Can Contracts Automatically Renew?

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Can Contracts Automatically Renew?

If you read your contract carefully, you may find a clause that reads something to the effect of:

Automatic Renewal. This Agreement shall be automatically extended for one additional year, unless on or before [DATE] (for the initial term), either Party provides to the other written notice of its desire not to terminate this Agreement 60 days before the termination date.
This is called an 'automatic renewal clause' and sometimes known as an 'evergreen clause.' They can be convenient in some instances where you want to commit to something long term or you have a membership that you are happy with. But I've seen some of these go pretty south, especially when one party is not happy with the services and wants to terminate.

As I've written about before, people are free to put in their contracts almost anything they want. However, some contract terms are not enforceable, even if the parties agree to them. Or sometimes the law or courts have conditions for certain terms to be enforceable. Automatic Renewal clauses, specifically when the relationship is a business to consumer (B2C) contract, are in fact regulated in Illinois by the Automatic Contract Renewal Act (ACRA), 815 ILCS 601. ACRA, in short, states when a business as an automatic renewal clause, then the business must make the renewal clause 'clear and conspicuous' and include the cancellation clause.

But that is not enough. The business must also provide a written reminder to the consumer 30-60 days (and not before 60 days) before the cancellation deadline reminding the consumer that the contract automatically renews and how the consumer can cancel if she wants to. These rules apply to contracts that have an initial term of more than one year and the renewal term is more than one month. The business does not need to be a corporation for this rule to apply to them. In other words, if you are doing business and have not filed papers for incorporation, these rules still apply to you.

What Happens If a Business Violates the ACRA?

If a business does not follow the rules of ACRA, then it could be in violation of the Illinois Consumer Fraud Act. The Illinois Consumer Fraud Act allows a consumer to collect triple damages and attorney's fees for the violations. This means that even if a contract does not harm the consumer significantly, the violation can still cause significant financial damage to a business if the business violates ACRA, even for seemingly small offenses. If you are a business, you should take great care to follow the rules if you want to have an automatic renewal clause. In the age of automation, it is easy to set certain letters to be sent as required by ACRA.

What if I Am a Business On the Receiving End of an Automatic Renewal Clause?

Unfortunately, there is no law like ACRA when the contract is a business to business (B2B) contract. The reason ACRA exists is to protect consumers, especially since businesses usually have advantages and knowledge and resources over consumers. When it comes to B2B contracts, courts generally assume that businesses are on an equal footing and so courts will not interfere with business relationships. However, I have had clients who are smaller businesses get bitten this way by larger businesses and find themselves stuck in automatically renewed contracts with no way out. For this reason, whether you are a business owner or consumer, to avoid any problems, my advice is that the minute you sign a contract with an automatic renewal clause, identify how many days beforehand you need to give notice and calendar it with a reminder immediately. This simple 'set and forget' action can save you thousands of dollars and the headache of a dispute.

If you need a contract review or one written up, Danya Shakfeh at Shakfeh Law is an expert in all things contracts. Call today to (630) 517-5529 to schedule a consultation. Depending on your individual case, you can ask any question and get basic guidance regarding your matter.