Clause primer
Automatic renewal (evergreen) clause
Extends the contract for successive renewal terms unless a party gives notice of non-renewal within a stated window before the current term ends.
Legal information, not legal advice. What a clause does depends on its exact words, the rest of the agreement and the governing law.
Also called: evergreen clause, auto-renewal clause, rollover clause. Where you find it: SaaS subscriptions, software licenses, equipment and service contracts, maintenance agreements, supply agreements and leases of personal property.
SAMPLE CLAUSE (INVENTED FOR THIS PRIMER)
This Agreement has an initial term of twelve (12) months beginning on the Effective Date. At the end of the initial term and each renewal term, this Agreement will renew automatically for an additional twelve (12) month term unless either party delivers written notice of non-renewal to the other at least sixty (60) days before the end of the then-current term. Fees for any renewal term may increase by no more than five percent (5%) over the fees for the prior term, and Provider will notify Customer of any increase at least ninety (90) days before the renewal date.
How it works
Initial term
Sets the fixed commitment period and its start date. The start date matters because every later deadline counts from it, so check whether the term runs from signature, from go-live or from a separate order form.
Renewal mechanism
Rolls the contract forward for a new term without any action by either party. Check the length of each renewal term, which is sometimes longer than the initial term, and whether the renewal applies to the whole agreement or only to particular orders.
Notice-of-non-renewal window
Requires notice a set number of days before the term ends. A party that misses the window is usually bound for the full next term, so the deadline belongs in a calendar or contract tracker on the day the contract is signed.
Renewal pricing
Caps or describes the price change on renewal and requires advance notice of it. Without a cap, the provider may be free to reprice, and a price notice that arrives after the non-renewal window closes leaves the customer no practical exit.
Why it is there
Evergreen terms give the provider predictable recurring revenue and spare both sides the work of re-signing a contract that is working. They also reduce the risk of an accidental lapse in a service the customer depends on. The clause mainly protects the provider, because the customer bears the cost of a missed deadline. Customers often accept it in exchange for continuity, provided the window and pricing terms are reasonable.
How it works with other clauses
- The notices clause controls how and where non-renewal notice must be sent, and notice by the wrong method can be treated as no notice at all.
- A termination for convenience right, if one exists, may give the customer an exit mid-term that makes the renewal window less critical.
- Order forms often carry their own renewal terms, and the order of precedence clause decides which terms control when they conflict with the master agreement.
- Price escalation and fee clauses elsewhere in the agreement may allow increases the renewal clause does not mention.
Negotiating it
Who it protects: Usually the provider or vendor.
If it protects you
- Keep the renewal automatic and the notice window long enough to plan for revenue.
- Keep renewal pricing flexible, or tie any cap to a published index.
- Require written notice by a defined method so that informal emails do not count as non-renewal.
If it runs against you
- Standard ask: shorten the non-renewal window (for example to 30 days) and limit renewal terms to one year; fallback: keep the longer window but require the provider to send a reminder before it opens.
- Standard ask: a fixed cap on renewal price increases; fallback: advance notice of any increase that arrives before the non-renewal deadline.
- Ask for a right to terminate on short notice during any renewal term, or at least the right to reduce quantities at renewal.
Escalate before accepting: A multi-year renewal term combined with a long notice window and uncapped renewal pricing deserves escalation, because a single missed date can commit the business to years of unbudgeted spend.
What AI explanations get wrong
- Calculating the notice deadline from the wrong date, such as the signature date instead of the term end date. Check: recompute the deadline from the actual term start and the renewal term length.
- Treating renewal terms as the same length as the initial term. Check: read the renewal language and any order form for a different period.
- Missing renewal or pricing terms placed in an order form, schedule or online terms incorporated by reference. Check: search every incorporated document for renewal, term and fee language.
- Stating that automatic renewal is unenforceable as a general rule. Check: confirm whether the contract is consumer or business-to-business and which state's law applies before drawing any conclusion.
Where the law varies
Some states regulate automatic renewal in consumer contracts, generally through disclosure, consent and cancellation requirements, and a few have rules for certain business contracts as well. Whether any such rule applies depends on the governing law, the type of customer and the type of contract.
TOOLS
Need a primer like this for a clause in front of you? The Clause Primer Kit, included in All-access, produces one in this format inside the AI tool you already use, with checks built in. For reviewing whole agreements, see the Plugin Playbook: SaaS Agreements.