Can Contracts Automatically Renew?

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Can Contracts Automatically Renew?

Automatic contract renewal act

The Automatic Contract Renewal Act (ACRA), states the legal requirements regarding auto-renew clauses in contracts at the state and federal levels. The laws and regulations on auto-renew contracts are promulgated by the Federal Trade Commission (FTC) and have different conditions depending on the state they are applied in.

If a business owner in Illinois enters an automatic renewal contract, it will only have validity if it follows the restrictions of the Automatic Contract Renewal Act (ACRA), 815 ILCS 601 according to that state. Below, we discuss how auto-renewable contracts are applied in Illinois.

What is an automatic renewal clause?

If you read your contract carefully, you may find a clause that reads something to the effect of:

“Automatic Renewal. This Agreement shall be automatically extended for one additional year unless on or before [DATE] (for the initial term), either Party provides to the other written notice of its desire not to terminate this Agreement 60 days before the termination date.”

This is called an ‘automatic renewal clause’ and is sometimes known as an ‘evergreen clause.’

Automatic contract renewal clauses are provisions that state that a service will be extended automatically on a certain date unless the consumer terminates the agreement.

The clauses have gained popularity and become present in a variety of services. Auto-renewing contracts can be convenient in some instances where you want to commit to something long-term, or you have a membership that you are happy with. But they can also go pretty south, especially when one party is not happy with the services and wants to terminate.

For this reason, consumer protection has also gained relevance, as the Automatic Contract Renewal Act has established the terms under which these conditions apply and how can consumers stay protected from unfair practices.

How do auto-renewal contracts work in Illinois?

For the state of Illinois, the ACRA determines that automatic renewal contracts apply for products or services in a business-to-consumer (B2C) contract.

The automatic renewal clause must be described “clearly and conspicuously”, which means it must include the period in which the contract automatically renews and the details on how the consumer may cancel the contract.

Contracts that are not subject to automatic renewal

The following contracts cannot make use of an auto-renewal clause

  • Business-to-business contracts (B2B): Contracts where the agreement is between two independent companies, where they agree on the services one delivers to the other. These are the types of contracts made between suppliers and customers.
  • Contracts with governmental entities (federal, state, or local)
  • Contracts with banks or businesses that provide loan services

Are auto-renewing contracts enforceable in Illinois?

auto-renew-contracts

Yes, auto-renewal clauses are enforceable in Illinois, but they must comply with the following conditions, according to the Automatic Contract Renewal Act:

  • The contract is for products or services from a business to consumers, where the contract automatically renews unless the consumer cancels the contract.
  • The contract must have a clear automatic renewal clause that states the period in which it is going to be renewed and the cancelation process.
  • If the contract has a specified term of 12 months or more and the contract automatically renews for a period of more than a month, the business must provide the consumer a written reminder between a period of 30 to 60 days before the cancelation deadline. This notice must inform the consumer that the contract is soon to be renewed and clearly explain the procedure to cancel it.

Any business can use automatic-renewal contracts. The business does not need to be a corporation for this rule to apply to them. In other words, if you are doing business and have not filed papers for incorporation, these rules still apply to you.

What happens if the auto-renewing contract is violated?

If a business does not follow the rules of the Automatic Contract Renewal Act, then it could be in violation of the Illinois Consumer Fraud Act.

The Illinois Consumer Fraud Act allows consumers to collect triple damages and attorney’s fees for the violations. This means that even if a contract does not harm the consumer significantly, the violation can still cause significant financial damage to a business if the business violates ACRA, even for seemingly small offenses. If you are a business, you should take great care to follow the rules if you want to have an automatic renewal clause. In the age of automation, it is easy to set certain letters to be sent as required by ACRA.

What if I Am a Business On the Receiving End of an Automatic Renewal Clause?

Unfortunately, there is no law like ACRA when the contract is a business-to-business (B2B) contract. The reason ACRA exists is to protect consumers, especially since businesses usually have advantages and knowledge, and resources over consumers. When it comes to B2B contracts, courts generally assume that businesses are on an equal footing and so courts will not interfere with business relationships. However, I have had clients who are smaller businesses get bitten this way by larger businesses and find themselves stuck in automatically renewed contracts with no way out. For this reason, whether you are a business owner or consumer, to avoid any problems, my advice is that the minute you sign a contract with an automatic renewal clause, identify how many days beforehand you need to give notice and calendar it with a reminder immediately. This simple ‘set and forget’ action can save you thousands of dollars and the headache of a dispute.

If you need a contract review or one written up, Danya Shakfeh at Shakfeh Law is an expert in all things contracts. Call today to (630) 517-5529 to schedule a consultation. Depending on your individual case, you can ask any question and get basic guidance regarding your matter.

 

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