Heads of terms are often by SaaS suppliers where the final terms of the SaaS agreement have not yet been fully agreed with the SaaS customer. By using heads of terms the SaaS supplier can start to provide the SaaS services to the SaaS customer. However sometimes the parties are unaware of, or overlook, the legal implications and dangers of using heads of terms prior to finalising the terms of the SaaS agreement.
A recent court case in the UK highlights these problems.
Matchbet Ltd v Openbet Retail Ltd
A software developer claimed damages against a technology supplier for breaching the terms of a development agreement. The development agreement was based on heads of terms but the final signed development agreement contained an entire agreement clause.
Entire Agreement Clause
An entire agreement clause is a clause which states that the terms of the agreement (in this case the development agreement):
- are the entire agreement and understanding between the parties; and
- supersede all proposals and prior agreements, arrangements and understandings between the parties.
The purpose of an entire agreement clause is to ensure that all of the rights and obligations of the parties are in one single agreement i.e. the agreement which contains the entire agreement clause, in this case the development agreement.
Relevance of Heads of Terms
As the development agreement contained an entire agreement clause, the heads of terms were irrelevant in determining the intention of the parties, when the court had to interpret the terms of the SaaS agreement. The court had to ignore the heads of terms as they were merely part of the pre-contractual negotiations between the parties and were excluded from the terms of the final SaaS agreement by the entire agreement clause.
In light of the above, it is important for SaaS suppliers to understand the interaction between any heads of terms they use prior to signing a final SaaS agreement and the inclusion of an entire agreement clause in the final SaaS agreement.
Where a SaaS supplier wants to ensure that all of the provisions from the heads of terms are included in the final SaaS agreement, the final terms of the SaaS agreement should specifically mirror the provisions of the heads of terms.
Additionally, where the commercial terms have substantially changed between the signing of the heads of terms and the signing of the final SaaS agreement, it is essential that the SaaS agreement includes an entire agreement clause to exclude the out of date heads of terms.
Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:
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