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Caught in a Trap? Beware Auto-Renewing Contracts

Beware of auto-renewing contracts.

In the UK there are laws to protect consumers from unfair contract terms. However, commercial parties have less protection and are generally free to bind themselves to whatever terms without fear of court intervention.

As businesses outsource an increasing number of activities, it is important to fully understand what you are committing to when you sign a contract with a third party.

This is especially true for automatically renewable contracts. For some, they are convenient, ensuring services continue uninterrupted. For instance, if you forget to renew your web hosting and haven’t agreed to automatically renew or made other provisions, your website will likely go down when the contract expires. This could have a detrimental effect on your business. 

For others, it can come as an unpleasant surprise to discover they have automatically committed to another fixed period contract. This is especially true if the third party didn’t alert you in the lead up to the renewal date – and they don’t have to if you’ve signed a contract agreeing to the clause.

When signing a new contract

When signing a new contract, you should know how long you are committed, whether the contract will automatically renew, and the notice period and format required by the company for you to cancel.

It is a good idea to make a note of automatic renewal dates. If you sign a contract with a service provider for the next two years, will you remember the automatic renewal date when it comes around 24 months later?

Notification of intention to cancel

Additionally, the contract might state the company needs to receive notification of your intention to cancel a certain number of days in advance of the renewal date. If you miss this date, you could find yourself locked into a contract with the company for another fixed period. If you do not want the contract to automatically renew, you might consider notifying the company immediately after signing the contract that you wish to cancel at the end of the fixed period.

Secure email

The format of the notice you give is just as important. Some contracts will state cancellation in writing, to be sent by recorded delivery. Others might require notification by email. In this instance, sending your email via a secure email service will provide confirmation of when your email is delivered and opened. This evidence should avoid any disputes between yourself and the third party about when or whether your notice of cancellation was received. (for more information on Secure email please see our blog on Secure email)

Ideally, if a company provides excellent service, its customers will not want to leave. In reality, many businesses favour auto-renewing contracts for an additional fixed period because it increases the percentage of customers retained, therefore increasing profit.

As long as you are happy with the cost and the service you are receiving, automatically renewable contracts could be convenient. However, if you want to change a service provider, shop around for a better deal, or you no longer require the service, you must read your existing contracts to find out what is required of you to cancel. Reading the small print might be tedious, but it could save you being caught in a cycle of automatically renewing contracts.