Introduction

When a business contract expires, it can create uncertainty about how to continue the business relationship. Whether it’s a vendor agreement or a service contract, knowing your options for extending an expired contract can help you avoid disruptions and maintain a smooth working relationship. Let’s break down what happens when a contract expires and how you might be able to extend it.

Read: Do legal documents have to be written in English?

Understanding contract expiration

When a business contract expires, it means that the agreed-upon term has come to an end, and all the promises outlined in that contract are no longer legally binding. In simple terms, both parties are released from their duties under the original agreement. For example, if you have a contract with a supplier that runs for one year, once that year is up, the terms no longer apply unless both parties agree to continue.

Can an expired contract be extended?

Technically, once a contract has expired, it cannot simply be "extended" because it no longer exists as a binding agreement. However, there are ways to create a new agreement that essentially continues the terms of the expired contract. Here are the most common ways to handle this:

1. Renew the contract: One of the simplest ways to deal with an expired contract is to renew it. This involves creating a new contract with the same or updated terms. Both parties will need to agree to the renewal and sign the new contract. This is often used for contracts that need to continue under similar conditions, like a lease or a supplier agreement.

2. Create an amendment: If the original contract allows for it, both parties can sign an amendment that extends the contract’s term. However, this must be done before the contract actually expires. If the expiration date has already passed, an amendment can’t revive a dead contract.

3. Draft a new contract: If the contract has expired, the best approach might be to draft a new one that includes the terms of the previous agreement. This new contract can reference the expired contract and state that the terms will continue under the new agreement.

4. Reaffirm the agreement: Sometimes, both parties can agree, in writing, to continue with the terms of the expired contract without drafting a completely new contract. This is often less formal but still creates a new binding agreement.

Read: 7 tips on how to protect your business with a vendor agreement

Risks of extending an expired contract

Extending an expired contract without proper documentation can be risky. Here are some potential issues:

• Unclear terms: Without a new agreement, there could be confusion about the obligations of each party.

• Lack of legal protection: If one party fails to meet expectations, there may be limited legal grounds to enforce the agreement since the original contract has expired.

• Changed circumstances: If any conditions have changed since the original contract was signed, relying on the old terms might not be appropriate.

Steps to take when extending a contract

1. Review the original contract: Check if the original contract had any provisions for renewal or extension and if there are any new legal requirements or changes that need to be considered.

2. Discuss terms with the other party: Both parties should agree on the terms moving forward, whether they will stay the same or need updating.

3. Create clear documentation: Whether you renew, amend, or draft a new contract, make sure the agreement is clear and signed by both parties.

4. Seek legal advice: It’s always a good idea to consult with a legal professional when handling contract extensions to ensure you are fully protected and compliant with the law.

Read: 7 common contract mistakes that could cost your business thousands

Conclusion

While you can't technically extend a contract that has already expired, you can renew, amend, or create a new agreement that continues the business relationship. The key is to have clear, written documentation that both parties agree to. This way, you maintain clarity, protect your interests, and ensure that the terms are up to date and legally binding.

How Cobrief can help with contract review

Reading your business contracts can feel overwhelming as an owner-manager of a small to medium-sized business. That’s where Cobrief comes in. Cobrief helps business owners and operators review their business-to-business contracts for legal risks.

Upload your contract to Cobrief's AI contract review software, click review and you’ll get a list of all the risks, in plain English. This helps you decide whether to sign, negotiate or reject the terms of your contract, or hire a lawyer. Think of it as a heat map for your contracts.

Get started here.