The Key to Successful SaaS Agreements

Best Practices for SaaS Contracts & Agreements

In this week’s newsletter, Dragon Argent legal services team in London take an in-depth look at a foundational document for tech-based businesses – the SaaS agreement - and share our top tips for its role in the growth journey of a startup. 

What is a SaaS Agreement?

SaaS is the abbreviation for “software as a service” which means that software is being made available to a client in a commercial agreement through a web browser, negating the need for the client to have expensive and bespoke onsite IT infrastructure. With the shift to remote working driven by COVID-19, this is only becoming more prevalent as businesses and workforces become decentralised.

A SaaS agreement in turn is simply the name used for the agreement between a SaaS supplier and a SaaS customer which sets out the terms under which SaaS software may be accessed, including the maintenance, support and service obligations of the provider and duties of each party. SaaS Suppliers will often have standard terms that are offered to all clients.

SaaS Agreements versus Licensing Agreements

SaaS agreements enable a developer to sell access to software to multiple clients in a uniform way that is more streamlined and efficient than using a licensing agreement. This is because a SaaS engagement incorporates very little, if any, customisation or specific updates for individual clients.  The software itself is not downloaded to or accessed through client IT infrastructure, but via a subscription to a cloud-based service which can be easily controlled and maintained for multiple clients.

SaaS agreements also come with other operational advantages such as being able to roll out upgrades which can be accepted or declined by clients as they wish, not requiring individual client approval before making any enhancements to the software and not coming under the Software Directive (which gives various rights to licensees).

SaaS agreements are often also preferential for clients because it removes the obligation to buy and maintain expensive onsite hardware and any data management and compliance obligations – these remain with the SaaS provider under a SaaS agreement.

Make your next SaaS deal the best one yet with tips & strategies through our commercial law firm in London.

The SaaS Model & Data

Although the SaaS model has some useful advantages, it will not be appropriate for every piece of software. As the SaaS structure generally relies on a multiple output model, it is best suited to software offering general services rather than niche offerings.

Another point to bear in mind is that the SaaS model requires careful consideration in relation to data storage. The SaaS provider will need to ensure that it has a sufficient system which is able to keep clients’ data secure and separate from one another.

Under a SaaS agreement, no ownership of the SaaS software will be transferred to the customer and the customers right to use the software will end upon termination of the SaaS agreement. Unlike a license agreement, the customer gets only the right to access the software and no license to any intellectual property. In return, the provider of the SaaS software will host both the software itself and the customer data on a server, providing customer support and maintenance services. 

SaaS Agreement Criteria

As we’ve alluded to above, according to Dragon Argent solicitors in London there are some key provisions a SaaS agreement should cover to ensure both parties interests are protected. These include the maintenance, updates, and support obligations of the SaaS provider as well as use obligations and limitations for the client: 

• Service level agreements covering the induction and training for SaaS implementation and the availability and response times of support.

• Limitation of liability setting out the extent to which each party is responsible particularly in relation to the backup of data.

• The number of agreed users on the client side of the SaaS agreement and the kinds of data that can processed or uploaded to the providers server

Ensuring these provisions are drafted appropriately will reduce key risks including limiting the SaaS providers liability, ensuring realistic and appropriate service levels, confidentiality protections and legal use of the software.

Where SaaS Agreements go Wrong

Too often, startups selling SaaS may rush to enter into commercial agreements because they feel pressured to get to revenue generation. With an eye on cashflow, spending money on legal advice simply to onboard a client may not seem like a priority. However, our litigation solicitors have seen countless examples where SaaS agreements have gone wrong, causing expensive, long-term headaches for founders.

So where do SaaS agreements go wrong: 

• One party hasn’t understood what is being agreed sufficiently, either because an agreement has been poorly drafted, obligations and duties are left out or unclear or even because the agreement hasn’t been read properly before signing. All of which makes a SaaS agreement unfit for purpose.

• Parties are either not aware of notice and termination provisions, or these provisions have been drafted incorrectly or left out entirely. It is crucial that when there ceases to be a commercial benefit for either party, appropriate termination provisions have been included, reviewed, and understood before entering into a SaaS agreement.

• A SaaS agreement should also limit the liability of either party in the event of a breach of the agreement and should clearly map out how intellectual property and data will be used and protected

SaaS Fundamentals

Finally, there are some fundamental principles that should be applied before entering into a SaaS agreement to ensure both parties can realise the commercial benefit whilst clearly mapping out the value, length, risks, and implications of the agreement.  

• Understand your obligations and risk and the obligations and duties of the party you are entering into an agreement with

• Appreciate who has drafted the SaaS agreement and therefore whose interests it favours? Consider whether the provisions within a SaaS agreement suit you and represent your commercial needs.

• Consider the cost of the service; SaaS agreements can use creative pricing structures, e.g. a basic package with premium features for an increased price or a discount on the subscription if the agreement is for a lengthy term.

• You should also consider the range of possible outcomes from entering into a SaaS agreement and ensure the terms are fair, reasonable, and enforceable for both parties.

To achieve the above, it would be sensible to use a qualified and experienced professional to explain provisions in simple terms, protect your long-term interests and negotiate on your behalf.  Whilst there will be an immediate cost to bear to do this, the ongoing benefits will far outweigh it.

To explore SaaS agreements further, get a startup legal advice by scheduling a discovery call with one of our corporate solicitors in London by clicking the link below.

Book a call with our Corporate & Commercial Law Solicitor today ↓

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