Transfer clause in SaaS agreements: pitfalls to avoid
Why a prior consent requirement can block your strategic transactions, and how to draft a balanced transfer clause in a SaaS agreement.
The transfer clause is an essential point to monitor in SaaS agreements. It allows one of the parties to assign the contract to another entity — for example, following an acquisition, merger or restructuring. While this may seem straightforward, the clause can generate significant concerns, particularly for enterprise customers.
SaaS vendors are typically startups or high-growth companies. In this context, acquisitions, mergers and restructurings are common. Vendors therefore seek to include in their agreements the ability to freely transfer their obligations to another entity.
On the customer side, however — particularly among enterprise accounts — this generates concern. These customers want to retain control over the identity of their counterparty, to avoid a competitor or a problematic entity becoming their imposed contractual partner. They therefore frequently require prior written consent before any transfer.
In the SaaS model, the platform is shared across many customers simultaneously. Obtaining individual prior consent from each customer before a transfer quickly becomes unmanageable. In practice, a vendor cannot contact every customer individually to seek approval before a strategic transaction.
The real risk is that the vendor finds itself unable to complete a critical transaction simply because certain customer agreements require prior consent to any assignment. This could lead to contractual breaches, damages claims or complex litigation.
A frequent point of friction in negotiations is the confusion between an assignment of the contract itself (transfer of rights and obligations to a third party) and capital transactions affecting the vendor (fundraising, share transfer, change of majority shareholder). Under French law, a capital transaction does not constitute a contract assignment: the vendor remains the same legal entity — only its shareholding changes. Yet some customers draft clauses broadly enough to cover both scenarios, which can block a fundraising round or an acquisition. It is therefore essential to distinguish between the two in the clause.
To avoid these outcomes, several practical and balanced approaches are available:
During a fundraising round or acquisition, the investor’s or acquirer’s legal advisers will systematically review customer agreements. On the transfer clause, they look specifically at whether prior consent is required, whether the clause also covers capital transactions, and whether the contractual portfolio is consistent. A portfolio with heterogeneous or poorly drafted clauses constitutes a contractual liability — a portfolio with clear, consistent clauses adapted to the SaaS model is an asset.
A balanced approach benefits both parties:
This approach creates a climate of trust and transparency that supports the long-term sustainability of the commercial relationship.
The transfer clause becomes even more critical in the context of a fundraising round or acquisition. If you need to secure your agreements on this point, book a call.
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