.
What renewal and price review provisions should be included?
Many SaaS agreements renew automatically unless notice is given. Both parties should understand when renewal takes place, how much notice is required to terminate before renewal and whether the subscription period can be extended or shortened.
Pricing reviews should also be addressed. Suppliers may wish to retain the ability to increase subscription fees periodically to reflect inflation, increased operating costs or additional functionality. Customers will often seek certainty over future pricing or negotiate limits on annual price increases. Clear pricing review provisions reduce uncertainty and make budgeting easier for both parties.
The parties should also consider whether customers can reduce user numbers or downgrade subscription packages at renewal. This flexibility may be particularly important where business requirements fluctuate over time.
Are the commercial commitments realistic?
Commercial commitments should reflect the practical realities of the relationship. Suppliers should avoid making commitments that cannot consistently be achieved, particularly where service demand may fluctuate. Customers should ensure the agreement provides sufficient flexibility if their business grows or their software requirements change during the subscription period.
Negotiations should focus on creating a commercially sustainable arrangement rather than achieving short term concessions that prove difficult to operate in practice. A balanced agreement is more likely to support a successful long term relationship.
Does the SaaS agreement deal appropriately with data and intellectual property?
Data and intellectual property are often among the most valuable assets involved in a SaaS relationship. Both parties should understand who owns those assets and how they may be used throughout the agreement.
Who owns the customer data?
One of the most important issues in any SaaS negotiation is ownership of customer data. The agreement should make it clear that the customer retains ownership of the information uploaded to or generated through the platform.
Suppliers typically require limited rights to host, process, back up and transmit that data in order to provide the service. These rights should be carefully defined so they are limited to what is reasonably necessary for the operation of the platform.
Customers should also understand where their data will be stored, whether it’ll be transferred internationally and how it can be accessed throughout the subscription period. The agreement should explain what happens to customer data when the agreement ends, including whether it’ll be returned, deleted or retained for a limited period.
Customers should also consider whether the supplier uses customer data to improve its services or develop artificial intelligence tools. If so, the agreement should explain the extent of those rights and any protections that apply.
Who owns the intellectual property?
Ownership of IP should also be addressed. In most SaaS arrangements, the supplier retains ownership of the software, source code, documentation and other IP associated with the platform.
The customer will usually receive a licence to use the software rather than ownership of the software itself. The agreement should define the scope of that licence, including any restrictions on copying, modifying, reverse engineering or sublicensing the software.
If the customer develops bespoke configurations, integrations or customised functionality, the agreement should also explain who owns those developments and whether either party can reuse them in future projects. Clear drafting helps prevent disputes about ownership and ensures both parties understand the limits of their respective rights.
How will personal data be processed?
Most SaaS providers process personal data on behalf of their customers. Where this is the case, the agreement should define each party’s responsibilities under applicable data protection legislation. Customers should understand how personal data will be collected, stored, accessed and deleted. Suppliers should explain the technical and organisational measures they have implemented to protect personal data and identify any subcontractors involved in processing.
The agreement should also address how personal data breaches will be reported and what assistance the supplier will provide if the customer needs to respond to requests from regulators or individuals. Data protection shouldn’t be treated as a standard contractual clause. It’s an operational issue that will continue throughout the life of the agreement and should be considered carefully before negotiations are concluded.
Have service levels been agreed in the SaaS agreement?
Once the scope of the services has been agreed, both parties should consider how the software will perform in practice. A SaaS agreement isn’t simply about providing access to software. It should also establish clear expectations around availability, support, maintenance and security throughout the life of the agreement.
Customers will want confidence that the software is reliable and that any issues will be resolved promptly. Suppliers will want to provide realistic commitments that reflect how the platform operates without accepting unnecessary contractual risk.
What service levels should the agreement include?
Service levels establish the standard of performance the supplier is expected to achieve. Many SaaS agreement include commitments relating to system availability, response times for support requests and target times for resolving faults. These commitments are often documented in a separate service level agreement (SLA), which sets out the performance standards the supplier is expected to meet.
Customers should consider whether the proposed service levels reflect the importance of the software to their business. If the platform supports important business operations, stronger availability commitments and faster response times may be appropriate.
Suppliers should ensure that service levels are measurable and achievable. Overly ambitious commitments can become difficult to deliver consistently and may expose the supplier to unnecessary contractual claims.
The agreement should also explain how service levels will be measured and what happens if they’re not achieved. In some cases, service credits may be appropriate. In others, repeated service failures may give the customer the right to terminate.
Customers should also consider whether service credits provide an adequate remedy if significant outages occur. While credits may compensate for minor interruptions, they may not reflect the wider commercial impact of prolonged downtime. Businesses that rely heavily on the software may seek stronger contractual protections.
How should outages and service failures be managed?
No software platform can guarantee uninterrupted availability. The agreement should recognise that planned maintenance, upgrades and unforeseen technical issues may occasionally affect access to the service. Customers should understand when maintenance may be carried out, how much notice will be given and whether maintenance windows are excluded from availability calculations. The agreement should also explain how incidents will be reported, how updates will be communicated and what escalation procedures apply where serious service interruptions occur. It’s also sensible to consider disaster recovery and business continuity arrangements. Customers should understand how quickly services can be restored following a major incident and what contingency measures the supplier has in place to minimise disruption.
Has the SaaS agreement fairly allocated risk and liability?
As a commercial agreement, a SaaS agreement should strike an appropriate balance that reflects the nature of the services, the value of the agreement and the risks each party is best placed to manage. Negotiations often focus heavily on liability provisions because these clauses determine who bears responsibility if something goes wrong.
What warranties should each party give?
Realistic warranties provide reassurance about the promises each party is making. A supplier may warrant that it has the right to provide the software, that it’ll perform the services with reasonable skill and care and that the software will substantially comply with the agreed specification. Customers may warrant that they have authority to enter into the agreement, will use the software in accordance with the licence and won’t introduce unlawful or harmful content onto the platform.
How should liability be limited?
Limitation of liability clauses are often among the most heavily negotiated provisions in a SaaS agreement. Suppliers commonly seek to limit their financial exposure by excluding certain categories of loss and placing a financial cap on liability. Customers will usually want higher liability caps for issues such as data loss, confidentiality breaches, IP infringement or data protection failures. The appropriate balance will depend on the nature of the software, the commercial value of the agreement and the potential consequences if the services fail.
Rather than relying on standard liability clauses, both parties should consider whether the proposed allocation of risk reflects the commercial reality of the relationship.
It’s also worth considering whether different liability caps should apply to different obligations. A single cap may not always reflect the varying levels of risk associated with confidentiality, cybersecurity or IP claims.
Are indemnities appropriate?
Indemnities allocate responsibility for specific types of loss. For example, a supplier may agree to indemnify the customer against claims that the software infringes a third party’s IP rights. Customers may agree to indemnify the supplier where claims arise because they’ve uploaded unlawful material or used the software in breach of the agreement. The scope of any indemnity should be clearly defined, including the circumstances in which it applies and any procedures that must be followed if a claim arises. Both parties should also understand whether the indemnity covers legal costs, settlements and associated expenses, and whether any limitations or exclusions apply.
Does the SaaS agreement provide flexibility if circumstances change?
SaaS agreements should allow the relationship to evolve while providing sufficient certainty for both parties. Flexibility is particularly important in long term agreement where business needs may change significantly during the subscription period.
Can the agreement be varied?
SaaS agreements often continue for several years. During that time, the parties may wish to introduce additional functionality, revise pricing or change the scope of the services.
The agreement should include a clear process for agreeing variations, and significant amendments are often documented through a written variation agreement or updated order form rather than informal email exchanges. Maintaining clear records of agreed changes reduces the likelihood of disputes later.
What happens when the SaaS agreement ends?
Planning for termination at the outset can make the transition significantly easier if either party later decides to move on.
When can the agreement be terminated?
The agreement should explain when either party has the right to terminate. Common grounds include material breach, insolvency, repeated service failures or failure to pay invoices. Some agreements also allow termination for convenience after an agreed minimum term by giving notice. Termination provisions should provide certainty while allowing sufficient flexibility if the commercial relationship no longer meets either party’s needs.
The parties should also consider the practical consequences of termination, including the continuation of support during any notice period and the orderly transfer of responsibilities.
How will customer data be returned or deleted?
One of the most important issues at the end of a SaaS agreement is access to customer data. Customers should understand how they can retrieve their information, the format in which it’ll be provided and how long it’ll remain available after termination. Suppliers should explain when customer data will be deleted and whether any information must be retained to comply with legal or regulatory obligations.
Businesses should also consider whether exported data will be provided in a commonly used format that can be imported into a replacement system without unnecessary cost or complexity.
What are the most common mistakes when negotiating a SaaS agreement?
Many SaaS negotiations focus heavily on price while overlooking the practical operation of the agreement. One common mistake is failing to define the scope of the services clearly. Uncertainty about implementation, support or customer responsibilities often creates avoidable disputes. Another frequent issue is paying insufficient attention to data protection and cybersecurity. These areas should be considered at the beginning of negotiations rather than added as an afterthought.
Businesses also underestimate the importance of planning for termination. Without clear provisions covering data retrieval and exit support, moving to another provider can become more expensive and disruptive than anticipated.
Another mistake is relying on standard template contracts without considering whether they reflect the commercial objectives of the parties. Every SaaS arrangement is different and contractual terms should be tailored accordingly.
Finally, negotiations shouldn’t focus solely on legal risk. Both parties benefit from an agreement that’s clear, balanced and capable of adapting as the relationship develops.
Summary
A well negotiated SaaS agreement should balance legal protection with commercial practicality, and negotiating involves much more than agreeing on a subscription price. The agreement should establish a framework for the entire relationship, from implementation and day to day service delivery through to termination and data migration.
Before negotiations begin, both parties should consider the scope of the services, commercial arrangements, data protection, operational requirements, liability and exit planning. Addressing these issues early often leads to more efficient negotiations and reduces the likelihood of disputes later.
