Automatic Renewal Clauses

Automatic renewal clauses exist in many office tenancies or office licences.

An Automatic Renewal Clause puts the obligation to terminate on the licensee, even where the licence agreement is expressed to be for an initial fixed period.

The consequence is this. If the tenant fails to terminate at the time and in the manner prescribed in the licence, the licence renews itself for another ‘initial period’.

An import from America, where it is termed the ‘Evergreen Clause’, it might more accurately be termed the gangrene clause. 

It may be worded thus: “the initial Term of this agreement shall be 12 months and shall automatically renew for subsequent periods of 12 months unless either party gives the other written notice of termination.”

The clause may specify the exact period in which notice must be served: “Written notice shall be served in the 30 day window ending 30 days immediately before the expiry of the current term.” 

Consumer protection legislation does not help. In the court’s view this is a business-to-business agreement and outside consumer protection legislation. 

But is the term lawful?  Yes. If it’s in writing, unambiguous and referred to in the licence agreement.  

The fact that it benefits only one party is immaterial: See Statpro Group v Depfa Bank [2013] EWHC 969.    

Example: Ted signs a 12-month business licence agreement for an office with Larry, his landlord to end on 30 September 2020. It contains an ARC with a stipulation that notice be served at least two months prior to expiry. Ted emails his notice on 15 August. On the face of it, he is locked in.

Depending on the facts, the following might be arguable:

1. Misrepresentation;
2. Insufficiently brought to Ted’s attention;

Misrepresentation

If before signing Larry said something suggesting he would not enforce the ARC – then since this representation was ‘operative’ – it caused Ted to sign – then the court will try and construe the agreement in a way consistent with the representation.

Insufficiently Brought to T’s Attention

Where L wants to impose an unusual term on T he must bring it to his attention. Thompson v Shoe Lane Parking [1970] EWCA Civ 2 is good law. And the more onerous the term, the more attention it requires.  The clause’s wording, clarity, font size, all matter and whether it was repeated in any pre-contract correspondence. 

Tip: If you’re uncertain whether your agreement has an ARC, write alongside your signature: ‘No Automatic Renewal.’