The Key Clauses and What to Push Back On

Large numbers of purchasers approve a SaaS agreement by pressing a button or finalizing a document in a very short time duration. This type of routine creates danger because the SaaS agreement dictates the amount of system failure that is acceptable. This instructional text examines every segment of a SaaS agreement, provides examples of phrases for the sections that create the highest number of disagreements and indicates the areas where software providers typically permit modifications.

What is a SaaS agreement?

A SaaS agreement is a legal arrangement where a software provider grants you the permission to utilize managed applications for a monetary charge and a specific duration. This document might be identified as a SaaS contract or a SaaS license agreement by various parties. The definition remains identical across these three titles because the user compensates for the entry and the user never possesses the software. Experts claim that five specific provisions contain the highest level of peril within any SaaS agreement: the service level agreement, information and protection requirements, the limitation of responsibility, automatic extension and cancelation. If the time available is restricted before the signature is required, the SaaS agreement should be evaluated by checking those five sections initially.

Anatomy of a SaaS agreement: section by section

A standard SaaS agreement spans 8 to 20 pages while it joins a main contract, a purchase document and connected guidelines like an acceptable use policy. The purchase document contains the cost, the time frame and the quantity of individuals using the system. The main contract contains all other remaining details. When these two documents do not agree, the SaaS agreement must be checked to see which specific document possesses the higher authority.

•         Subscription and license grant Defines who can use the software, how many users or seats you get and what you may not do, such as reselling access

•         Fees and payment Set the price, billing cycle, payment deadline (often net 30) and late fees

•         Term and renewal State the initial term, usually 12 to 36 months and how the SaaS agreement renews

•         Service levels and support Sets uptime targets, support hours and response times.

•         Data security and privacy Covers data ownership, security standards, subprocesses and breach notice.

•         Intellectual property The vendor keeps the software. You keep your content.

•         Warranties and disclaimers Vendors usually promise the service will work as documented and disclaim everything else.

•         Indemnification Says who pays if a third party sues over IP infringement or a data breach

•         Limitation of liability Caps what either side can owe the other

•         Termination and exit Explain how you can leave and what happens to your data

•         General terms Governing law, assignment and the vendor's right to change terms

SLA and service credits in a SaaS agreement: sample wording

The SaaS service level agreement (SLA) tells you how reliable the service must be and what you get when it fails. Start with the uptime number, because small differences add up

On a $2,000 monthly subscription, that is a $200 or $500 credit. It does not cover the cost of a day when your team could not work.

What to push back on in the SLA section of a SaaS agreement:

•         Credits as the sole remedy Ask for a right to terminate if the vendor misses the target three times in any six months

•         Claim deadlines Some vendors require you to request credits within 15 or 30 days. Ask for automatic credits

•         Broad exclusions Check that "scheduled maintenance" has a monthly cap and that outages caused by the vendor's own subcontractors count against the uptime figure

•         Vague support terms Ask for response times by severity, for example one hour for a full outage and one business day for minor issues

Data security and DPA terms in a SaaS agreement

Your data is usually the most valuable thing you put into a SaaS product, so this part of the SaaS agreement needs close reading

1. Ownership The agreement should say you own your data and the vendor receives only the license it needs to run the service
2. Processing limits The vendor should use your data only to provide the service, not to train its own models or sell analytics, unless you agree in writing
3. Security standards Ask for a current SOC 2 Type II report or ISO 27001 certificate and a right to receive updated reports each year
4. Breach notice Under the GDPR a controller must notify the regulator within 72 hours of becoming aware of a breach. So, your vendor needs to tell you sooner
5. Deletion and return The SaaS agreement should require the vendor to return your data in a standard format and delete it within 30 days after the contract ends

Liability and indemnity in a SaaS agreement

Vendors almost always cap their liability at the fees you paid in the previous 12 months. Look at what that means in practice. On a $24,000 annual contract, the cap is $24,000. If a vendor's security failure exposes customer records and the cleanup costs $300,000. The SaaS agreement lets you recover at most $24,000 unless you negotiated an exception.

Three changes are realistic in most negotiations:

•         Carve-outs from the cap for breach of confidentiality, IP infringement claims and the vendor's indemnity obligations

•         A higher separate cap for data breaches, often 2x to 3x annual fees, sometimes more for vendors who hold sensitive data

•         A mutual cap Check that the cap applies to both parties, so your own exposure is not unlimited while the vendor's is limited

Indemnity works alongside the cap. A standard vendor indemnity covers third-party claims that the software infringes IP rights. Ask that it also covers claims from the vendor's data protection failures. Our article on limitation of liability clauses explains caps, carve-outs and super-caps with more examples.

Renewal and termination in a SaaS agreement

Autorenewal causes more unwanted spending than almost any other term in a SaaS contract. A typical clause reads:

Here is what that does. Your $50,000 subscription ends on December 31. The notice deadline is October 2. If you miss it, you owe another $50,000 and you cannot leave until the following December.

Before you sign any SaaS agreement

•         Put the notice deadline in your calendar the day you sign, with a reminder 30 days earlier

•         Ask to shorten the notice period to 30 days

•         Cap renewal price increases at 3% to 5% or at the consumer price index

•         Ask the vendor to send a renewal reminder 60 to 90 days before the deadline

SaaS agreement template and checklist

A sample SaaS agreement helps you see what market-standard wording looks like. And a checklist keeps you from missing a clause under deadline pressure. Our free SaaS agreement template and SaaS contract template include editable clauses for the five areas above.

•         Uptime target, credit schedule and termination right for repeated misses

•         Data ownership, breach notice period and deletion deadline

•         Liability cap, carve-outs and data breach super-cap

•         Renewal notice period, price increase limit and calendar reminder

•         Termination rights, refund terms and exit support

How AI review handles a SaaS agreement

The way Ideal Legal Ai manages a SaaS agreement involves a process that is often considered tiresome. Ideal Legal Ai examines the SaaS agreement to identify specific sections that deviate from standard industry practices. It has been observed that the tool provides alternative phrasing which can be submitted to the vendor directly. Speeding up the arrival at that final discussion is the primary objective of this technology, while ensuring the list of complications remains small.

SaaS agreement FAQ

What is a SaaS agreement?

A contract that lets a customer use cloud-hosted software for a set period in exchange for a fee, while the provider keeps ownership of the software.

What does SaaS agreement mean in plain terms?

You rent software instead of buying it, and the contract defines what the provider must deliver.

What is the difference between a SaaS agreement and a SaaS license agreement?

None. They’re two names for the same contract.

What should a SaaS service level agreement include?

An uptime commitment, support response times, and service credits or a right to exit if targets are missed.

Is a SaaS agreement negotiable?

Usually yes for larger contracts. Low-cost subscriptions rarely are.

How long does a SaaS contract usually last?

Many SaaS agreements are written to last for 12 months. Large enterprise agreements often span 24 or 36 months because a lower price is given in exchange for a longer commitment.

Who owns the data in a SaaS agreement?

The customer should and the contract should say so explicitly and guarantee data export and deletion when it ends.

Where can I find a sample SaaS agreement?

You can download our sample SaaS agreement and SaaS agreement template above. Treat any sample as a starting point and adjust it to your deal.