How to review a software license agreement

A software license agreement lets the customer install and use software the vendor keeps owning. Unlike a SaaS subscription, the software usually runs on the customer's own systems, so the agreement has to deal with copies, deployment limits, audits and what happens if the vendor disappears. This checklist covers what to check in an on-premises license or enterprise EULA and how to review it in Word with LexDraft. For licenses of patents, trademarks or content, see our license agreement review guide.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

Is it really a license?

If the vendor hosts the software and you access it online, it is a SaaS agreement; use our SaaS agreement guide and LexDraft's SaaS MSA playbook instead. Many deals mix both, for example an on-premises license plus hosted components.

Clause checklist

• License grant. Perpetual or term, exclusive or not, and the metric: named users, devices, cores, sites or revenue. Check whether affiliates, contractors and outsourcers may use the software, and any territory or purpose limits.
• Restrictions. Reverse engineering, modification, benchmarking and transfer limits. Make sure they do not block normal use, backups or disaster recovery.
• Delivery and acceptance. What is delivered, installation help, and acceptance testing.
• Maintenance and support. Updates, response times, the support term, price increases on renewal, and how long older versions are supported.
• Audit rights. Notice, frequency, who conducts the audit, confidentiality, and who pays. A common compromise is that the vendor pays unless the audit finds a material underpayment. Ask for a chance to buy any shortfall at the agreed price.
• Warranties. Conformity with the documentation for a period, no malicious code, and disclosure of open source components.
• Open source. Copyleft licenses such as the GPL can impose obligations if the software is distributed or combined with other code. Ask for a list of open source components and their licenses.
• IP indemnity. The vendor should defend infringement claims, with remedies to modify, replace or refund. Check the exclusions for combinations and modifications.
• Limitation of liability. Cap, exclusions and carve-outs for indemnity and confidentiality.
• Source code escrow and bankruptcy. Escrow release triggers, verification and update obligations. Under 11 U.S.C. section 365(n), a licensee of "intellectual property" can elect to keep its rights if a bankrupt licensor rejects the license; that definition does not include trademarks, though the Supreme Court held in Mission Product Holdings v. Tempnology (2019) that rejection does not end a trademark licensee's rights either.
• Assignment and change of control. Can you transfer the license in a reorganization or sale of the business?
• Export controls. Software with encryption may be subject to the Export Administration Regulations.
• Term and termination. What happens to installed copies, data and perpetual rights on termination.

A software license review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated software license playbook, so an on-premises license runs as a general review against the governing law you chose. If the deal is really a hosted subscription, use the SaaS MSA playbook. Use the checklist on this page to direct your own read.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

What LexDraft does not do

LexDraft does not give legal advice, scan code or check open source compliance. Nothing changes in your contract until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.