Contract renewal and end-of-term management for landlords and business owners during the COVID-19 pandemic

By Michael Morris, Associate at Hillhouse Legal Partners
| 3 min. read

Key takeaways

  • Contracts entered into by landlords and business owners for the hire of goods or acquisition of services are usually for a fixed term
  • How each contract deals with what is to occur at the end of the term varies
  • Landlords and business owners should review all contracts and put procedures in place to avoid contracts being renewed or extended automatically and/or unintentionally

Landlords and business owners routinely enter into a variety of contracts to hire goods or acquire services on an ongoing basis. Such contracts may relate to, for example, cleaning services, waste removal services, equipment maintenance, security and the hire of IT equipment such as printers and telephones.

One feature these contracts often share is that they are for a fixed term. However, where they often differ is how they deal with what is to occur at the end of that term.

There are four main ways these contracts deal with what is to occur at the end of the term:

  1. The contract provides that it is to come to an end;
  2. The contract provides that it continues on a “holding over” basis;
  3. The contract automatically renews for a further term; and
  4. The contract says nothing.

The first way is the simplest. The contract comes to an end, and the service is no longer provided or the goods are returned.

The second way is also simple. The contract provides that it continues until one party gives the other notice of termination. A minimum notice period, typically of a number of weeks or months, will be specified.

The third way is also simple but the fact the contract is renewed can be undesirable – particularly in the current climate. Unfortunately in our experience this is not an uncommon occurrence. Landlords and business owners will sometimes enter into contracts without knowing they contain an “automatic renewal” clause - they can be hidden in the fine print.

The fourth way can also lead to an undesired outcome. If the parties continue their relationship (that is, the supply of services or hire of goods, and payment for them) then the law may imply that the contract has renewed for a further term. This will ordinarily be an undesirable outcome for a landlord or business owner in most circumstances, but particularly so in the current Covid-19 environment we all find ourselves in. Imagine, for example, if this resulted in a 2 year contract for waste collection services being impliedly renewed when the business is no longer operating!

What can landlords and business owners do?

The starting point is read each contract to see what they say about renewal and end-of-term arrangements. The next step is to diarise the key dates – particularly the dates by which notice is to be given if you do not want the contract to continue. The third step is to ensure notice is validly given during by the key date. This can be tricky because validly giving a notice may require strict compliance the provisions of the contract that deal with the giving of notices. Of course if you have any concerns or there is any uncertainty about these points then legal advice should be sought.

Other options

Even if you find yourself locked into a contract that you want to get out of, all may not be lost. There may be the ability to terminate on the basis of “frustration” or “force majeure”. We have recently discussed these concepts in the context of leases in this article, and the concepts are largely the same with regard to commercial contracts.

It may also be possible to take advantage of the unfair contract terms provisions of the Australian Consumer Law. These provisions can apply to standard form business contracts in certain circumstances. They enable the Court to declare that provisions of a contract are void on the basis they are unfair. Automatic renewal clauses are one of the types of clauses that can be considered unfair.

Conclusion

If Hillhouse Legal Partners can assist you in this regard, please contact Michael Morris on 3220 1144 or email [email protected].

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.