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Tips for Ensuring Your Automatic Renewal Clauses are Enforceable

Many San Diego businesses, particularly online and service businesses, use automatic renewal clauses in their consumer contracts. As the name implies, automatic renewal clauses typically state that the contract extends for additional terms automatically unless the customer takes some active step to terminate the contract prior to the renewal date. Automatic renewal clauses have many advantages including:

  • Creating efficient renewal procedures that streamline customer service and contract maintenance
  • Providing convenience to consumers who do not have to remember renewal dates and who only have to set up service payment/provision the first time
  • Providing a basis for business planning
  • And more

But some customers see automatic renewal clauses as a disadvantage if, for example, during the term of the agreement, customer service has declined or the customer no longer wants the service/product. At that point, the customer may not remember the procedures for terminating, the time may have passed for termination, or the time to terminate is sometime in the future. The customers end up “stuck” paying for something they no longer want.

This presents a San Diego business with practical business and legal problem. No business wants unhappy customers. The solution is a matter of good contract drafting and complying with California law. An experienced San Diego corporate attorney can help. Here are a few tips.

First, comply with California law. California has an automatic renewal law which was updated and became effective in July 2018. See Cal. Bus. & Prof. Code § 17600 et seq. Essentially, the law, applicable to online sellers of goods and services, requires that a customer be allowed to terminate a contract with an automatic renewal clause via a simple form that can be completed and sent via email. Likewise, the customer must be informed about the auto-renewal and the method of termination.

Second, because of the automatic renewal law, do not put any sort of time limit in your automatic renewal clauses. In the past, automatic renewal clauses have typically required a notice of termination within, say, 60 days before the end of the contract term. Under traditional contract law, a notice of termination that came 65 days prior to the end of the contract was not compliant and would not be deemed as a successful effort to terminate. Those sorts of time limits will not be enforced for consumer contracts under California law. Thus, build into your business model and planning the idea that customers can cancel a contract containing an automatic renewal clause at any time.

Third, make sure that any automatic renewal feature of an online contract is conspicuous to the consumer. In general, for a contract to come into existence — and, therefore, be enforceable — there must be an agreement. Under California legal principles, for there to be “agreement” there must be some “manifestation of assent.” Usually, a signature is considered evidence of consent or a click on a box for an online contract. But, with respect to contract provisions that might be considered “onerous” — particularly involving consumers who do not have the ability to negotiate the contract provisions — California courts have been more hostile to the idea that a signature or a “click of the box” is sufficient manifestation of consent. This was the holding of Long v. Provide Commerce, Inc., 245 Cal. App. 4th 855 (Cal. App. 2nd Dist. 2016) where the court held that clicking a box was not sufficient to bind the users to a website browsewrap agreement. We discussed that case here. The terms of the agreement were not conspicuous enough. The same principle will apply to any automatic renewal clause. Make sure any automatic renewal feature is conspicuous to the customer.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provides legal services to business owners in San Diego and the surrounding communities. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.

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