Home » What Should You Keep In Mind When Drafting a SaaS Agreement?

What Should You Keep In Mind When Drafting a SaaS Agreement?

Cloud kitchens today have done away with the cost of maintaining premises or physical stores for catering. They work online on a delivery-only system. SaaS (Software as a Service) agreements similarly allow companies to license software programs without purchasing them, on a subscription basis. Software as a Service is commonly accessed through a web browser, with users logging into the system using a username and password.

SaaS are contracts between the software provider and the company (customer). It allows companies to access software services from anywhere in the world with an internet connection. It replaces the traditional approach where software was sold as a whole to an enterprise and installed on servers within their premise leading to a waste of time and resources.

Google Docs is based on the SaaS model. The SaaS vendor or provider gives customers access to a single copy of the application that the provider has specifically created for the SaaS distribution. If any new features are made, they shall be provided to all the customers automatically.

So what should you keep in mind before making your SaaS contract? Here are a few points:

Scope of the License

The Contract must specify the scope or permitted use of the software. It refers to the number of users who can access it. The extent of usage permitted. The means and technologies for accessing it

Limitation of Liability (LOL)

SaaS vendors protect themselves from paying certain damages. This clause is a disclaimer followed by a sentence which states how much damages the vendor will provide for losses suffered by the company. The way such LOL is drafted is generally beneficial to the vendor.

Ownership of the Data

The contract must clearly state who shall remain the owner of the data created, whether the third party or the software provider. SaaS agreements should include a privacy policy that details how the provider is using your data, including the information it collects and shares internally or with third parties.

Customer Service and Support

The details of how the vendor shall provide assistance, the time needed for response and any other terms.

Subscription & Pricing Model

SaaS contracts are on a hire basis and give the customer liberty to choose the kind of subscription they wish to purchase and the price they are willing to pay. The usual payment mode could be monthly, quarterly, or annually. In the subscription-based pricing model, customers pay on a regular basis for the continued use of a service or product.

Service Level Agreement

Such SLA can be a stand-alone document or be drafted as a part of the SaaS vendor contract. SLA lays down the minimum standards that the vendor needs to provide. Guaranteed software uptime, response time for sensitive issues, billing and pricing structure, Security and compliance.

Renewal and Termination

SaaS are renewable automatically after the completion of one term. They are always in an automatic renewable system unless the customer expressly terminates the subscription. The notification time period for opting for or terminating the contract is informed well in advance. In a SaaS agreement, termination for convenience clauses allows the specified party or parties to terminate for any reason. To terminate for convenience, the parties can negotiate whether notice is required, i.e., ten, sixty, or ninety days.


The majority of the world today is switching from the traditional licensing model to SaaS contracts. Where they can access the software from anywhere with an internet connection. It eliminates the cost of installing software on the company’s hardware system and is easy to implement, easy to update and debug, and can be less expensive than purchasing multiple software licenses for multiple computers.

AuthorDipanwita Chakraborty, Attorney at PA Legal.

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