SaaS Agreements 101: Payment, Renewal, and Termination Terms (Part 2)
By Joanne Hue, published: 2023-03-14
A SaaS agreement is a contract that is legally binding for a company that provides software as a service and its client. These services primarily concern cloud-based applications that a client may subscribe to. After the subscription, the client can access these internet-based services in exchange for a recurring fee. The contents of the SaaS agreement vary based on the parties. It intends to provide both parties with a clear understanding of their responsibilities and liabilities. Learn in detail about the payment terms, renewal provisions and termination clauses in saas agreement:
The payment term is defined within the SaaS agreement. It incorporates the term and methods of payment. Subscribers may seek renewal of the contract after the agreement comes to term and the renewal provisions are generally included in the agreement. A client or the provider may terminate the contract for various reasons. Termination clauses in the SaaS agreement make the process convenient by defining prerequisites to contract termination.
The SaaS agreement outlines payment terms and methods, renewal provisions, the requirements for termination and obligations post-termination. A well-drafted SaaS agreement is crucial to prevent and protect a party against any potential legal suits. If you’re looking for templates to draft an efficient SaaS agreement for your business, you can create SaaS agreements through Zegal’s templates.
Payment Terms in a Saas Agreement
SaaS agreements either employ monthly subscriptions or term-based subscriptions for their payment model. For payment terms based on monthly subscriptions, the client is charged monthly through e-payments or a credit card system. Usually, a customer can cancel or terminate the contract at any time without any penalties. In some rare cases, a monthly subscription may entertain annual or quarterly payments.
The term subscription model is distinct from the monthly payment model as the payment term is set for a specified period. The payment term may or may not include provisions concerning the termination of the term. Usually, term subscriptions are regarded as more flexible because the parties in the SaaS transaction reach an agreement on payment terms.
Renewal Provisions of a Saas Agreement
When a subscriber or a customer chooses to extend the transaction with a SaaS provider beyond the agreed term, then the SaaS agreement requires a renewal. SaaS agreements usually outline the method of renewal. However, as the termination of the agreement allows the client to explore their experience with the software service and seek out other options, the renewal process becomes less straightforward.
SaaS agreements define the term of the contract. In most cases, the term of a SaaS agreement ends in a year and a renewal is required annually. About 89% of SaaS vendors include auto-renewal clauses in their SaaS agreements. This provides the customer ample time to draw a cost-benefit analysis, explore their alternative options, evaluate their usage and make a decision on whether to renew their agreement.
If a subscriber intends to terminate their contract before the specified expiration date, they are required to provide a notice to the provider. Almost all vendors set at least 30 days to send in the notice of termination. In certain cases, the subscriber may be required to submit their notice 45 to 90 days before the termination date.
Renewal of the SaaS agreement is crucial for the continuation of the transaction. Any delay in formulating a renewal strategy may come with financial consequences for consumers that are dependent on SaaS providers for the unimpeded operation of their businesses. This is a major reason why many SaaS providers include auto-renewal in their agreements. Hence subscribers need to stay updated with the date of renewal and the dates of contract amendment.
In SaaS agreements that include auto-renewal provisions, vendors often include a window of the renewal period. Within this time, the clients need to alert or notify their vendors to avoid unintended extension of the contract.
Termination of Clauses in SAAS Agreement
SaaS agreements do not naturally terminate in indefinite clauses. The termination of such an agreement is usually instigated by a particular event. The parties may also amend the contract to include provisions concerning the termination of the contract. A SaaS agreement often contains clauses concerning the perpetual renewal of the agreement. Unless actively terminated by any of the parties, the respective clause allows auto-renewal of the contract.
Termination for convenience is included in many SaaS agreements.
A termination for convenience clause is included in a SaaS agreement allowing any party to terminate an agreement at their convenience. The inclusion of this clause in the SaaS agreement means that a party does not need to prove breach or repudiation from the other party to terminate their transactions. The provisions concerning termination for convenience can stipulate the period before which a party needs to provide a notice of termination In some transactions, this notice may not be required at all.
The termination for cause clause in a SaaS allows a party to terminate the contract in event of a breach from the other party. Oftentimes, what violations lead to the breach of the agreement may not be clear, Some subscribers may also demand the producers continue the provision of their services until their breach is proven through a suit. Usually, the impossibility to perform or unforeseen circumstances are not regarded as ample to substantiate a breach. Most clients require that producers show a material breach of the contract to justify termination of the SaaS agreement.
Even in cases of material breach, a contract may not always terminate ipso facto. If the SaaS agreement requires the producers to provide a warning notice or a notice concerning remediation of the breach, they will have to do accordingly before precluding the provision of their services.
A SaaS company benefits from sustaining its customers. A provider may expend their resources expecting the continuation of their contract with their clients. Therefore, when a subscriber terminates the contract before its term, a provider may collect an early termination fee to balance to cost.
Parties hold post-termination obligations. Usually, the provider is required to allow its subscribers to retrieve their data after the termination of their SaaS agreement. Likewise, the consumer has the right to continue their transition as defined by the transition clause in the agreement. A service provider may even be required to assist its former customers to transition to a different provider.
A SaaS agreement defines the subscription method and the payment terms for the software services. In the termination of the agreement, customers may require renewal of the agreement to continue service transactions. Agreements generally include renewal provisions. Companies may auto-renew the agreement or terminate the transaction. Agreements incorporate termination clauses to address termination convenience or for the cause.
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