Businesses Are Required to Alert Customers to Automatic Renewal Clauses in Contracts

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Many contracts have automatic renewal or extension provisions that extend the contract, which provisions are often referred to as “evergreen” clauses.  There is a new law in Wisconsin that governs the use of this type of clause.  Effective May 1, 2011, Section 134.49 of the Wisconsin Statutes requires businesses to notify customers of automatic renewal provisions in business contracts.

What Contracts are Considered to be Business Contracts?

A business contract is defined in Section 134.49(1)(a) as a contract that is entered into for the lease of business equipment used primarily in this state or for providing business services for the direct benefit of the end user of the business equipment or business services.

Certain contracts are excluded from the definition of a business contract including

  • contracts for the lease or purchase of real property;
  • contracts for the lease of equipment or purchase of services that are for personal, family or household purposes;
  • contracts for the lease of a vehicle or medical equipment;
  • contracts for the lease or purchase of telecommunications service, including commercial mobile service, if certain conditions are met;
  • contracts that allow a customer to terminate an automatically renewed or extended contract by giving the seller notice, but only if the contract does not require the customer to give notice more than one month in advance;
  • and contracts to which a federal, state or local government is a party.

Seller Must Provide Information To Make the Provisions Enforceable

If a business contract that has an initial term of more than one year provides that the contract will be automatically renewed or extended for an additional term of more than one year, the provision is unenforceable unless the seller provides the customer notice at least 15 days, but not more than 60 days, before the renewal or extension with the following information:

(a)   A statement that the contract will be renewed or extended unless the customer declines renewal or extension;

(b)   The deadline for the customer to decline renewal or extension;

(c)    A description of any increase in charges that will apply after the renewal or extension; and

(d)   A description of what the customer must do to decline the extension or renewal.

Notice Must Be in Writing

Section 139.49(4) governs the manner and form of the seller’s notice to the customer.  The notice must be in writing, and it may be delivered in one of six methods depending on the contract.  If the notice is provided on a monthly invoice, the notice must be prominently displayed in bold face type and in a type size no smaller than 12-point.

What happens if businesses fail to alert customers of auto renewal?

Businesses that fail to comply with Section 134.49 will not be able to enforce a renewal or extension, and the business contract will terminate at the end of the current term.  In addition, the new law allows customers to bring an action or counterclaim for damages against a seller for violating the statute.  Damages may include twice the amount of damages incurred by a customer, including the customer’s reasonable attorney fees.

Proactive Steps for Businesses and the Evergreen Contracts

If you lease or sell business equipment or services, you should take an inventory of your existing contracts to determine whether they fall within the scope of a “business contract.”  If you purchase business equipment or services, you will want to keep the new law in mind if you find yourself in the situation where you thought a contract expired only to find that the fine print automatically renewed and extended the contract.

Our attorneys are always available to look over a contract or agreement that you are unfamiliar with. Our attorneys will ensure that your contracts comply with the new laws and are in your best interest. Call one of our transactional attorneys today at (920) 499-5700 if you need assistance regarding the evergreen agreement.

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