What is an automatic renewal clause?
Automatic renewal clauses are becoming increasingly common in consumer contracts for subscription based services such as Itunes, Spotify and News websites. A simple example of this type of clause is:
'This contract will automatically renew at the end of each year for a further term of 1 year unless the customer gives the supplier written notice of termination at least 30 days prior to the end of the then current term.'
Automatic renewal clauses, sometimes called ‘evergreen contracts’ or 'roll over clauses' are sometimes contained, or hidden, within service agreements. The service, and the payments for it, automatically continue until such time as the customer notifies the provider that they do not wish to continue with the contract. They can be difficult to identify, and difficult to get out of.
Some of the agreements typically containing automatic renewal clauses include:
Are automatic renewal clauses legal?
The nature of these clauses mean that they can be viewed as unfair on the consumer. However, these clauses are generally accepted as legal by the courts and are not prohibited by legislation.
How to terminate an automatic renewal clause
Automatic renewal clauses require something active to be done on the part of the individual to bring them to an end. They may indicate a specific time period for termination and if the contract is not terminated by the individual by notifying the provider within the specified time the agreement continues until the next available termination date.
Tips in relation to automatic renewal clauses
The obvious way to avoid such a clause is to avoid entering into contracts which contain them. However, sometimes this is not possible as the service being offered is required by your business (or your desire to keep up with current music means you must have a spotify account!)
Accordingly, you should consider:
Businesses should be mindful that the termination of a service contract during a renewed term can be both difficult and costly.
Once a service contract automatically renews, however, not all is lost. Depending on the circumstances surrounding the entry into the service contract, there may be remedies at common law that could give rise to a separate right to terminate the service contract.
Alternatively, the parties may enter into negotiations to vary the service contract for the remainder of the renewed term.
If you require any assistance drafting or negotiating a contract, please contact Cormiston Legal on 03 6332 9353.
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