Clause primer
Service credits as sole and exclusive remedy
The clause makes credits against future fees the customer's only remedy when the provider misses a service level, such as an uptime commitment.
Legal information, not legal advice. What a clause does depends on its exact words, the rest of the agreement and the governing law.
Also called: SLA credits, service level credits, exclusive remedy for downtime. Where you find it: SaaS subscription agreements, cloud hosting and infrastructure terms, managed services agreements, and telecommunications and data center contracts.
SAMPLE CLAUSE (INVENTED FOR THIS PRIMER)
If Availability in any calendar month falls below 99.9%, Customer will receive a credit equal to the percentage of that month's Subscription Fees shown in the table in Exhibit C, up to a maximum of 25% of that month's fees. Customer must request the credit in writing within thirty days after the end of the affected month. Credits will be applied to future invoices and have no cash value. Except for Customer's termination right under Section 12.3 for chronic failure, the credits described in this Section are Customer's sole and exclusive remedy for any failure to meet the Availability commitment.
How it works
Service level and measurement
The 99.9% figure means little without the definition of Availability, including the measurement period and what counts as downtime. Exclusions for scheduled maintenance, customer-caused issues and third-party failures often shrink the commitment considerably.
Credit scale and cap
A tiered table tied to monthly fees, capped at 25%, sets the economic consequence. Because the credit is a fraction of one month's fee, it is usually far smaller than the customer's business loss from an outage.
Claim procedure
Requiring a written request within thirty days means credits are lost if no one asks. Customers need an internal process to track incidents and submit claims on time.
Exclusivity with termination carve-out
The sole remedy language bars damages claims for missed availability. The chronic failure termination right is the customer's main exit if performance is consistently poor, so its threshold matters.
Why it is there
Service credits give the provider a predictable, priced consequence for performance shortfalls across many customers, and the exclusivity language keeps outages from becoming damages claims. The clause mainly protects the provider. The customer gets an objective measure and an automatic adjustment without litigation, but should treat credits as a price reduction and plan separately for the operational risk of downtime.
How it works with other clauses
- Limitation of liability: exclusivity removes availability failures from the damages analysis, so check whether other breaches, such as data loss or security incidents, are still recoverable.
- Warranty disclaimer: providers often disclaim uninterrupted service, making the SLA the only performance promise.
- Termination: the chronic failure right should state the trigger, the notice period and whether prepaid fees are refunded.
- Set-off: the agreement should say whether credits are applied automatically or must be requested, and whether the customer may deduct them itself.
Negotiating it
Who it protects: The service provider.
If it protects you
- Keep exclusivity tied to the availability commitment and keep the credit cap.
- Keep clear exclusions for maintenance, customer actions and events outside the provider's control.
- Keep the claim deadline and the no-cash-value rule.
If it runs against you
- Standard ask: a chronic failure termination right with a refund of prepaid unused fees; fallback: termination after a set number of missed months in a rolling period.
- Ask that the exclusivity apply only to availability, leaving data loss, security breaches and other failures outside it.
- Ask that credits be applied automatically and that the definition of downtime cover material degradation.
Escalate before accepting: Exclusive credits with no termination right for persistent failure, combined with exclusions broad enough to make the commitment illusory, usually warrant escalation.
What AI explanations get wrong
- Reporting the headline uptime figure without reading the Availability definition and exclusions; check how downtime is measured and what is excluded.
- Assuming the sole remedy language covers every service failure; check whether it is limited to the availability commitment or extends to all SLAs.
- Missing the claim procedure and deadline; check whether credits are automatic or must be requested.
- Treating the credit as liquidated damages without checking the agreement; check how the contract characterizes credits, since that can affect enforceability arguments.
Where the law varies
Courts generally enforce exclusive remedy provisions between commercial parties, but some jurisdictions may disregard an exclusive remedy that fails of its essential purpose or leaves a party without a meaningful remedy. How credits are characterized can also matter under governing law.
TOOLS
Need a primer like this for a clause in front of you? The Clause Primer Kit, included in All-access, produces one in this format inside the AI tool you already use, with checks built in. For reviewing whole agreements, see the Plugin Playbook: SaaS Agreements.