With the economic market getting tougher due to high inflation, businesses will be looking to cut back on unnecessary expenditure, especially with suppliers whose services are no longer needed.
Yet businesses can find themselves in a quandary when, after some digging, they realise these contracts have auto-renewed, and getting out of them is financially hefty.
This can be especially painful if the business didn’t receive a notification via email alerting them to the renewal of their services. Or alternatively, it jumped straight into the junk folder.
But, is it the responsibility of the business to make sure they read these emails? Is an email – in of itself – legally sufficient to notify a business of an auto-renewal? Or are suppliers responsible for making sure these notifications are read and acknowledged to make the auto-renewal legally watertight? Can businesses exit these agreements easily if they didn’t see the notification?
The law around auto-renewal contracts
Auto-renewal contracts are a popular business model not least because it provides the supplier with certainty as to anticipated cashflow and has a tendency to tie in unwary customers. Whilst business to consumer (b2c) contracts enjoy a plethora of protections from the point of view of the customer and require the supplier to jump through a number of hoops in order to auto-renew, business to business (b2b) contracts do not typically have offer protections to business customers.
This position arises out of the English law principle of freedom of contract, whereby the parties are free to contract on whatever terms they please (subject to some restrictions/market choice/bargaining positions of course). It is possible to challenge a b2b contract on the basis of the terms being unfair, however this has to go some way beyond the contract being merely a bad bargain, which is something for the party wishing to terminate the contract to prove, always being an uphill battle.
That being said, a simple auto-renewal provision is extremely unlikely to satisfy the test of a term being “unfair”, it may simply be a bad bargain for which there is no remedy. Unless the contract terms specifically require the notification of its renewal to be acknowledged or read, both of which would be extremely rare as such terms would be counterproductive to what the supplier aims to achieve, the actual notification of the renewal (email or otherwise) is rather irrelevant.
Check the contract
Indeed, in many instances no notification is sent at all, and instead the supplier will continue to issue bills to its business customer, which is when those unwary realise their contract has been auto-renewed.
The matter goes to the terms of the contract, whereby typically it will require a notice to be given by the business customer where termination is sought and where this notice is not given by the date stipulated by the contract terms, the contract will renew for a set period of time (typically a year).
Where such terms exist, it is the responsibility of the business customer to ensure that they are aware of the provisions they had signed up to and the date by which they must notify the supplier that they wish the contract to terminate. Unfortunately, where this notice is not given in time, usually there is little that can be done unless exit can be negotiated with the agreement of the supplier. There will however be little motivation for the supplier to agree to any such early exit.
Where notice of renewal is a contractual requirement as per its terms, it is a question of what exactly do the terms require. Where notice must simply be given, typically the contract will stipulate where and how this notice must be given. Where an email address is provided, electronic communication itself will be sufficient notice and the supplier will not need to check whether it has been seen or not.
Where notice must be acknowledged or read then in order for auto-renewal to take place an acknowledgment (or some evidence of it being read) must be received by the supplier in order to auto-renew. It is however exceptionally rare that auto-renew contracts require any acknowledgment of auto-renewal as this would be self-defeating to the nature of the contract itself.
Any business customer should therefore know what they are signing up to before they sign the contract terms (whereby they obtain proper legal advice on the terms) and have adequate diary and review systems in place, i.e. current suppliers are assessed in time for a decision as to renewal or cancellation in the face of auto-renewal, before any critical deadlines pass and they find themselves tied in for another fixed period.
Author: Olexandr Kyrychenko, Partner at IMD Solicitors LLP