Navigating auto-renewal contracts and unfair terms

Weightmans achieves win for manufacturing client

Introduction

Weightmans achieved success for a manufacturing company (“our client”) who wanted to terminate a five year contract with a communications provider (“the company”) that had been automatically renewed.

Summary

Our client entered into a contract with the company for a period of 3 years to provide them with telephone equipment.  

As part of entering into the contract, our client agreed to the company’s terms and conditions (“T&Cs”) which stated that the contract could be terminated at six months notice after the initial three year period.

After the three years, our client wanted to end the contract and use another much cheaper provider. However, when they attempted to give notice to terminate, they were advised that they had entered into an automatic renewed contract for a further five years. However, the clause on which the company relied was in a new version of their T&Cs. They argued that by continuing to pay invoices and use their services under the new T&Cs that this meant they agreed to the new T&Cs. Interestingly, the new T&Cs actually stated the contact would be rolled over for five years but they agreed to extend it for only three years prior to our involvement.

After reviewing the contracts and conducting some research we concluded that the company had attempted to vary the original contract unsuccessfully as there was no agreement between the parties and no consideration as required by law. In addition, the agreement was not made in writing, neither were the new T&Cs signed by the director of the company as required by a clause of the original contract.

We drafted a detailed letter giving our client’s formal notice to terminate and advised that our client was entitled to terminate the contract without penalty in six months. Just two weeks after sending this letter, we received a response from the company confirming that their director had agreed to accept the six months’ notice to terminate.

Implications

Whilst the law is clear about auto-renewal from a consumer point of view or small businesses (under 10 people), the position is more complex when the company is bigger. However, this does not necessarily mean that larger companies should be left unable to exit a contract.

As there is no specific legislation it is necessary to review the specifics of each case and apply the principles of contract law as in this case.

Conclusion

By applying the principles of contract law we were able to resolve our client’s issue within five weeks of them contacting us. We kept costs down, avoided formal litigation and were able to resolve the matter with one formal letter to the company. We also made a long term significant financial saving for the client’s business resulting in a successful commercial solution.

If you have any questions or would like to know more about our legal update, please contact; Rob Jones, Partner, on 0161 233 7358 or email robert.jones@weightmans.com or Matthew Fox, Solicitor, on 0161 214 0543 or email matthew.fox@weightmans.com or author Jenny Young, Trainee Solicitor on 0151 242 6669 or email jenny.young@weightmans.com

 

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