Savings provision: Overview, definition, and example
What is a savings provision?
A savings provision is a clause in a contract or legal document that is designed to protect certain terms of the agreement in the event that some parts of it become invalid, unenforceable, or affected by changes in law. This provision ensures that even if specific provisions are found to be legally flawed or unenforceable, the rest of the agreement remains intact and enforceable. Essentially, the savings provision "saves" the overall contract from being invalidated due to one problematic clause.
For example, if a contract includes an illegal provision, a savings provision allows the rest of the contract to continue to be valid, with only the illegal clause being removed or amended.
Why is a savings provision important?
A savings provision is important because it adds flexibility and stability to contracts by ensuring that minor issues or legal challenges to certain clauses do not derail the entire agreement. It helps safeguard the intent of the parties involved, even if unforeseen legal issues arise during the term of the contract. This provision is particularly useful in contracts that might be subject to regulatory changes or legal scrutiny, as it minimizes the risk of the entire agreement being voided.
For businesses and individuals, including a savings provision ensures that their contractual rights and obligations are preserved, and that the overall contract remains enforceable despite challenges to specific terms. It allows for the continued operation of the agreement with minimal disruption.
Understanding a savings provision through an example
Imagine two companies, Company A and Company B, enter into a service agreement. One of the terms in the contract specifies a non-compete clause, which later is found to violate local competition laws. Thanks to the savings provision included in the contract, only the non-compete clause is voided, while the rest of the service agreement, including payment terms and the scope of services, remains enforceable.
In another example, a software development company signs a contract with a client that includes a confidentiality agreement. If the confidentiality clause is later determined to be overly restrictive and unenforceable under certain privacy laws, the savings provision ensures that the other clauses of the contract, such as delivery timelines and payment schedules, remain valid and enforceable.
Example of a savings provision clause
Here’s how a savings provision clause might appear in a contract:
“If any provision of this Agreement is found to be invalid, unenforceable, or illegal under applicable law, such provision shall be deemed severed from this Agreement, and the remainder of the Agreement shall remain in full force and effect, to the extent permitted by law.”
Conclusion
A savings provision is a critical element in many contracts, ensuring that the overall agreement remains valid and enforceable even if one or more clauses are found to be problematic. This provision provides a safeguard against legal challenges, offering both flexibility and security to the parties involved. By including a savings provision, businesses and individuals can help ensure that their contracts are resilient to changes in law and unforeseen circumstances, while preserving the intent and functionality of the agreement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.