Many business owners have a love/hate relationship with auto-renewing their contracts for additional terms. After reading this article, it should be easier for you to decide if/when to use autorenewal clauses.
As a general rule of thumb, if the other party to the agreement is paying you for products or services, you’ll want your contract to auto-renew…with a couple of important caveats.
First, you want the ability to increase your pricing because of changes in your costs, inflation, demand, etc.
And, second, you’ll want the renewal clause to make it easy for you to terminate the agreement before it autorenews for an additional term in case you want to terminate the relationship. For example, the other party is a pain in the ass to deal with — and you want them to go away and become a competitor’s problem.
Now on the flip side, if you’re paying for the other party’s goods or services, you’ll typically want to avoid an autorenewal contract provision unless the supply of what you’re paying for is scarce. Even then, a longer initial term without autorenew may be preferable.
Of course, if you do agree to include autorenewal clauses, you’ll want the agreement to also make it easy for you to terminate before the autorenewal kicks in for an additional term.
Are there variations of what you can do with autorenewal contract clauses to benefit your business? Of course. For example, the renewal term might be shorter or longer than the initial contract term.
Need help strengthening your business agreements to benefit you? It’s probably time to schedule a phone consultation with Business Lawyer Mike Young.
