Key considerations for extending or renewing a contract
The first thing to consider is whether the contract is being renewed or extended. Generally, a contract renewal will involve the parties renegotiating the contract terms and entering into a new agreement to replace the existing one. Whereas a contract extension simply extends the term of the existing agreement for a period of time, sometimes with minimal renegotiation of the terms (e.g. pricing).
Often, contracts dictate whether a party has the right to request an extension and/or renewal (and if so, which party has those rights). When considering whether to enter into a contract extension or renewal, you should in the first instance, check the terms of the existing contract to see if you have a contractual right to do so. If such a right is not specified in the contract, the parties can still agree to renew or extend the contract but neither party will be obliged to give reasonable consideration to such a request by the other.
1. Notice period
If you are relying on a contractual right to renew or extend, the contract is likely to express a period of notice you must give in order to exercise such right. Often, this will be an express number of days/months before the end of the contract. Sometimes, the contract will have an automatic renewal provision.
However, even where you are not relying on a contractual right to extend or renew, you should still consider commencing negotiations with the other party within a reasonable time prior to the end of the contract, taking into consideration how long you anticipate it will take to agree the term of the renewal or extension, renegotiate the terms (if any) and draft and execute the relevant documentation.
2. Renewal/Extension Period
Where a contract expresses a right to extend or renew, it may also specify the period of such extension or renewal. If it doesn’t, it is between the parties to decide the appropriate period.
You should consider whether you want the contract to run for a fixed term or a rolling term with an automatic renewal provision and, whether you want a further right to extend or renew the contract on expiry of the renewed or extended term.
3. Renegotiation of Terms
Some contracts will give each party a right to request renegotiation of the terms, while others will stay silent on the subject. In each case, before completing a contract renewal or extension, you should review the terms of the contract and identify any provisions you’d like to amend. For example, are there any terms of the contract (such as pricing) which, if included in the extension or renewal, would mean the contract becomes commercially inviable?
If you require further advice or support with renewing or extending a contract term, please contact the Commercial Team who would be happy to help.