Commercial contracts in the leasing, digital media, insurance, telecommunications and fitness sectors often contain the always green clause in their contractual terms. Automatic renewal clauses or “persistent” clauses often appear in contracts of all kinds and are becoming more frequent as companies move from traditional methods of selling products and services to different “as-a services” (i.e. SaaS, PaaS, IaaS) and subscription-based business models. These types of clauses generally provide that the contract is automatically renewed if the client does not argue before the renewal. In the typical case, a year or more passes after the customer signs the contract, the service drops, the customer misses the notice period, and then they cling to a provider or service that they don`t want or need. These types of clauses may be included in different contracts, but they are particularly common in service, distribution and supply contracts. Some leases also contain a provision that the tenancy agreement will be automatically extended by an additional year if the tenant does not specify that they do not wish to renew it until a certain date. Another important economic aspect of the clause is its impact on the profitability of the company. [1] The termination of the contract can have a negative impact on a company`s revenues that management can cover by increasing the cost of terminating the contract to consumers. [8] In accordance with traditional economic theory, a rational economic operator would opt for the economically superior alternative which, in this case, would be an extension of the contract. [1] [9] I have 1 month of contracts, after 3 consecutive months, the business owner says “don`t worry about the month 4 contract, we put an automatic renewal”. Do I think the work I do at month 4 will be paid for at the end of the month and it will take a chance? My instinct tells me that one-month contracts are not merged into a three-month contract and give me access to the renewal clause. I don`t want to do a month`s work to find the opposite.
What is “clear and striking” is not defined in a concrete way and depends on a number of factors, but the automatic extension clause should be included in all caps or otherwise different from the rest of the contract.