by Amanda McDonough (Summer 2018)
Contracts are part of our everyday lives. Big contracts that come to mind include homes and cars. Additionally, many of our smaller everyday services, such as newspaper subscriptions, television and internet services, and music streaming services, involve a contractual relationship. Contracts can be for a set period of time or until a condition is met, or a contract can contain a clause that automatically renews the contract on a regular basis.
An automatic contract renewal clause is often called an “evergreen” clause, named for the trees that are “ever green” year-round. Similarly, an automatic contract renewal clause makes a contract “ever green.” Hence, a contract containing an evergreen clause will continue to be valid, unless affirmative steps are taken to terminate the contract.
Any person, firm, partnership, association, or corporation is permitted to include an automatic contract renewal clause in a contract for the sale of products or services. Many contracts containing an evergreen clause can be canceled only during a specific window of time. These contracts can be deceiving and can leave consumers feeling as though an evergreen clause is an unfair trap. As a result, in 2005, Illinois enacted the “Automatic Contract Renewal Act” (“Act”), which sets out requirements for the enforceability of evergreen clauses.
First, the Act requires that an automatic contract renewal clause be clearly and conspicuously stated in the contract. The Act provides that the procedure for cancellation of the contract be conspicuously identified as well. Typically, this means that the clause should be either bolded, capitalized, or underlined to alert the signer to an important piece of information. Additionally, the consumer must be notified, in writing, of the automatic contract renewal clause if the contract term is 12 months or more, and if the contract renews for a specified term of more than one month.
Second, the Act mandates that consumers be given written notice, not fewer than 30 days and no more than 60 days before the cancellation deadline, that their contracts will be renewed pursuant to the evergreen clause. The notice must clearly and conspicuously state that the contract will renew unless the consumer cancels the contract, and how the consumer can access details of the specific clause, along with information regarding the cancellation procedure.
Terminating a contract containing an automatic contract renewal clause can be tricky because, generally, there is a designated window of time to cancel a contract before it renews for another term. The contract term could be months or even years. As a result, an automatic contract renewal clause could force a party to stay in an agreement longer than intended. Since an evergreen clause binds a party to a contract until the consumer cancels the agreement, precautions must be taken to ensure the terms and conditions are made clear to the consumer.
Failure to meet any of the requirements noted above can result in the contract being unenforceable. Questions tend to arise when a party wants to terminate a contract containing an evergreen clause. However, an evergreen clause can be a great benefit to both parties, especially when there is an intent to form a long-term contract.
There are a variety of ways in which an automatic contract renewal clause can be drafted to effectuate the ultimate goal of a continuous contract. If you are preparing such a contract or have questions about the enforcement of an evergreen clause, make sure you consult with your attorney to determine the best possible way to achieve your desired result.