What is a warranty in a sales contract?

Looked at your template contract and starting to ask yourself what is a warranty in a sales contract? As you start building a cohort of contracts for your B2B software sales you’ll need to get a hold on what your contracts require of you in the long term, understanding warranties in sales contracts is an important piece of this. Warranty clauses in software as a service contracts come in a number of shapes and sizes but they are all there to fundamentally provide reassurances for each of the parties in the case of something going wrong.

So, What The Hell Are Warranties?

Warranty in a sales contract is a form of assurance provided by the seller to the buyer. It’s like a handshake agreement, a promise that the product your customer is investing their hard-earned money into will live up to certain standards. Warranties come in various shapes and sizes, but they all share the same fundamental goal: to give confidence to the buyer that they’re making a wise decision.

The Two Faces of Warranties

Warranties can be broadly classified into two categories: express warranties and implied warranties.

1. Express Warranties: These are the promises that sellers explicitly make about their products. Sellers may write them on the product, highlight them in advertisements or Google Ads, or verbally communicate them during the sales pitch. For instance, if a software sell assures you that their software has a 99% guaranteed uptime, that’s an express warranty.
2. Implied Warranties: Certain warranties automatically imply protection for consumers, even if not explicitly stated by law. There are two main types:
   • Implied Warranty of Merchantability: This warranty assures buyers that the product they’re purchasing fits its intended purpose and maintains average quality.
   • Think of it as the assurance that your new payment processor with process payments and your new CRM will save contacts.
   • Implied Warranty of Fitness for a Particular Purpose: If the seller knows or has reason to know that the buyer is relying on the product for a specific purpose, there’s an implied warranty that the product will serve that purpose adequately.

Why Warranties Matter

Warranties aren’t just fancy pieces of paper or legal jargon—they’re essential for several reasons:

1. Consumer Confidence: When buyers know that a product is backed by a warranty, they feel more confident about their purchase. This confidence translates into increased sales and fosters long-term relationships between buyers and sellers.
2. Legal Safeguards: Warranties serve as legally binding contracts that protect the rights of both buyers and sellers. They outline the terms and conditions governing the sale, reducing the likelihood of disputes and costly litigation.
3. Quality Assurance: By offering warranties, sellers signal their commitment to delivering quality products. They’re motivated to maintain high standards and promptly address any issues that may arise, ensuring customer satisfaction.

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Decoding Warranty Terms

When navigating a SaaS sales contract, it’s important to pay attention to the fine print of the warranty. Here are some key aspects to consider:

1. Duration: How long does the warranty last? Is it valid for a specific period, or does it extend indefinitely? A general Master Service Agreement will outline this for you. Understanding the duration of the warranty helps buyers plan for future contingencies.
2. Coverage: What exactly does the warranty cover? Does it include uptime, customer service, or both? Knowing the extent of coverage ensures that buyers are adequately protected against potential issues with what they have purchased.
3. Exclusions: Are there any circumstances under which the warranty doesn’t apply? Common exclusions may include misuse, neglect, or unauthorized modifications or uploads to the product. Being aware of these exclusions can help buyers avoid voiding the warranty unintentionally.
4. Claim Process: How can buyers initiate a warranty claim? Is there a specific procedure they need to follow, such as contacting customer service or raising a ticket? Understanding the claim process streamlines the resolution of any issues that may arise during the warranty period.

Example’s of a Warranty

1. Service Warranty: [Company Name] warrants that the SaaS service (the “Service”) will perform materially in accordance with the applicable documentation provided to the Customer (the “Documentation”) under normal use and circumstances during the Subscription Term. This warranty does not cover non-conformities resulting from (a) use of the Service contrary to the Documentation or [Company Name]’s instructions, (b) modifications to the Service not made by [Company Name], or (c) unauthorized third-party products or services used in conjunction with the Service.
2. Availability Warranty: [Company Name] warrants that the Service will be available at least 99.9% of the time during each calendar month, excluding scheduled maintenance periods and any downtime resulting from (a) force majeure events, (b) internet service provider failures, or (c) any actions or inactions of the Customer or any third party acting on the Customer’s behalf.
3. Remedy for Breach of Warranty: If the Service fails to conform to the warranties set forth above, [Company Name] will use commercially reasonable efforts to correct the non-conformity promptly. If [Company Name] fails to correct the non-conformity within thirty (30) days after Customer’s written notice, the Customer may terminate the affected portion of the Service and [Company Name] will provide a prorated refund of any pre-paid, unused fees for the terminated portion of the Service.
4. Disclaimer: Except as expressly provided in this section, the Service is provided “as is” and [Company Name] disclaims all other warranties, whether express, implied, statutory, or otherwise, including without limitation any implied warranties of merchantability, fitness for a particular purpose, and non-infringement. [Company Name] does not warrant that the Service will be error-free or uninterrupted or that any defects will be corrected.
5. Limitation of Liability: In no event shall [Company Name] be liable for any indirect, incidental, special, consequential, or punitive damages, or any loss of profits or revenues, whether incurred directly or indirectly, or any loss of data, use, goodwill, or other intangible losses, resulting from (a) the use or inability to use the Service; (b) any unauthorized access to or use of the Service or [Company Name]’s servers; (c) any interruption or cessation of transmission to or from the Service; (d) any bugs, viruses, trojan horses, or the like which may be transmitted to or through the Service by any third party; (e) any errors or omissions in any content; and (f) any defamatory, offensive, or illegal conduct of any third party. In no event shall [Company Name]’s aggregate liability for all claims related to the Service exceed the amount paid by Customer hereunder in the twelve (12) months preceding the event giving rise to liability.

This warranty clause covers various aspects of the service’s performance and availability, remedies for breaches, and limitations on liability, which are common elements in SaaS agreements.

When you’re building a startup company consumer trust is one of the most important things to get traction, warranties in sales contracts serve as fall backs for a buyer that is not 100% sure of whether they should trust an early stage business. By understanding the nuances of warranties that are in your sales contracts, buyers can make informed decisions, sellers can build trust with their customers, and your income growth can take advantage of a foundation of transparency and reliability.