Are Automatic Renewal Clauses Legal In Australia?

Will your contract renew automatically if you do nothing? The reassuring answer is: it depends on what the contract says, how clearly the renewal term was brought to your attention, and whether the term is fair in the circumstances.

Automatic renewal clauses are common in Australian business contracts. You'll often see them in software subscriptions, supplier agreements, service contracts, memberships, maintenance plans and standard terms and conditions.

The tricky part is that these clauses can be easy to miss. A contract might roll over for another 12 months unless you give notice 30, 60 or even 90 days before the end date. If you miss that window, you may be locked in or asked to pay an exit fee.

The good news is that you can manage this risk with a careful review, clear drafting and a simple renewal process inside your business.

Are Automatic Renewal Clauses Legal In Australia?

Yes, automatic renewal clauses are generally legal in Australia, but they need to be clear, properly incorporated into the contract and fair.

An automatic renewal clause, sometimes called an evergreen clause, usually says the contract will continue for a further period unless one party gives notice to stop it. For example, a 12 month service agreement might renew for another 12 months unless either party gives 30 days' written notice before the renewal date.

There's nothing automatically wrong with that. For many businesses, renewal clauses are useful because they avoid gaps in service and reduce admin.

The issue is usually not the renewal itself. The issue is whether your business had a fair chance to know about it and act on it.

A renewal clause is more likely to be a problem if it:

• is hidden in dense fine print or buried in online terms
• renews for a long period without a reminder
• requires notice in a narrow window that's easy to miss
• imposes a large termination fee if you try to leave
• lets one party change the price or terms after renewal without a fair right to exit
• wasn't properly accepted or incorporated into the agreement

If you're reviewing an auto renewal contract in Australia, start with the wording. Then look at how the contract was signed or accepted, whether the clause was drawn to your attention, and whether unfair contract terms laws could apply.

What Is An Evergreen Clause?

An evergreen clause is another name for an automatic renewal clause that keeps the contract alive until someone takes steps to end it.

The term is often used in commercial contracts, especially in service agreements, software agreements and supply arrangements. The contract doesn't simply expire on the end date. Instead, it rolls on for another term or continues month to month.

There are a few common versions:

• Fixed term renewal: the contract renews for another set period, such as 12 months.
• Rolling monthly term: after the initial term, the contract continues month to month until terminated.
• Ongoing term: the contract continues indefinitely unless ended under the termination clause.
• Renewal by agreement: the contract only renews if both parties agree in writing before the end date.

For small businesses, a monthly rolling arrangement is often more flexible than another fixed 12 month term. If you're the supplier, though, a fixed renewal may help with revenue certainty and planning.

There's no one-size-fits-all approach. The right structure depends on what you're selling, how long you need to deliver the service, your pricing model and how much flexibility each side reasonably needs.

How Do Contract Renewal Notice Periods Work?

A contract renewal notice period is the amount of notice you need to give if you don't want the contract to renew, and you need to follow it closely.

For example, a contract might say:

• the initial term is 12 months
• the contract renews automatically for further 12 month terms
• either party can prevent renewal by giving at least 60 days' written notice before the end of the current term

In that example, if your contract ends on 30 June, you would need to give notice by 1 May at the latest. If you wait until mid-June, you may have missed the window.

Notice periods in business contracts commonly range from 30 to 90 days, but there's no single legal notice period that applies to every commercial contract. The contract usually sets the rule.

When checking the notice clause, look for:

• How much notice is required: for example, 30 days, 60 days or 90 days.
• When notice must be given: before the expiry date, before the renewal date or within a specific window.
• How notice must be given: email, post, an online portal or a nominated contact person.
• What the notice must say: some contracts require a clear statement that you don't wish to renew.
• When notice is treated as received: this can matter if you send notice close to the deadline.

Say you run a cafe in Brisbane and you sign up for a point-of-sale software plan. The plan is for 12 months and renews automatically unless you give 60 days' notice. If you decide to change providers two weeks before the renewal date, you may still be charged for another year if the clause is valid and enforceable.

This is why calendar reminders matter. Once you sign a contract, diarise the end date and the notice deadline. It sounds simple, but it's one of the easiest ways to avoid being surprised later.

Can An Automatic Renewal Clause Be Unfair?

Yes, an automatic renewal clause can be unfair if it causes a significant imbalance, isn't reasonably necessary to protect a legitimate interest, and would cause detriment if relied on.

In Australia, unfair contract terms are regulated under the Australian Consumer Law, which is in Schedule 2 to the Competition and Consumer Act 2010, and under the Australian Securities and Investments Commission Act 2001 for certain financial products and services.

The unfair contract terms regime can apply to standard form contracts with consumers and small businesses. Since 9 November 2023, unfair contract terms have attracted penalties, not just the risk that the term is void. This has made renewal clauses a much bigger compliance issue for businesses that use standard terms.

For many standard form small business contracts covered by the Australian Consumer Law, the rules can apply where at least one party has fewer than 100 employees or annual turnover of less than $10 million. Casual employees are counted if they're employed on a regular and systematic basis. For financial products and services regulated under the ASIC Act, additional requirements apply, including that the upfront price payable must not exceed $5 million.

A renewal clause is more likely to raise unfair contract terms concerns if it:

• automatically locks a customer into a long further term with no practical way to opt out
• requires notice so early that customers are unlikely to remember or act in time
• doesn't give a reasonable reminder before renewal
• allows your business to increase fees after renewal while limiting the customer's right to leave
• charges a termination fee that's out of proportion to your actual loss
• creates a one-sided renewal right, where you can walk away but the customer can't

This doesn't mean every renewal clause is unfair. A 30 day notice period for an ongoing business service may be perfectly reasonable. A 12 month renewal with a clear reminder and an easy opt-out process may also be reasonable.

The question is whether the clause is transparent and balanced, and whether it protects a genuine business need.

What Should You Check Before Signing A Contract That Renews Automatically?

You should check the term, renewal mechanics, notice process, price changes and exit costs before you sign.

Don't just search for the word 'renewal'. Also search for 'term', 'expiry', 'notice', 'termination', 'auto-renew', 'evergreen', 'fees' and 'variation'. Renewal rights are often spread across several clauses.

Check The Initial Term And Renewal Term

Find out how long you're committing for at the start, and how long you'll be committed for if the contract renews.

There's a big difference between:

• a 12 month contract that moves to month to month after the first year
• a 12 month contract that renews for another 12 months each time
• a 3 year contract that renews for another 3 years unless you give notice

If the renewal term is long, ask whether the contract can renew month to month instead.

Check The Notice Deadline

Work out the last date you can give notice and put it in your calendar straight away.

It's best to set more than one reminder, such as:

• 120 days before the end date, to review whether you still need the contract
• 90 days before the end date, to compare alternatives or negotiate pricing
• 70 days before the end date, if the contract needs 60 days' notice

Your exact reminders will depend on the contract, but the point is to give yourself breathing room.

Check How You Must Give Notice

If the contract says notice must be sent to a particular email address or through a customer portal, follow that process.

Keep evidence that you sent the notice on time. Save the email, delivery receipt or portal confirmation. If the other side later says they didn't receive it, that evidence can make the conversation much easier.

Check Price Increase Rights

Automatic renewal terms and conditions often sit next to price variation clauses. If the supplier can increase fees on renewal, check whether you get notice of the increase and a right to terminate if you don't accept it.

If you're the supplier, make your price increase process clear. For example, you might give at least 30 days' notice of a price change before the renewal date, with a clear option for the customer to opt out before the renewal takes effect.

How Should You Draft Automatic Renewal Terms For Your Customers?

You should draft automatic renewal terms clearly, fairly and in a way that your customers can realistically act on.

If your business uses standard terms and conditions or terms of trade, especially for small business customers, renewal clauses shouldn't be treated as hidden admin wording. They affect price, commitment and exit rights, so they deserve clear drafting.

A well-drafted renewal clause should cover:

• the initial contract term
• whether renewal is automatic or requires agreement
• the length of each renewal period
• the notice period for opting out
• how notice must be given
• whether fees can change on renewal
• whether you'll send a renewal reminder
• what happens if invoices are unpaid at the renewal date
• any termination fees and how they're calculated

Customer transparency isn't just a nice touch. It helps reduce complaints, chargebacks, disputes and regulatory risk. It also builds trust, which matters if you rely on repeat revenue.

Practical ways to make your renewal process clearer include:

• summarising the renewal term on the order form, term sheet or front page of the agreement
• using plain English instead of dense legal wording
• sending renewal reminders before the notice deadline
• making opt-out instructions easy to follow
• not requiring customers to jump through unnecessary hoops to cancel
• keeping records of acceptance, reminders and notices

Template terms and conditions often miss the details that matter for your particular business model. If your revenue depends on renewals, it's worth tailoring the clause to your services, billing cycle and customer type.

What Can You Do If You've Already Been Renewed?

If you've already been renewed, first check whether the renewal clause was validly part of your contract and whether you gave or received the required notice.

Start with the documents and timeline. Gather:

• the signed contract, order form or online terms
• the date you accepted the contract
• any emails about renewal, pricing or cancellation
• the contract end date and renewal date
• any notice you sent or received
• invoices issued after renewal

Then look at the renewal wording. Ask yourself:

• Was the automatic renewal clause clear?
• Was it in the signed contract or properly incorporated into the online terms?
• Did the other side send a reminder, if the contract said they would?
• Did you miss the notice deadline?
• Is the further term reasonable?
• Are any exit fees proportionate?

If you're dealing with a supplier, you may be able to negotiate a shorter exit period, a reduced cancellation fee or a move to month to month. Many suppliers would rather keep goodwill than force a dispute.

If you're the supplier and a customer says they didn't know about the renewal, check your records before taking a hard line. If the clause was unclear or no reminder was sent, a practical compromise may be better than chasing fees that are difficult to justify.

Where the unfair contract terms laws may apply, get tailored advice before relying on a strict renewal clause. The legal and commercial answer can depend heavily on the exact wording, the customer type, how the contract was presented and the detriment caused.

Common Mistakes To Avoid

The biggest mistake is treating renewal wording as boilerplate. These clauses can decide whether you can exit a bad deal, keep a customer, recover unpaid fees or avoid a dispute.

Common mistakes include:

• Missing the notice window: if you don't track the deadline, you may lose the right to opt out.
• Assuming 'expiry' means the contract ends: many contracts continue after the stated end date.
• Ignoring the notice method: sending notice to your usual contact may not work if the contract requires a specific address or portal.
• Using a one-sided clause in standard terms: this can create unfair contract terms risk, especially with small business customers.
• Not explaining renewal terms upfront: hidden renewal terms can damage customer trust and make enforcement harder.
• Forgetting price change wording: if you raise fees on renewal without a clear right to do so, you may face pushback.
• Relying on old templates: contract wording that worked years ago may not reflect current unfair contract terms penalties or your current business model.

A simple internal process can prevent most of these issues. Keep a contract register with end dates, notice dates, renewal terms, price review dates and responsible team members. Even a well-kept spreadsheet is better than relying on memory.

Key Takeaways

• Automatic renewal clauses are generally legal in Australia, but they need to be clear, properly incorporated and fair.
• An evergreen clause can renew a contract for another fixed term, move it to month to month or keep it running until terminated.
• Notice periods often sit between 30 and 90 days, but your contract sets the actual deadline and process.
• Unfair contract terms laws under the Australian Consumer Law and ASIC Act can apply to standard form consumer and small business contracts, with extra requirements for financial products and services.
• If you use renewal clauses with customers, make the term easy to find, send reminders where appropriate and keep the opt-out process practical.
• If you've already been renewed, check the wording, timeline and records before deciding whether to negotiate, pay or challenge the renewal.

If you'd like help with reviewing a contract that may renew automatically, drafting fair renewal terms for your customers, checking your notice periods or updating your standard terms and conditions, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.