Automatic Renewal Clause

An automatic renewal clause is a provision that, if included in a contract, causes the contract to start a new term (“renew”) at the conclusion of the original contract term, unless one of the parties elects not to continue the contract. Business contracts, lease agreements, employment agreements, vendor agreements, and many other important business contracts can contain automatic renewal clauses.

There are several important issues to recognize when dealing with an automatic renewal clause. First, to opt out of the automatic renewal, a party generally must provide notice of the decision by a certain date. For example, a contract may specify that notice must be provided 60 days prior to the renewal date (i.e., the ending date of the original contract). Second, the contract often provides a specific manner in which the election must be communicated. For example, the contract may provide that notice must be sent to a specific person and in a specific form of communication, such as certified mail, regular mail, or email.

Unfortunately, contracts containing automatic renewal clauses are sometimes overlooked or forgotten by the company, resulting in automatic renewal without adequate consideration by management. To avoid such circumstances, ContractSafe contract management software tracks all contracts with automatic renewal clauses and sends out emails well in advance of the renewal date so that management can make an informed decision on whether to allow the automatic renewal to take place.