The article below illustrates how a person, acting in the course of their business, can easily get caught by an automatically renewable contract. For information on possible arguments to end an automatically renewable contract, you can read in our other article.
Firstly, what is an automatically renewable contract and how can you get out of one?
What are Automatically Renewable Contracts?
Automatically renewed contracts are clauses within the conditions of a subscription or agreement of services that states that the terms will roll over into another year or years. Payment will, of course, be invoiced, unless the client takes active steps to terminate the contract.
Are Auto-Renew Contracts Legal in the UK?
By law, contracts can include automatic renewal clauses, which allow for the contract to renew automatically for a specified time period unless one party provides notice to the other of their intention not to renew. However, they must comply with applicable laws and regulations.
In general, companies should provide notice before automatically renewing a contract. Specific notice requirements may vary, depending on the jurisdiction and contract type. For example, some require companies to provide written notice of automatic renewal at least 30 days before the renewal date but this will depend on the exact terms of the contract.
If you find yourself in a contract that automatically renews, read the real-life example below and find out how our legal expert responded.
The Problem
I am the Managing Director of a small building company and just over 2 years ago I agreed with a national Health and Safety (H&S) company to provide an H&S service to my company. The contract was for 2 years, with a set [and expensive] yearly fee. When I signed the contract, I thought that my company was going to get a bespoke service and the sites would receive individual attention. However, the service that was actually supplied was nothing like what I thought I had signed up for!
On closer inspection of the contract, the service provided was what I signed for (the written terms are cleverly written), and I fully acknowledge that my company is liable for 2 years of fees. However, in September I received an invoice from the H&S company which was invoiced for a third consecutive year. I wrote back stating that the agreement was for only 2 years which had an end date of 30 September 2015. They responded by referring to a clause in the contract, stating that we had agreed to roll over the contract for a further 2 years unless we terminated the contract by giving six months’ written notice by recorded delivery – surely this is not legal?
Name and address withheld
Our Response
You have entered into an auto-renewal contract, which over the years has become very popular among service providers, especially large corporations; why? Simply as it is a very successful technique that retains customers and produces profit.
B2B Auto-Renewal Contracts
Auto-renewal in business-to-consumer contracts is well regulated. There are various acts and regulations that give protection to the consumer such as the Unfair Contract Terms Act 1977 (UCTA), the Unfair Terms in Consumer Contract Regulations 1999 and the Distance Selling Regulations. In addition, certain contracts that involve the supply of energy have outlawed auto-renewal terms.
Unfortunately, an auto-renewal term for a business-to-business contract is valid. In B2B contracts, businesses are assumed to be free to enter into whatever contracts they agree between themselves (there is no relief from a hard bargain), so it is imperative that a business ensures it is happy with the terms of a particular contract – the law considers that businesses are in a position to decide whether it wishes to enter into a contract on the terms presented or not.
That said, some parts of UCTA do apply to B2B contracts. Although, despite its name, UCTA does not apply to unfair terms per se, but affects clauses which limit liability, or have a similar effect (i.e. it is only concerned with exclusion clauses and does not examine whether a contract is unfair generally). For example, where a contract excludes liability for death or injury which will be void, and reference is made to sections 6 & 7 (contractual performance), section 8 (misrepresentation) and section 13 (restriction of contractual remedies).
Ending Automatically Renewable Contracts
The only way that you could possibly bring the contract to a premature end is by mutual agreement. But, if the H&S company commits a serious enough breach of a condition, you would be entitled to bring the contract to an end.
There is one other possibility and that is under UCTA. If there are any terms varied over what would allow the H&S company to render a contractual performance substantially different from that which was reasonably expected of it, it would thus be subject to the reasonableness test under section 3(2)(b)(i) of UCTA. For example, if there was a specific service that was only required from the outset and the omission of this service from the auto-renewal contract renders performance to be substantially different.
Failing that, your last option is to now give notice of termination – and ensure you send it by recorded delivery.
If you are interested in learning more about how contracts work in the UK, you might want to have a look at our article on what makes a contract legally binding. Additionally, if you require more support with a commercial contract dispute, do not hesitate to get in touch with our team of solicitors and we will be happy to provide the right guidance.
FAQ
What steps can I take to avoid automatic contract renewal?
To avoid automatic contract renewal, it is important to carefully read and understand the terms and conditions of the contract before signing it. Make sure you take note of key dates so that you are not caught out if the contract requires a specific notice period. If the contract includes an specific clause, you may try to negotiate with the other party to modify or remove it. You may also have grounds to challenge the clause's fairness, making it unenforceable but it is usually always cheaper to negotiate then challenge the enforceability of a clause after you have entered into it.
How can I opt out of an automatic contract renewal?
To opt out of an automatic contract renewal, you need to provide written notice to the other party before the renewal date in accordance with the contract. The notice should clearly state your intention not to renew the contract and be sent via a reliable method such as registered mail or email or as required by the contract. You should provide this notice well in advance of the renewal date to meet any required notice period. Often the contracts will start how and when this notice should be sent and received.
What are my defences against automatic contract renewal?
Various defences can be used against automatic contract renewal, depending on the case's specifics. For instance, you may argue that the other party did not provide sufficient notice or that the renewal terms were not explicitly stated in the original contract. Additionally, you may challenge the clause based on its fairness with the aim of deeming it unenforceable.
