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Contract Automatic Renewal Clause Example: Understanding the Fine Print
If you`re a business owner who frequently enters into contracts with clients or partners, you`re likely familiar with the concept of automatic renewal clauses. These clauses stipulate that the contract will renew for an additional term (usually the same length as the original term) unless one party gives notice that they want to terminate the agreement.
While automatic renewal clauses can offer convenience and continuity for both parties, they can also have significant implications if you`re not careful. Here`s a closer look at an example of an automatic renewal clause and some things to keep in mind when drafting or signing contracts with these clauses.
Example Automatic Renewal Clause:
“This Agreement shall automatically renew for successive terms equal to the initial term effective as of the expiration of the initial term, unless either party provides the other with written notice of non-renewal at least 30 days prior to the expiration of the initial term or then-current renewal term.”
This clause is fairly typical and straightforward in its language. Once the initial term of the contract concludes, the agreement will automatically renew for additional terms, unless one party provides written notice of their desire to terminate at least 30 days before the current term expires.
Things to Keep in Mind:
1. Define the renewal term length: While it`s common for the renewal term to be the same length as the initial term, you may want to negotiate a different renewal period that better aligns with your business goals or timeline.
2. Specify the notice requirements: Be clear about how much notice is required to terminate the contract and how that notice should be delivered. Ensure the recipient acknowledges receipt of the notice.
3. Consider how the renewal rate will be determined: Will it increase based on a set percentage every term or remain the same? This should be clearly stated in the clause.
4. Review the renewal language carefully: Make sure you fully understand the clause and its implications before signing the contract. Consult with your legal team if necessary to avoid any unexpected consequences.
In summary, automatic renewal clauses can be a helpful tool in contract negotiations, but it`s essential to understand the fine print and implications. By being judicious with these clauses and reviewing them carefully, you can enjoy the benefits of continuity while minimizing unwanted surprises.