If you are about to sign a new contract, or recently signed one, be sure to carefully read through all the terms and clauses. Automatic renewal clauses may be hidden somewhere in that contract on purpose. The only way to terminate said contract is if you provide enough notice. This window frame is usually small and could be considered unfair. Be prepared with this guide to avoid any unnecessary complications.
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What does it look like?
Automatic renewal clauses usually follow wording similar to the below.
This agreement will automatically renew at the end of each term for a further term of 10 years unless either party gives the other written notice of termination at least 30 days prior to the end of the relevant term.
They are usually present in longterm contract, where the clause is more likely to go unnoticed. Therefore, you don’t realise until it’s too late, causing you to be trapped in an unsavoury contract almost against your will.
The legal side
While it can be considered unfair, automatic renewal clauses itself are not actually prohibited by Australian Law. The ACCC makes note that only a tribunal or court can deem if your contract is unfair. The ACCC also provides an example of what an unfair automatic renewal clause looks like.
When a court or tribunal decides on the nature of the contract, they consider the contract as a whole. This means if one contract is deemed to be unfair, doesn’t mean yours will be. It is highly recommended to consult a commercial lawyer to get legal advice before pursuing this avenue.
How to avoid it
If there is not much benefit to you entering into this contract with this particular party, you should request that clause be removed entirely. You may encounter some resistance to this, but stand your ground if you believe it to be unfair.
On the other hand, you may find that this contract is still worth entering into. If the other party does not agree to remove the clause, you may not wish to jeopardise the relationship. In this case, make a note of the window of termination stated in the contract. This gives you the freedom to still reap the benefits from the arrangement, and will enable you to terminate if wanted.
One thing to look out for here is that if the partnership is going well and you allow for the contract to automatically renew, there is still a risk of being trapped later. There are always unforeseen complications in business, and you don’t want to be put in a position like that.
Remedies
A possible option for you if you have entered into a contract and wish to terminate is in Australian Consumer Law. Section 18 specifies that a person must not operate under deceptive pretences, or likely to deceive. Depending on the wording and nature of the contract, you may have ground to terminate under section 18. It is best to consult a contract lawyer who can advise if this will be successful for you.
Section 12DA(1) of the ASIC Act, outlines a very similar rule, but has a bit more specificity in regards to trade and commerce. There are also a few examples on the site to give you an idea of your potential outcome.
Conclusion
The key takeaways from this article is that you must first read your contract very carefully. If you have yet to enter into it, request the automatic renewal clause be removed. If you have already signed, all is not lost yet. Consult your lawyer for advice, and you may still yet be able to terminate immediately if you wish. Otherwise, you can wait for the termination window to arrive to terminate contractually. All of these options depend on your circumstances and what you think is best for your business.
