Introduction

Auto-renewal clauses might seem like a no brainer—they automatically extend your contract, saving you the hassle of renegotiation. But lurking in that convenience are some potential pitfalls that could catch you off guard if you’re not careful.

Read: Why governing law clauses can make or break your contract

Unexpected commitments

One of the biggest risks with auto-renewal clauses is that they can lock you into a contract longer than you intended. Imagine forgetting that your service agreement automatically renews every year, and suddenly you’re on the hook for another 12 months of payments you hadn’t budgeted for.

It’s like signing up for a gym membership and forgetting to cancel—it just keeps going, whether you’re using it or not.

Price hikes without warning

Some contracts sneak in provisions that allow for price increases when they renew automatically. You might start out paying one rate, but after the auto-renewal kicks in, you could be hit with higher fees.

These increases might be buried in the fine print, so unless you’re on top of things, you could end up paying more for the same service without any heads-up. Not ideal.

Limited exit opportunities

Auto-renewal clauses can also create a trapdoor, making it harder to exit a contract when you want to. Often, these clauses require you to provide notice of your intent to cancel within a specific window—miss that window, and you’re locked in for another term.

This can be a nightmare if your business is trying to pivot or cut costs. You could end up stuck in a contract that no longer works for you, just because you missed a deadline buried in the fine print.

Overlooked terms and conditions

When a contract auto-renews, it’s easy to overlook the fact that terms and conditions might have changed since you first signed. Providers sometimes update their terms during renewal periods, and if you’re not paying attention, you might find yourself agreeing to new conditions by default. This could include less favorable terms, new fees, or altered service levels.

It’s like clicking “I agree” on a software update without reading the details—only to realize later that the features you relied on are no longer available.

Read: Why you should always define deliverables in service agreements

The risk of complacency

Auto-renewal clauses can lull you into a false sense of security. You might assume that because the contract is renewing automatically, everything is still working smoothly.

But this complacency can prevent you from regularly reviewing whether the contract still serves your business’s best interests. Over time, you might be stuck in an outdated agreement that doesn’t reflect your current needs, all because it was easier to let it renew than to take a closer look.

Tips to protect your business

Keep track of renewal dates

Mark your calendar or set reminders for when your contracts are up for renewal. This gives you time to review and decide whether you want to continue, renegotiate, or cancel.

Negotiate flexibility

When entering into a contract with an auto-renewal clause, try to negotiate more flexible terms, like a shorter renewal period or the ability to opt out at any time without penalties.

Review terms regularly

Even if your contract auto-renews, take the time to review the terms before the renewal date. This helps you stay informed about any changes and ensures the agreement still meets your needs.

Request price notifications

If your contract includes the possibility of price increases, ask the provider to notify you in advance of any changes. This gives you a chance to renegotiate or cancel before the new rates take effect.

Consider automatic alerts

Some businesses set up automatic alerts for any contract-related emails or notifications. This helps ensure you don’t miss important messages about renewals, changes to terms, or price adjustments.

Read: NDAs 101: Why defining confidential information can make or break a deal

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.

Conclusion

Auto-renewal clauses can offer convenience, but they also come with hidden dangers that can catch your business off guard.

From unexpected commitments and price hikes to overlooked terms and limited exit opportunities, these clauses require careful attention. By staying proactive—tracking renewal dates, negotiating flexible terms, and regularly reviewing your contracts—you can protect your business from the risks and ensure that your contracts continue to serve your best interests.