Reading time: 9 minutes

If your business offers Software as a Service (SaaS), you will need a SaaS agreement in place with each customer. SaaS agreements take different forms depending on who your customers are and how your customers access your software. This article will explore different types of SaaS agreements and ways that your customers can accept your agreement. It will also highlight key clauses in a SaaS agreement that relate to how the agreement starts and finishes.

Different Types of SaaS Agreements

Your SaaS agreement will have no effect if it has not been read, understood and accepted by your customer. When preparing your SaaS agreement, your lawyer will need to know early on how your customers will sign up to your SaaS. This will inform the format of the agreement. Your agreement needs to be in a format that can be accepted by your customers, whether they are:

  • ticking a box online;
  • digitally signing a document; or
  • signing a document with wet ink. 

Some businesses, particularly those offering a bespoke SaaS solution, or offering a SaaS to a large enterprise customer, may set out their SaaS agreement in a document format. This document is then signed with wet ink on paper or using an online document execution tool. 

Alternatively, many SaaS businesses will display their agreement as a clickwrap agreement. In this instance, a customer will purchase their SaaS subscription online and will click to accept an online set of terms and conditions. 

Negotiated SaaS Agreements vs Take-It-or-Leave-It SaaS Agreements

Whether or not you customise your SaaS agreement may depend on: 

  • how customisable the SaaS itself is;
  • what types of customers you attract; and
  • whether you expect there to be negotiations between you and your customers before they accept your agreement. 

Typically, an enterprise SaaS agreement is negotiated, and the document may be sent back and forth between the parties prior to it being accepted. On the other hand, you do not usually negotiate a clickwrap SaaS agreement.

Browsewrap Agreements

It is rare and not advisable to place your SaaS agreement on your website as a ‘browsewrap’ agreement. This is where your customer is not prompted to take an active step (such as ticking a box or inserting their signature) to accept the agreement. If a dispute arises between you and a customer using your SaaS, and you cannot show that they have read and accepted your agreement, you will have difficulty relying on the terms of the agreement. 

Authority

It is also important to ensure that the person accepting your SaaS agreement has the authority to do so. It is best to seek advice on the type of signature block to insert into enterprise SaaS agreements. Further, it is prudent to seek a warranty from the individual who accepts your SaaS agreement on their company’s behalf, stating that they are authorised to enter into the agreement.  

Key Clauses in a SaaS Agreement

Having addressed the common ways that SaaS agreements are structured, it is useful to explore common clauses in a SaaS agreement, particularly those relating to how the agreement starts and ends. 

Term and Renewal

Your SaaS agreement will need to clearly set out how long the agreement will continue. There are a number of arrangements, including a:

  • fixed-term subscription, for example, one year or three years;
  • monthly subscription that automatically continues until terminated; and
  • fixed-term subscription with an option to renew. For instance, the initial term of the subscription might go for one year, and at the end of that first year, renew for another year unless either party gives the other party written notice that it does not want to renew. 

When the Services Start

It is important to clearly state when your customer will have access to your SaaS. For an online SaaS platform, where users can sign up any time, they may be able to begin accessing the SaaS as soon as they have created an account and paid their first subscription fee. 

Alternatively, for a more bespoke or customised SaaS, where you are building a solution for your customer, you may have a concept of a ‘go live date’, which is the date from which the customer’s subscription starts. Your customer might sign the SaaS agreement on a particular date. However, certain things might need to take place before the go-live date. For instance, so that from the go-live date the SaaS is fully customised and ready to use, you might:

  • set up accounts for your customer and their authorised users;
  • provide training to a customer’s staff members;
  • load the customer’s information into your platform; 
  • configure the SaaS to ensure it operates on your customer’s systems; or
  • procure hardware for the customer, which is used alongside the SaaS.

Additionally, your SaaS agreement should state when the subscription fee starts. Is it from the date that they sign up to the SaaS and accept the agreement, or is it from the go live date? 

Free Trial

You may also choose to provide a free trial at the start of the term. During this time, your customer will have the chance to test drive your SaaS, perhaps with some added freedoms. For instance, they might not pay any fees for the trial period, or you might offer to refund the fees paid for the trial period if they do not continue with the SaaS at the end of the period. A free trial allows a customer to end the agreement at the end of the trial period without being locked into a subscription. 

Fee Structure

It is crucial to clearly articulate your fees and payment structure. Doing this will ensure that you get paid on time and make sure there is no ambiguity and confusion from customers, which can lead to disputes about payments. SaaS is often provided on a subscription basis, but you might charge any combination of the following:

  • a deposit;
  • subscription fees, for example, on a monthly or yearly basis;
  • subscription fees, to be paid at the start or end of each timeframe, for example, a monthly fee to be paid at the start of each month;
  • fees for any hardware you supply along with the SaaS;
  • fees per authorised user;
  • additional fees for additional services or users;
  • fees for support, implementation, or hosting services; and
  • fees for expenses you incur while providing the SaaS.

Your SaaS agreement should explain how the fees are to be paid. Further, if you use a clickwrap SaaS agreement, you might take your customers’ payment details using a third party payment processor, and the fees may be automatically debited. Alternatively, you may invoice your customers for the fees.  

Cancellations and Termination

Just as the start of the agreement should be clear, so too should the process by which the agreement comes to an end. 

If you offer an automatically-renewing subscription, the agreement should explain how each party can end the agreement. Additionally, if the agreement ends on a particular date, the agreement should state whether each party can terminate ‘for convenience’, in other words, without providing a reason. 

It is also important to outline how each party can terminate the agreement where the other party has breached the agreement. 

Termination Fees

If you charge an early termination fee where your customer terminates the agreement before the end of the term, you will need to ensure that this fee is not a penalty. You should calculate early termination fees as a genuine estimate of the loss you have suffered due to the customer terminating early. If early termination fees are not a genuine estimate of your loss, they will be considered a penalty and will not be enforceable. 

Refunds

The clauses of your SaaS Agreement should address your refund process. It may be that you offer:

  • no refunds (subject to any rights your customers may have under the Australian Consumer Law); or
  • partial refunds where the agreement is terminated part way through a subscription term.

If you do offer refunds, it is important to set parameters around this by spelling out the circumstances when you do and do not offer refunds. For instance, you may offer a partial refund to customers who have paid for a SaaS subscription upfront for the year and where they wish to terminate the subscription prior to the end of the year. This is a commercial decision for you to make, and your legal team can advise on how best to protect yourself if you choose to offer refunds. 

Effects of Termination

When your SaaS agreement ends, a number of things will need to happen, and you must spell these out in the agreement. For example:

  • you will stop providing the SaaS to your customer;
  • your customer should pay you all fees owing;
  • you may remove or disable your customer’s (and their authorised users’) account;
  • you may return any of your customers’ materials, intellectual property, or data that was provided to you to offer your SaaS; and
  • your customer should return to you any of your confidential information or intellectual property that you provided to them. 

Substantially Prejudicial Terms

If you provide your SaaS to a customer in New South Wales that is defined as a ‘consumer’ under the Australian Consumer Law, you will be caught by some recent legislative changes. If these laws apply to you, you will need to disclose to your customer any substantially prejudicial clauses in your SaaS agreement prior to them accepting your agreement. 

Your legal team can advise you of which clauses in your agreement may be substantially prejudicial to your consumer, and therefore which clauses you must disclose. Your lawyer can also advise how best to notify potential customers of these clauses.  

Key Takeaways

As a supplier of software as a service, you will need a well-drafted SaaS agreement in place with customers. The format of the agreement is important to get right, as is the content of the agreement. A clear SaaS agreement will set out each party’s rights and responsibilities and will help to reduce the risk of a dispute happening down the track. If you would like assistance preparing a SaaS agreement and including key clauses, contact LegalVision’s IT lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a SaaS agreement?

SaaS agreements are for businesses that offer Software as a Service and should be in place with each customer. SaaS agreements take different forms depending on who your customers are and how your customers access your software.

What is a browsewrap agreement?

This is where your customer is not prompted to take an active step, like ticking a box or inserting their signature, to accept the agreement.

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer