Automatically Renewable Contract

By November 25, 2016Problem Solved

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 please see John Cato’s article “What can your company do if you have signed up to a contract which automatically renews itself?”

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I am the Managing Director of a small building company and just over 2 years ago I agreed with a national health and safety company for it to provide a health and safety 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 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 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
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You have entered into an auto-renewal contract, which over the years has become very popular from a service provider, especially large corporations; why? Simply because it is a very successful technique that retains customers and produces profit.

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 in in 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).

The only ways that you could possibly bring the contract to a premature end is by mutual agreement or the H&S company commits a serious enough breach of a condition which would entitle you 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 that the omission of this service from the auto-renewal contract renders performance to be substantially different.

Failing that, I can only suggest that you now give notice of termination – and ensure you send it by recorded delivery.
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