Last reviewed 28 September 2026
Put simply, a software licence grants the customer permission to install and use a copy of software, usually on its own systems, while a SaaS agreement is a contract for access to a service the supplier hosts and runs. A licence is centred on intellectual property rights in a copy of the code; a SaaS agreement is centred on service delivery, availability, support and data.
The distinction affects almost every clause: what the customer is paying for, who is responsible when the software stops working, what happens to data and how the relationship ends. Businesses that move from selling installed software to selling subscriptions often keep old licence wording that no longer fits.
What the customer actually receives
Under a traditional licence, the customer receives a copy of the software and a permission to use it within defined limits, such as a number of users, devices or sites. The licence may be perpetual with separate support and maintenance, or for a fixed term.
Under a SaaS agreement, the customer never holds the code. It receives a right to access and use the service remotely, usually on a subscription basis, while the supplier manages hosting, updates and infrastructure. Any intellectual property licence in a SaaS agreement is typically narrow and ancillary to access.
Performance, availability and support
Because the customer runs licensed software itself, licence terms focus on whether the software conforms to its specification, with warranty periods and fixes through maintenance releases.
In SaaS, the supplier's operational performance is the product. Service level terms covering availability, response and resolution times, planned maintenance windows and service credits become central, as does the supplier's right to change features. Customers should check whether service credits are the sole remedy for outages and whether there is a right to terminate for persistent failure.
Data and security
Installed software often keeps customer data on the customer's own systems. SaaS moves data onto the supplier's platform, so data protection terms become essential. Where personal data is involved, UK GDPR requires a written contract setting out processing terms between controller and processor, and the parties need clarity on security measures, breach notification, sub-processors and international transfers.
Customers should also check data export rights and what happens to their data when the contract ends, including deletion timescales.
Fees and term
Licences have traditionally involved an upfront fee with optional annual support. SaaS usually involves recurring subscription fees, often tied to users or usage, with automatic renewal and price review clauses. Check notice periods for non-renewal, caps on price increases and what happens if usage exceeds the agreed tier.
Ending the relationship
Ending a perpetual licence may leave the customer free to keep using the version it has. Ending a SaaS contract switches access off. Exit provisions therefore matter far more in SaaS: transition assistance, data return in a usable format and a sensible run-off period.
Hybrid models
Many products now combine elements, such as a hosted platform with downloadable apps or on-premises connectors. The contract should reflect each component accurately rather than forcing everything into one template. We advise SaaS and software businesses on both licensing and subscription terms.
Key points
- A licence grants permission to use a copy; SaaS grants access to a hosted service.
- Service levels, data protection and exit terms are central to SaaS contracts.
- Old licence wording often fails to fit subscription products.
- Hybrid products need terms reflecting each component.
Frequently asked questions
- Does a SaaS agreement need a licence clause at all?
- Usually a limited one, granting the right to access and use the service and any related documentation. The core of the contract is the service commitment rather than the licence.
- Who owns the software under a SaaS agreement?
- The supplier normally retains all intellectual property in the platform. The customer typically keeps ownership of its own data, and the contract should say so clearly.
- Can we convert our existing licence terms into SaaS terms?
- Some clauses carry over, but service levels, data processing, hosting responsibilities and exit provisions usually need to be written fresh rather than adapted.