These issues need to be considered before you draft a contract extension provision:
- Is the extension conditional, i.e., available only after the occurrence or nonoccurrence of some event?
- Can the agreement be extended by the actions of fewer than all parties or must all parties agree?
- Is the right to extend available to both parties?
- Will the agreement be extended unless some action is taken (i.e., automatic extension absent advance notice of an intent to not extend), or only if some action is taken?
- Will any provisions of the agreement change on its extension (e.g., a rental payment under a lease)?
In drafting extension provisions, specify any notice periods, the type of notice required, and any other steps necessary for an effective extension, so that one party isn’t taken by surprise at the expected end of the term.
You can draft and attach notice forms to the agreement to help the parties comply with extension requirements. Unless different notice requirements apply for the extension, the general notice provision in the agreement can specify whether notice must be written and how it must be delivered.
Also, setting a deadline for execution of the extension agreement encourages the parties to focus on the extension issue before the agreement expires.
Here are some sample extension clauses:
___. Renewal of Agreement. This Agreement will be automatically renewed for succeeding terms of _ _[e.g., 12 months]_ _ each unless, at least _ _[e.g., 30 calendar days]_ _ before expiration of any term, either party gives notice to the other of its intention not to renew this Agreement.
Mutually Agreeable Extension
___. Renewal of Agreement. This Agreement may be renewed for succeeding terms of _ _[e.g., 12 months]_ _ each, by the written agreement of the parties executed at least _ _[e.g., 30 calendar days]_ _ before expiration of any term. Nothing in this Agreement requires either party to renew or extend this Agreement or to enter into negotiations regarding the renewal or extension of this Agreement.
Either Party May Extend
___. Renewal of Agreement. This Agreement may be renewed for succeeding terms of _ _[e.g., 12 months]_ _ each, at the option of either party, by notice to the other party at least _ _[e.g., 30 calendar days]_ _ before expiration of any term, of its intention to renew this Agreement. Nothing in this Agreement requires either party to renew or extend this Agreement.
For more guidance on drafting provisions related to the duration of an agreement, turn to CEB’s Drafting Business Contracts: Principles, Techniques and Forms, chap 6.
Other CEBblog™ posts you may find useful:
- Know These Interpretation Principles Before You Draft a Contract
- This Is How to Count the Days in a Contract
- What You Need to Know About Contract Start and End Dates
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