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What is a subscription agreement?

A subscription agreement is a document that sets forth the conditions that will govern the use of a company’s product or service by a customer paying for the goods or services under a subscription payment model. In such cases, the customer is given access to the product or service by regularly paying a subscription fee. Subscriptions are usually paid on a monthly, quarterly, or yearly basis.

At present, there has been a constant rise in the number of businesses offering their products and services on a subscription basis. For example, a lot of people have subscriptions for newspapers, magazines, online streaming services, computer software, computer games, and cable television.

For instance we now get our razor blades, every month in the mail, due to our subscription to the Dollar Shave Club!

Should a person decide to get a subscription for a product or a service, it is important to have a subscription agreement.

Why do I need a subscription agreement?

A subscription agreement prevents misunderstandings between the parties since it outlines their rights and obligations. It minimizes the risk of having disputes about the terms of the agreement and serves as proof of the agreement of the parties. In case the customer has an issue with the product or the service paid on subscription, he or she can refer to the subscription agreement to find out how the issue can be resolved and to know if the seller has any liability.

Having a subscription agreement adds another layer of protection for the parties. It ensures that the customer will not be taken advantage of and that both parties are aware of their rights and obligations. The parties can minimize the risk of getting into any legal trouble by following the terms and conditions stated in the agreement. The customer will be reminded of the restrictions in using the product or service and the seller will be more cautious about fulfilling the obligations stipulated in the agreement.

What are the key clauses in a subscription agreement?

A complete subscription agreement must include the following clauses:

Parties – The seller of the product or service and the customer who will avail them on subscription must be named in the subscription agreement.

Product or Service – The subscription agreement must describe the product or service that will be availed by the customer.

Subscription Fee – The subscription fee is the amount to be paid by the customer to access the product or service specified in the agreement.

Payment Terms – Payment may be made monthly, quarterly, or yearly depending on the subscription period chosen by the customer. In case the customer fails to pay the subscription fee, his or her access to the product or service may be suspended or the subscription agreement may be terminated. Generally though this is covered by requiring the use of a valid credit card when signing up for the subscription service.

Subscription Period – The subscription agreement must state the period within which the customer has access to the product or service. If the Subscription period is evergreen, or indefinite, then the contract MUST have an ability for the client to terminate the agreement (otherwise the agreement runs the risk of falling foul of Australia’s unfair contracts legislation).

Trial Period – Some companies, particularly those selling software products, allow the use of their products or services for free within a specific period.

Access – The subscription agreement must specify how customers can get access to the product or service. The seller can add limitations on who can be given access to the product or service, for instance a party might be given access to all the services on offer during a trial period, but once a client accepts the subscription service then they can only access the service pack they signed up for.

Restrictions – Customers are required to use products or services exclusively for legal and authorized purposes. The seller may add other restrictions regarding the use of the product or service during the subscription period.

Obligations of the Parties – The main responsibility of the seller is to ensure that the customer will get access to the product or service during the subscription period. On the other hand, the customer is responsible for the prompt payment of the subscription fee. Both parties must follow any restrictions stipulated in the subscription agreement.

Liability for Damages – The subscription agreement must specify the party who will be liable for damages caused by the use of the product or service during the subscription period.

Limitation of Liability – The seller should look to exempt themselves from any liability for indirect or consequential damages suffered by the customer arising out of, or due to, the subscription agreement.

Confidentiality – The seller should not disclose any confidential information about the customer except with the latter’s consent.

Warranties – The subscription agreement must enumerate the warranties guaranteed by both parties. Some of these have to be provided by law in Australia (it will depend on the market in which you are operating, i.e. business to customer or business to business).

Suspension – The seller may provide for the causes which will lead to the suspension of the customer’s access to the product or service.

Termination – The process of terminating the subscription agreement as well as the causes for termination must be stated in the agreement. The consequences of termination and the obligations of the parties after the agreement is terminated must also be stipulated.

Dispute Resolution – The subscription agreement must explain the procedure to be followed in resolving disputes between the parties. It must also specify the governing law and the courts which will have jurisdiction should a case be filed by either party.

Do you have questions about writing a subscription agreement? Call us at 1800 355 455 or fill in the form below.

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