When mutual doesn’t equal fair in commercial agreements

A hallmark of junior lawyering is the desire to seek mutuality where mutual positions don’t exist. (If I’m being fair to good junior lawyers, this is a hallmark of all lawyering that is disconnected from the client’s objectives and it happens at all experience levels). 

It’s arguing the language of the contract without understanding the business needs behind it. It’s one of the reasons it’s critical to “Know your Why.”

What to do when mutual positions don’t exist

Common areas where this arises are in negotiations over reps and warranties, indemnities, limitations of liability, and termination provisions.

A pertinent example from Lexion Chief Legal Officer, Jessica Nguyen, is termination notice provisions in SaaS agreements. As she discusses in the In-House Connect CLE on “How to Redline SaaS MSAs and DPAs for In-House Counsel,” she seeks a different termination notification requirement as a customer than when she is the vendor. 

As background, most SaaS agreements auto-renew and offer a notification window in which one party must notify the other party of their intent not to renew the term. In a vendor’s standard form agreement, this is typically a mutual window for both customer and vendor with something like a 30- or 60-day notification requirement. 

While a shorter notice period makes sense for a vendor who is solely losing revenue when a customer walks away from the deal, for a customer, lawyers must consider that their clients may be unable to afford to lose a critical piece of software without adequate time to find a substitution and implement that substitution. 

When a customer SaaS contract comes across Jessica’s desk with a short termination notice period by the SaaS vendor, she will amend that period—solely for her client—to account for how long her client would reasonably need to identify a new vendor, negotiate a new agreement, and complete the migration to another service. This will depend heavily on the depth and complexity of the integration. 

You could imagine a much shorter time for word processing software than a deeply integrated CRM solution that is critical to the business. It is entirely reasonable that you would have different notice periods for vendors and customers—mutual here would not be fair. 

Requests for mutual reps, warranties, IP terms, and indemnification

Rather than simply rely on my own experience, I decided to poll other senior in-house counsel on where they see this desire for mutuality arise most frequently. And their experience echoed mine. 

The hottest topic was requests to make reps and warranties mutual when they aren’t. It can be reflexive for counsel to say, “Sure, our client can rep to that, but your client should be able to as well.” Before you do, make sure that it isn’t a rep or warranty that in reality only applies to the provider of the goods or services—since many do.

Other areas where in-house counsel see the issue arise are (a) requests for mutual IP terms when a customer is only purchasing goods and not providing anything back to the supplier and (b) seeking mutual indemnification from a customer when that customer’s only obligation under the agreement is to make payment. 

Does it actually need to be mutual to be fair?

So next time you’re inclined to say “I’ll accept that proposal, but let’s make sure it is mutual,” consider whether it actually needs to be. Because being pragmatic and reasonable in your negotiations will ultimately help your deals close faster and result in better supplier relationships and business outcomes for your clients.  

Disclaimer: The information in this blog post is not legal advice and is provided for general informational purposes only. Contact your lawyer for legal advice.