2 Jul

Automatic Renewal Clauses in Business Contracts May Require Mandatory Notices

By Firm

July 2, 2012

Many business contracts incorporate renewals, sometimes optional, and sometimes automatic. Automatic renewal clauses often caught businesses unaware, resulting in contracts being extended far beyond what the customer wanted. The Wisconsin legislature addressed the issue to protect businesses from unintended contract renewals.

If your business offers equipment leasing or provides business services under contract, you should be aware of the legal requirements that impact those transactions. Business service contracts that include automatic renewal clauses may require certain notices to customers concerning renewals.

If you have a business contract of more than one year which was in effect on or after May 1, 2011, and it has an automatic renewal or extension provision, then you are likely required to provide an up-front notice of the renewal, and certain additional notices as the renewal date approaches. There are numerous exceptions, but generally you have to obtain the customer’s signature on a form that contains certain disclosure information. On this form, you are required to provide notice to the customer at the time they enter the contract, telling them:

• that the contract will be renewed or extended unless they decline;
• how long the renewal period will be;
• whether there will be an increase in charges upon renewal;
• what the customer must do to decline the renewal; and
• the date by which the customer must give notice that they don’t want to renew.

As the end of the contract approaches, you are further required to send written notice to your customer of:

• the impending renewal or extension;
• the date of the deadline for notice;
• a description of any charges increases; and
• what the customer must do to decline to extend or renew the contract.

This notice must be sent no less than 15 days, but not more than 60 days, before the deadline for the customer to decline to renew. If you fail to provide these important notices, the customer can opt to end the contract and, if you refuse to comply with that termination, the customer may be able to recover twice the amount of damages incurred, plus costs, including reasonable attorney fees.

The contract renewal law does not affect every contract, including for example leases for real estate, vehicles, medical equipment, or for services that are for personal, family or household purposes.

Make sure you don’t make costly mistakes in your contracts. Work with us at Palmersheim Dettmann to bring your contracts in line with the law. A stitch in time saves nine.