Be careful of automatic renewals in contracts
Businesses should remain vigilant when entering contracts that contain automatic renewal clauses.
An automatic renewal clause can lock a business into an unsatisfactory service arrangement. Any attempt to terminate the agreement during a renewed term can make the business liable to a claim for damages for breach of contract. For purchasers, the termination can be both challenging and costly.
While the most appropriate solution would be to remove the clause or to avoid entering into a contract that contains a self-renewal clause, this is not always possible. When businesses cannot reach an agreement to erase the clause or it is in the purchaser’s best interest to enter a long-term service contract, they should:
- enquire about getting the renewal term reduced.
- request that a condition be inserted into the clause that requires a written notification of the upcoming termination window.
- record the key renewal dates.
It is important for businesses locked into existing contracts with automatic renewal clauses to be aware of their rights and obligations.
Businesses should ensure they have appropriate notification processes in place to alert them of any upcoming renewal dates.
