When a contract expires, this usually raises a lot of questions about steps moving forward. At Sprintlaw, some common queries we get are:
- What happens when my contract expires?
- What if I keep performing my obligations after my contract expires?
- Can I enforce anything that happens after the expiry date?
- Can I extend my contract?
In this article, we’ll break down the answers to each of these issues.
Generally speaking, when a contract expires, the parties to the contract have the option to:
- Enter into a new contract
- End the contract
- Extend the contract
At times, parties to a contract will continue to perform their duties even after the contract has ended. Once a contract has expired, it can still be considered legally valid, depending on the actions and communication of the parties.
Ultimately, it’s at the discretion of the courts and will depend heavily on the specific circumstances.
Therefore, we always advise our clients to stay up to date with any contracts and have them reviewed by one of our legal professionals. If you have a contract that is approaching its expiry, keep reading to find out more!
What Is A Contract?
Before we get into the expiration of contracts, let’s quickly go through the basics – what is a contract, exactly?
A contract is a legally binding agreement between two or more parties. It’s essentially a promise – one party may promise to do something in exchange for something of value, so in most cases, money.
However, a contract is important because it records the key details of your agreement, from the price to be paid to what happens if the promise isn’t delivered.
Having this all in writing ensures that legal action can be taken if things don’t go as planned.
So, what makes a contract enforceable?
What Makes A Contract Legally Binding?
A contract cannot be enforced unless it is considered legally binding. To be binding, a contract must satisfy the following elements:
- Offer and acceptance – this involves a proposal and an acceptance of this offer
- Intention – the parties must be willing to be bound to the agreement
- Consideration – there must be some benefit or exchange of value
- Capacity – parties need to have the mental capacity to enter into the agreement
My Contract Is Expiring – What Are My Options?
A formal agreement will expire in one of two ways. The first is when an end date specified on the contract has arrived. The second way is when both parties have performed their contractual obligations and received their benefits from the agreement, so their contract ends automatically.
Regardless of the way in which the contract is ending, there are three main options when proceeding with an expiring contract:
- End The Contract: If there is no further benefit to be received from extending the agreement, the parties may wish to part ways at the end of their contractual relationship.
- Extend the Contract: In some cases, when the relationship between the parties is going well, they may wish to continue the same contract with the same terms but move the expiration date ahead.
- Enter Into New Contract: The parties may wish to continue their relationship, however they will adjust the terms of the contract. The new terms will be considered an entirely new agreement.
Does A Contract Need To Be Dated?
A contract does not need to be dated, however, it may be dated for the purpose of clarification.
The general rule is that contracts are effective from the day it was signed. So, a date may be added to confirm this.
A contract that is not dated is still valid.
Extending A Contract
If the parties to a contract are not prepared for the agreement to end, they may agree to extend the contract. In this case, there are a number of primary considerations that should be made. For example:
- Are all parties willing to extend the contract?
- What will the new expiry date for the contract be?
- Do all parties want to proceed with the exact same terms in the contract, or do they want some adjustments to the contract? (If so, a new contract will need to be formed).
Can You Extend An Expired Contract?
A question we get asked often is whether an agreement can be extended after it has already expired. If a contract has already expired and both parties agree to extending the contract, then it can be extended.
This can be done formally by drawing up a new contract or extending the existing one.
Entering Into A New Contract
When a contract is expiring, you may wish to continue the relationship under a new contract. The parties to the contract will remain the same, however, the contract will be new and can contain different terms.
Jane utilises Sally’s organic cotton for her handmade clothing businesses. Their contract is ending, however, Sally wishes to keep Jane as her customer.
Jane says she is thinking of looking at other suppliers, so Sally offers Jane more competitive rates for the cotton. Jane agrees, however, this would mean different terms to the existing contract.
As such, they consult a legal professional to draw up a new contract with the new rates for the cotton.
How Long Does A Contract Last Without An Expiration Date?
As mentioned above, not all contracts come with an expiration date. A contract that does not have an expiration date will end when both parties have performed their contractual obligations.
Lance is a painter and often commissions work for his clients. Maya hires his services for an oil painting which is set to take Lance about 7 weeks to complete, however, they have not set a strict deadline.
Upon the completion of the project, Lance gives Maya the painting and she pays Lance the amount they agreed to. There was no expiration date on the contract, however, it ended automatically as both parties have performed their obligations and gained their benefits from the agreement.
How Do I End A Contract?
A contract will end when parties agree to a certain date that the contract will terminate on, and that day finally comes around. It also depends on whether all parties have performed their contractual obligations (if they are not ongoing).
What Happens When A Contract Has Expired But Parties Still Perform Their Obligations?
If a contract expires and the parties are still performing their obligations, this can be an implied contract.
Contracts can either be express or implied. An express contract occurs when there is an intent to be bound which is expressed verbally or in writing. An implied contract happens when the conduct of the parties exemplifies an intent to be legally bound in an agreement.
In some work spaces, a contract of employment will expire, but the employee will continue to work there. So, is this still legally valid? Read on to learn more.
My Contract Expired But Employees Are Still Working
If a contract has expired and the employee continues to work there with no opposition from the employer, it is likely to be considered an implied contract. This is because the work being performed indicates an intent to remain legally bound by the Employment Contract.
You have hired an assistant and failed to renew their contract past the expiration date. However, they continue to perform their usual duties and you keep on paying them their salary.
This conduct can amount to an implied contract. The actions of both parties performing their respective obligations of the expired contract demonstrate an intent to continue to be legally bound in an employee/employer relationship.
Can You Breach An Expired Contract?
The most pressing issue regarding expired contracts is whether all the terms of the old contract are applicable to the implied agreement. If a dispute arises, then you don’t have a physical contract to refer to and thus, it will be up to the courts to decide which parts of the old contract can be enforceable.
If the parties to the contract have been performing their duties in line with the expired contract, then those terms are likely to apply. If certain aspects have changed, then a new contract may be applicable. At times, courts can also conclude that there is no contract.
An expired contract can also be breached in a second way. When a contract expires, signees can still be bound to certain terms such as a confidentiality clause. An employee working for a company that handles private information regarding their clients cannot expose that information even after their employment has ceased (these are known as Non-Compete Clauses).
Is An Expired Contract Still Valid?
As we have seen, expired contracts can still be valid. To assess the validity of an expired contract, the courts will look at any performance or communication that demonstrates a continuation of the expired contract.
However, it’s always best to have your contracts reviewed, updated or redrafted. If you are unsure if a contract of yours is still valid, we can have our expert lawyers review it and provide some clarity with our Contracts Review Package.
If your contract is expiring soon, and you want to know more about how your options might play out, it’s wise to chat to an expert lawyer.
At Sprintlaw, our lawyers can review your contracts and highlight any key issues, such as whether the terms can remain valid even after it has expired.
If you have any questions regarding expired contracts or anything else related to business legals, you can reach us at 1800 730 617 or firstname.lastname@example.org for a free, no-obligations chat.
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