SaaS agreements: Everything you need to know

Software as a Service (SaaS) is a way to deliver software through the cloud. Instead of installing software on your own computer or network, a company hosts the software on their servers, and you access it online.

SaaS is a part of the broader category of cloud services, which also includes Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). What makes SaaS different is that it offers fully functional software, ready for use, often through a subscription. This makes it easy to scale and manage, especially for businesses that don’t want to deal with hardware and maintenance.

SaaS is popular because it allows users to access software from any device, at any time, as long as they have an internet connection. It’s cost-effective and reduces the need for businesses to handle things like installation, updates, and technical support. With SaaS being such a common solution today, SaaS agreements are important documents that define the relationship between the provider and the user.

When to use a SaaS agreement

You need a SaaS agreement whenever a provider offers cloud-based software to customers. The agreement outlines how the software can be used, what services are included, and other important details like pricing and data security.

Here are a few situations where a SaaS agreement would be necessary:

• Business tools: For example, when companies use tools like Salesforce for customer management, HubSpot for marketing, or Workday for HR tasks.
• Productivity platforms: Solutions like Google Workspace or Microsoft 365, which help teams work together and share files.
• Industry-specific software: Sectors like healthcare, education, or law often rely on specialised software delivered through SaaS.
• API access: When software providers offer access to their systems through APIs so that customers can integrate their tools with other systems.
• Scalable infrastructure: Businesses using cloud platforms like AWS or Azure for flexible, scalable computing power.

A SaaS agreement is also useful when businesses want to avoid the hassle of installing and managing software on their own systems and prefer the flexibility of cloud solutions. This is especially important in industries like healthcare or finance, where security and compliance are critical.

Core components of a SaaS agreement

A SaaS agreement usually includes several important sections that outline how the service works and what each party is responsible for.

1. Subscription and access

SaaS agreements focus on a subscription model. This section explains how much the service costs, how often the customer is billed, and how the subscription can be renewed or cancelled. It also covers limits on who can access the software and what they can do with it.

2. Service Level Agreement (SLA)

An SLA is a key part of any SaaS agreement. It sets expectations for how reliable the service will be, such as how much uptime the provider guarantees (e.g., 99.9%) and what happens if the service fails to meet those standards. SLAs also include details like:

• Support: When and how customers can get help (e.g., 24/7 or only during business hours).
• Performance: How fast the software will run and how well it will scale as the business grows.

3. Data protection and security

Since SaaS involves storing data online, it’s important to have clear rules about data security. This part of the agreement usually covers:

• Data ownership: Who owns the data that’s uploaded to the platform? Usually, the customer owns it, but the provider may need access to maintain or improve the service.
• Compliance: The provider must follow laws like GDPR or HIPAA if they handle sensitive data.
• Data breaches: What happens if there’s a security breach? This section explains how the customer will be notified and what the provider will do to fix the problem.

4. Intellectual property

This section makes it clear that the SaaS provider owns the software and its code. The customer is allowed to use the software, but they can’t copy, modify, or sell it.

5. Warranties and disclaimers

The SaaS provider may offer limited guarantees that the software will work as described, but they often don’t promise that it will meet every customer’s specific needs or that it will always work without interruptions.

6. Liability

Most SaaS agreements limit how much the provider will pay if something goes wrong. For example, they may only be responsible for refunds up to what the customer has paid in the past year. They typically exclude responsibility for indirect damages like lost profits.

7. Indemnification

This protects both the provider and the customer from legal claims:

• Provider indemnity: The provider will cover legal costs if someone sues the customer for using the software.
• Customer indemnity: The customer agrees to protect the provider if they misuse the software or break the terms of the agreement.

8. Termination

This section explains how either party can end the agreement, either for cause (such as a breach of contract) or convenience (with notice). It also covers what happens to the customer’s data when the service ends.

Special considerations

There are additional points to think about, especially if you have specific needs or work in a highly regulated industry:

• Customisation: Some SaaS agreements allow customers to customise the software. The agreement should make clear who owns the customisations.
• Regulatory compliance: Certain industries, like healthcare or finance, have strict laws. The agreement should explain how the SaaS provider complies with these rules.
• Escrow arrangements: In case the provider goes out of business, some agreements include an escrow clause, giving the customer access to the software or their data.

When not to use a SaaS agreement

There are some cases where a SaaS agreement isn’t appropriate:

• On-premise software: If the customer is buying software to install on their own servers, a software licence agreement is needed instead.
• Custom software development: When a business hires a developer to create a new, custom piece of software, a software development agreement is more appropriate.

Trends in SaaS agreements

SaaS agreements are changing as the cloud industry evolves. Some recent trends include:

1. Modular SLAs: Businesses want more flexible SLAs that match their needs, such as prioritising uptime or support depending on what’s most important to them.
2. Data portability: As more companies use multiple cloud services, it’s important for data to move easily between them, so agreements often include rules about data transfer.
3. Cloud security: As cloud services become more popular, security has become a bigger focus. Many agreements now require advanced security features like encryption or multi-factor authentication (MFA).
4. API licensing: More companies are integrating SaaS tools with other software through APIs. SaaS agreements often now include details about how customers can use these APIs.
5. Multi-tenancy: Many SaaS platforms host data for multiple customers on the same servers. Agreements need to ensure that each customer’s data is kept separate and secure.

How ITLawCo can help

Navigating SaaS agreements can be complicated, but ITLawCo is here to help. We specialise in IT law and understand both the legal and technical aspects of cloud-based software. Our team can:

• Draft and review SaaS agreements to make sure they meet your business needs.
• Help you comply with data protection laws like GDPR or HIPAA.
• Set up clear Service Level Agreements (SLAs) to ensure you get the service you expect.
• Advise on customisation and third-party risk management.
• Address issues related to intellectual property and data security.

Whether you’re a SaaS provider or a business using SaaS products, ITLawCo can help you create strong, clear agreements that protect your interests. Reach out to us today to ensure your SaaS agreements are ready for the future. Contact us today.