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Automatic Renewal Clauses in Business Contracts

By Thomas V. Rohan

Early in my legal career, I did a considerable amount of commercial collection work. Some of the more routinely contested cases involved service contracts with automatic renewal clauses, that is, provisions that resulted in a contract being renewed for a new term, sometimes for as long as five years, if the customer did not give a notice that it did not wish to renew the contract within a specified period of time, usually between 90 and 180 days before the scheduled termination of the original term. As you might expect, many customers signed service agreements, put them in a drawer and never reviewed their terms, only to be more than a little agitated when they sought to replace a current service provider, oftentimes because a competitor offered a better price, only to be told they were too late in giving notice of termination and were stuck with a long-term renewal.

In 2010, the Wisconsin legislature addressed this situation be enacting s.134.49, which regulates automatic renewal clauses in certain business contracts entered into after May 1, 2011. Contracts entered into before that date as well as future renewals of those contracts are not subject to the statute. Although this statute is not new, it merits review to the extent you are using automatic renewal clauses in your contracts or you are a customer under a contract that includes one.

The law applies to business contracts for the lease of equipment or the provision of services, but there is a laundry list of contracts that are excluded from coverage, including, among others, contracts for the purchase or lease of real estate, for lease of a vehicle for which a title is issued, certain telecommunications contracts, contracts with local, state or federal government entities and one remarkably specific exception for the maintenance repair, service or inspection of elevator or escalator systems. Also exempted are contracts in which the customer need not give notice of an intention not to renew more than one month before the automatic renewal would take place.

Any equipment lessor or provider of business services whose contract is subject to the statute must provide certain disclosures when the contract is entered into, including a separate statement that the contract will be renewed or extended unless the customer declines renewal or extension, a statement indicating the duration of the additional contract period that would result from an automatic renewal or extension, a statement indicating whether an increase in charges will apply upon automatic renewal or extension, a description of the action the customer must take to decline renewal or extension and the date of the deadline for the customer to decline renewal or extension. The contract must also include these disclosures.

For contracts of more than one year that include automatic renewal terms of more than one year, absent timely notice of termination by the customer, the automatic renewal clause will not be enforceable, unless, at least 15 days and not more than 60 days before the deadline for the customer to decline renewal or extension, the lessor/seller provides the customer with a written notice containing a statement that the contract will be renewed or extended unless the customer declines renewal or extension, the deadline for the customer to decline, a description of any increase in charges during the renewal period and a description of the action the customer must take to decline renewal or extension. The notice the lessor/seller is required to give may be given by various methods. E-mail, facsimile and overnight courier are all acceptable if the contract allows for such types of notice. Customers should also be aware that notice may be given by including the required statement on the first page of a monthly invoice, as long as the notice is prominent and in not less than 12-point font.

Thanks to s.134.49, it is now far more difficult for a lessor or seller to impose an automatic renewal clause on the customer. Sellers and lessors under regulated contracts must be familiar with their obligations and their customer need to know their rights.

This article will appear in the February edition of The Business News.

For more information, please contact your Davis & Kuelthau attorney or the author noted above.