Cloud computing is integral to modern business operations, offering flexibility, scalability, and cost savings. However, these benefits bring legal and contractual risks that can significantly impact clients if not properly managed. Attorneys advising on cloud services agreements must understand the regulatory framework, contractual obligations, and risk mitigation strategies to protect clients and ensure compliance.  

Key Legal Considerations in Cloud Services Agreements 

Data Protection and Privacy 

Cloud providers often store and process client data, which may include personal information. Failure to ensure compliance can expose clients to liability. 

Best practice: Include clauses allocating responsibility for data security, breach notifications, and compliance obligations. Ensure cross-border data transfers comply with POPIA.1 

Contractual Obligations and Service Level Agreements (SLAs) 

Contracts must define: 

• Service uptime guarantees 
• Response and resolution times 

Penalties or remedies for service interruptions 

Case Insight: A client relying on cloud-hosted financial software suffered losses during downtime – a well-drafted SLA with remedies mitigated exposure. Attorneys should ensure SLAs are enforceable and reflect client expectations. 

Intellectual Property and Licensing 

• Clarify ownership of data and software uploaded to the cloud. 
• Licensing clauses must specify the permitted use, any restrictions, and the liability for infringement. 
• Ambiguity in IP ownership can lead to disputes and liability. 

Liability and Indemnities 

• Clearly define the provider’s liability cap and exclusions. 
• Include indemnity clauses protecting the client against breaches, data loss, or regulatory fines. 
• Ensure alignment with common law principles of contractual liability. 

Termination and Exit Strategies 

Include provisions for: 

• Data retrieval or deletion 
• Transition to alternative providers 
• Settlement of outstanding fees 
• Poorly drafted termination clauses can leave clients unable to access critical data or facing unexpected costs. 

Conclusion 

Cloud services agreements are strategic tools for managing risk. Attorneys play a critical role in protecting clients by ensuring contracts are clear, enforceable, and compliant with data protection and commercial law requirements. Incorporating robust provisions and practical safeguards mitigates potential risks, protects client interests, and upholds professional standards. 

Written by Anastacia Willemse, Candidate Attorney: Technology Law, Smart Contracts and Cyber Law, SchoemanLaw Inc