The Data Act challenges fixed-term SaaS agreements: did it introduce a right to terminate freely?

The EU Data Act became applicable on 12 September 2025 and introduced new obligations aimed at making it easier for customers to switch service providers. The objective is to prevent so-called vendor lock-in and require cloud service providers to compete on service quality and pricing, rather than allowing customers to become tied to a service because of technical or contractual barriers.

The Data Act requires cloud service providers to enable customers to switch services with a notice period of no more than two months. The rules apply to services including IaaS, PaaS and SaaS.

However, the reform directly affects the core of many SaaS companies’ business models. Many SaaS services are sold under fixed-term agreements, often for one year or several years, and the business model is based on annual recurring revenue, or ARR. Service providers typically offer a lower monthly price to customers who commit to annual billing. The possibility of switching service providers during the contractual term under the Data Act therefore raises questions about the binding nature of fixed-term agreements.

Does the Data Act allow a fixed-term SaaS agreement to be terminated during the contractual term?

The Data Act does not create a general, entirely unrestricted and consequence-free right of termination in all circumstances. It does, however, give customers the right to switch service providers or move to their own solution with a notice period of no more than two months, and generally a transition period of one month, at limited cost. This applies even during the term of a fixed-term agreement where the cloud service falls within the scope of the Data Act. In practice, the outcome comes very close to a “free right of termination” in the situation that matters most to the customer, namely when the customer wishes to switch providers and take its data with it.

During the switching process, the previous service provider must continue providing the service and assist with the transfer of data. Once the switching process has been completed, the agreement and the customer’s payment obligation come to an end. The agreement will therefore generally end three months after the customer gives notice of its intention to switch, as the notice period is two months and the transition period is usually one month.

Can a SaaS provider charge for early termination or assistance with the switching process?

The Data Act permits two types of charges that a service provider may, to a limited extent, impose in connection with the switching process: switching charges and early termination penalties under fixed-term agreements.

During the transitional period ending on 12 January 2027, the Data Act allows service providers to charge fees for switching services where those fees are based on direct and demonstrable costs. After 12 January 2027, switching charges will be prohibited altogether. Customers may not be charged for transferring their data to another cloud service or to their own environment to the extent that the transfer falls within the minimum obligations imposed by the Data Act. Even after the transitional period, customers may purchase additional services that go beyond the minimum obligations, and the service provider may charge for those services where they are provided at the customer’s request and the customer has accepted the price in advance.

The Data Act also allows a SaaS provider to include a “proportionate” penalty in the agreement for terminating a fixed-term agreement before the end of its contractual term. The customer must be informed of such a penalty before the agreement is concluded.

The Data Act does not define what “proportionate” means. In practice, however, the penalty must be proportionate to the actual costs incurred by the service provider, such as investments made on the basis of the agreed contractual term or expenditure relating to the implementation of the service. The penalty may not be used as a concealed switching charge or as a means of preventing switching by making it financially difficult.

From the provider’s perspective, it is therefore necessary to consider which costs arise specifically because the agreement ends earlier than expected. The provider must also assess whether the penalty has been calculated on the basis of those costs or whether its actual purpose is to keep the customer tied to the service. If the latter is the case, the arrangement is likely to be risky under the Data Act.

What contractual obligations does the Data Act impose on SaaS providers?

The Data Act requires SaaS providers to include contractual terms concerning the switching of services in their service agreements. When updating their agreements, SaaS providers may choose to use the model contractual terms published by the European Commission on 19 November 2025. The use of the model terms is voluntary, and the Commission’s objective is to help parties comply with the Data Act in a consistent manner.

It should also be noted that on 19 November 2025, the Commission published its Digital Omnibus proposal, which would introduce lighter cloud switching obligations for small service providers and customised services. The proposed relief would apply to agreements concluded before 12 September 2025. At this stage, it is only a Commission proposal, and its final content may still change.

What should companies do now?

• Service agreements should be updated to include the contractual terms concerning switching service providers required by the Data Act.

  
  

• SaaS providers should consider whether their service agreements should include a penalty for the early termination of a fixed-term agreement.

  
  

• In the longer term, providers should reconsider their business models in anticipation of customers being able to switch to competitors more easily and at a lower cost. From the SaaS provider’s perspective, the focus of revenue generation will increasingly shift towards the value of the service, customer experience and continuous customer satisfaction.

We have familiarised ourselves with the requirements of the Data Act and assisted SaaS providers in updating their contractual terms accordingly. Should you require advice or practical assistance in updating your own terms or exercising the right to switch services, our contracts team is ready to help.

Lila Kallio Counsel lila.kallio@legalfolks.fi

+358 41 465 1365

To receive our articles directly by email, subscribe to the Folks newsletter here.