Canada: Negotiating The (Successful) Exit

Last Updated: October 28 2015
Article by Lisa R. Lifshitz

As the trees blaze colour and our nights grow crisper, I am reminded that along with post-season baseball, it's deal time! Fourth-quarter technology transactions are in full swing as parties race to sign technology agreements and put in place new technology systems before year-end.

In their haste to close deals, however, some clients forget to think about the optimum way to contractually deal with the inevitable termination or expiration of their agreements. This is pure folly, of course, and not recommended. The following are five key areas that should be considered in connection with the exit of any technology contract.

Licence grants and abrupt terminations

How many standard technology agreements have we all read that state that upon any termination or expiration, the licensee shall "immediately" cease all use of the software in question? This often comes as a rude surprise to clients, who think that they have "perpetual" licences only to discover that, in fact, their actual licence grants do not extend beyond the termination date.

This can be problematic, particularly if (i) there is no replacement solution in the wings; (ii) the client has further sublicensed the software in question to affiliates, or other tiers/channels of users. Abrupt termination is often the norm in many "vanilla" cloud-based services agreements as well. Unfortunately, it is often not realistic or feasible for clients to cease using the technology in question on a dime. Accordingly, it is imperative that clients carefully scrutinize their licence grants and related to termination clauses in question to fully understand what the prospective vendor is offering them by way of ongoing usage rights (if any) and adjust the boilerplate accordingly.

Termination assistance/wind down

Related to the above, many standard vendor technology agreements specifically avoid offering customers any kind of meaningful termination assistance/wind-down periods.

Generally speaking, if a company took months to negotiate a mission-critical technology agreement, how is it reasonable to expect that the same company will be able to easily abandon that same technology and either shift to an in-house application or another third-party vendor? It's not, of course, so the technology agreement must contain detailed language to reflect a more nuanced understanding of the client's needs in relation to the exit.

Again, this is particularly relevant regarding cloud-based services, where typical agreements mostly ignore the issue or favour the "pull-the-plug" strategy. Consider what kind of transition period makes sense, its duration, whether the company will likely shift to another third-party vendor, or bring a replacement solution in-house and what kind of documentation or other data is required to kickstart and assist such transition.

If a client is not comfortable working out and documenting the nitty-gritty details in advance in the contract, the agreement should at least contain provisions establishing a framework for creating and implementing a transition plan that includes the scope of termination assistance services to be provided, service levels during the wind-down period, personnel to be used to provide such services, and the final end date for such services. Most reasonable vendors will agree to the provision of termination assistance/transition services, so long as they are paid for. These payment terms should also be carefully spelled out in the contract.

Confidential information

Standard technology agreement terms may require the parties to delete data or the confidential information of the other party after termination/expiration or are silent on deletion. However, in an age of third-party backup technology, what does deletion really mean? What about data held by any of the vendor's subprocessors and subcontractors?

In the absence of actually securely smashing the physical storage media, "deletion" may simply mean that the data "pointers" regarding locations of data fragments are deleted and data is overwritten by fresh data over time. Also, in a multi-tenant cloud environment, many vendors will not commit to searching out and deleting a particular client's data without additional payment.

Note as well any carve-outs on data deletion; i.e., vendors that may seek to use elements of customer confidential information or data once it has been "anonymized" for statistical or operational purposes. At the same time, there may be instances when a client wants its vendor to retain data in order to meet certain regulatory requirements. Confidentiality clauses, especially those relating to the return or destruction of data, must be carefully negotiated, depending on the nature and sensitivity of the information in question.

Data return/preservation

If a vendor is hosting or otherwise retaining a customer's data in connection with its provision of technology services, it is critical for the technology agreement to clearly state how and when a customer can retrieve its data. Be very wary of carve-outs/limitations on data retrieval, including any dreaded "data lock-in" by a vendor should a customer's payment to the vendor be in arrears.

Review the prospective agreement to ensure that it does not contain "data hostage" payment terms, i.e., data will be automatically deleted within 90 days of termination/expiration should the customer fail to pay its outstanding monies.

Confirm and detail the process in the agreement by which customer data will be returned or retrieved by the customer following termination/expiration of the technology agreement.

This process should include the timeframe within which the vendor must provide either the data itself or access to the data, as well as an agreed-upon format of the data to be returned. This format should be documented in the agreement. Keep in mind that if a cloud provider returns data in its own proprietary or otherwise inaccessible format, it may be utterly useless to the customer. While this may not affect many business customers, many "free" cloud providers offering storage to private customers may state that they will delete customer data in apparently dormant accounts, i.e., those that are inactive for a continuous period, so be wary of using those services in a commercial context without carefully reviewing their terms.

Customers may also wish to obtain certification by an officer of the technology vendor that the customer data has been appropriately removed/deleted from the technology vendor's systems and confirmation that there is no residual data usage of any customer data, unless otherwise expressly agreed by the customer.

Escrow or not?

I am not always an enthusiastic advocate of putting escrow clauses in my technology contracts (especially those relating to cloud services) on the basis that, in most instances, clients do not have the ability, knowledge, or capacity to take responsibility for and make use of the vendor's software in a way that makes sense for the clients in the long term, even if the escrow clauses allow the client to outsource the escrowed code to third-party contractors — after all, managing the technology is not a part of the customer's core business.

However, there are times when a client is highly dependent on a mission-critical piece of vendor technology, and if that vendor is financially or otherwise shaky, escrow does make sense in that context. Accordingly, it is critical to spend some time drafting a robust escrow clause that goes far beyond standard vendor bankruptcy or insolvency triggers. Minimally, failure, inability, or unwillingness to provide maintenance/support services, change of control events or loss of key employees, and other threshold events should be added to the escrow clause.

Consider whether the proposed technology contract contains non-solicitation clauses regarding former employees and contractors of the technology vendor, and, if so, these should be eliminated so that if escrow is triggered the client is not precluded from accessing the knowledge and institutional memory of those who actually know and understand the technology in question. Of course, escrow is useless unless the vendor actually regularly updates its escrowed source code and related documentation/technical notes, so clients will need to ensure that this is tended to regularly by the vendor if they have any interest in relying on such clause.

Survival clauses

Ah, those pesky survival clauses. Who really reads them anyway? I certainly do and recommend that anyone who negotiates a technology contract scrutinize them carefully.

I am always amazed how some vendors and clients attempt to keep virtually the entire agreement alive after termination/expiration. I am not in favour of operating long term under a "dead" agreement, so I try to keep alive only a very narrow subset of terms.

For example, I do not see the commercial reasonableness of asking a vendor to maintain indemnities in perpetuity, particularly if the vendor is no longer getting any revenue under the agreement. At the same time, I recognize that it may take some time for an intellectual property claim to manifest, so there is value to maintaining an IP indemnity for a limited period post-termination. The key here is proportionality, focusing on the most relevant clauses and tailoring their survival given the nature of the deal.

Of course, relevant operational terms should survive during any wind-down period, but after that, consider which of the terms should truly survive for a limited period versus surviving indefinitely and avoid defaulting to a laundry list of the majority of terms in the agreement.

In summary, clarity is the key to a "good exit." While no one ever wants to talk about the divorce while planning for the wedding, spelling out the critical exit terms in the technology agreement can often make the difference between a reasonable termination experience and being hit with some unpleasant surprises. Plan accordingly!

Originally published by: Canadian Lawyer Online - IT Girl Column

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Lisa R. Lifshitz
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions