Why can the transfer clause be a problem in a SaaS agreement?

Why can the agreement transfer clause be a problem in a SaaS agreement?

The agreement transfer clause is an essential point to monitor in SaaS agreements. It allows one of the parties to transfer the contract to another entity, for example during an acquisition, a merger or a restructuring. While this possibility seems legitimate, it can nevertheless generate major concerns, especially for major account customers. I regularly see tensions around this clause.

Why is this transfer clause sensitive in SaaS?

SaaS publishers are generally startups or fast-growing businesses. In this context, acquisition, merger, or restructuring transactions are not uncommon. SaaS companiestherefore seek to include in their agreements the possibility of freely transferring their commitments to another structure.

However, on the side of customers, especially large accounts, this possibility is generating concerns. These customers want to maintain control over the choice of their counterparty in order to avoid a competitor or a problem company becoming their imposed contractual partner. They therefore often require prior agreement before any transfer.

Why can requesting prior approval be a problem?

In the SaaS model, the platform is shared, which means that it is used simultaneously by numerous customers. The management of a prior agreement from each customer before a transfer therefore quickly becomes unmanageable for the SaaS company. In practice, the SaaS companycannot contact each customer individually to obtain authorization before a strategic operation.

The real risk for the publisher is to be stuck in an essential transaction simply because some customer agreement require an agreement prior to the transfer. Such a situation could lead to contractual breaches, claims for damages, or complex litigation.

What are the best practices for managing this clause?

To avoid these pitfalls, there are several practical and balanced solutions:

• Explicitly provide for transfer authorization in the event of specific transactions: from the initial negotiation, it is important to include a clause clearly allowing automatic transfer in the event of a change of control, a merger or an intragroup restructuring. This reassures the SaaS complany about its ability to carry out strategic transactions without major legal risks.
• Provide for a later notification with a right of cancellation: if customers are reluctant to accept an automatic transfer clause, it may be wise to provide an intermediate clause. This solution consists in notifying the customer after the transfer of the agreement within a reasonable period of time, while giving him a right of termination in the event of a legitimate objection (for example, if the new contracting party is a direct competitor, or based in a country considered to be problematic by the customer).

Why is this balanced approach recommended?

Adopting a balanced approach is beneficial for both parties:

• For the SaaS publisher: this makes it possible to maintain the flexibility essential to its strategic development without risking operational paralysis.
• For the customer: this guarantees him a certain security and a right of action in the event of an unwanted change of contracting party.

This approach therefore creates a climate of trust and transparency, which is necessary for the sustainability of commercial relationships.

Conclusion

The transfer clause is often underestimated in SaaS agreement negotiations. However, its careful drafting is essential to legally secure the publisher's future operations while respecting the legitimate concerns of customers. If you are a SaaS company or a customer wishing to secure your commitments, I can assist you in drafting and negotiating a balanced clause, adapted to your challenges and operational constraints.

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