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Automatic-Renewal Contract Clauses

Consider this hot-off-the-press from an agreement I reviewed this morning:

“If neither party has given the other thirty (30) days written notice of the desire to terminate this Agreement at the end of the any given contract period, then the term shall be automatically renewed for an additional contract period term.”

As service providers—e.g., landscapers, vendors, and pool services—aim to retain clients, an increasing presence in service contracts is the automatic-renewal clause (“Evergreen Clause”). Essentially, an Evergreen Clause provides for automatic renewal following the expiration of an agreement. That is, granting prior consent to extend the term of an agreement immediately following the expiration of the initial term.

While an Evergreen Clause can provide associations the benefit of continuing a service agreement without having to renew the initial agreement each time, associations may also discover that they are obligated to continue paying a vendor because the service agreement automatically renewed for another term.

In the above-referenced Evergreen Clause, the association wished to terminate a landscaping agreement with a nonperforming landscaper. Unfortunately, the association’s landscaping agreement had recently automatically-renewed for another two year term. Such outcomes pose a potential business risk to associations. And let’s be honest, if, for example, an agreement is set to terminate on January 1, boards rarely follow up in early December to see whether the agreement automatically renews for a new term.

Conclusion: Evergreen Clauses are now a staple in service agreements. Although there are benefits to both parties, associations should be aware of the pros and cons of entering into service agreements with an Evergreen Clause, and evaluate the merits of incorporating an Evergreen Clause, especially in the context of long term service agreements.

Author: Kushal Patel
Articles have been Reprinted with permission from Black, Slaughter, Black.

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