Suspension Rights in SaaS Agreements

Morgan Lewis - Tech & Sourcing

Morgan Lewis - Tech & Sourcing

Customers engaging a software as a service (SaaS) vendor often end up using the vendor’s form agreement, which can range from being extremely vendor friendly to middle of the road. Regardless of where it falls on the spectrum, a SaaS vendor’s agreement will most likely contain one or more provisions giving the vendor rights to suspend the services being provided under the agreement. Some common suspension rights we have seen in vendor agreements include suspension rights relating to nonpayment, disruptive use of the services, and violation of law through use of the services.

When reviewing a vendor’s suspension rights, the key question is how critical are the vendor’s services to the business? Depending on the importance of services being provided, suspension of the services, no matter how temporary, can have disastrous consequences for the business. In these cases, the customer should always remove a vendor’s right to suspend the services and instead work with the vendor to address the vendor’s concerns in another way.

If a customer decides that it can accept a suspension right, some other considerations include the following:

  • What is the trigger event for the suspension right and can it be limited or addressed in a different way? For example, a suspension right relating to nonpayment is different from a suspension right relating to use of the services in violation of law. Nonpayment should not necessarily result in a suspension right and instead can be resolved through other provisions of the agreement.
  • Does the vendor get to exercise its suspension right in its sole or reasonable discretion? Or does the provision provide a third-party standard?
  • Is the vendor required to give notice to the customer prior to suspension? If so, how much notice is the vendor required to give, and does the customer have the opportunity to cure the issue prior to the suspension taking effect?
  • How long does the suspension right last? Any suspension should only last for the duration of the violation or the time that it takes a party to mitigate the issue. The suspension provision should contain a proactive obligation on the vendor to restore the services immediately after the violation is cured or the threat is mitigated.
  • Are there any situations where the customer would want the vendor to suspend the services? For example, if the services are posing a threat to the security of the customer’s systems, it may make sense for the vendor to have the obligation to suspend the services in such a situation.

If you are a customer engaging a SaaS vendor, be sure to get legal advice on the range of issues associated with using a vendor’s form agreement. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Morgan Lewis - Tech & Sourcing

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