Understanding the Evergreen Clause: Benefits and Perils
1 hour 30 minutes
Gain an understanding of important drafting considerations when including evergreen clauses in your contracts.
Many consumer-to-business as well as business-to-business contracts, leases, policies, and service agreements contain what are commonly referred to as evergreen clauses, terms which essentially allow the contract to self-renew for a specified period of time or for an indefinite period of time. One of the parties, and in more cases than not, the consumer or purchaser, must take affirmative action to terminate the contract within, or not less than, a specified period of time. The advantages of such contracts, including pricing consistency, guarantee of goods and services, and regularity of customer and revenues, are often offset by the degree of control the seller has to effectively continue and enforce a contract the consumer or purchaser now no longer wants, or to impose new terms, especially increased prices, which the consumer or purchaser has had no ability to negotiate or to seek an alternative source.
While evergreen clauses have been generally enforced, there is a growing trend in a number of states to enact new laws which require certain protections to be put in place before an evergreen clause will be enforced, such as requiring the clause to be clear and conspicuous in the contract, to place it near the signature block, or furthermore to require separate express notice be given to the consumer or purchaser that the clause will be invoked shortly. Some new laws are so draconian in nature that the seller can be liable to forfeit all revenues earned under the contract if these protective measures are not adopted. This topic will explore the nature of evergreen clauses, their enforceability then and now, newer state statutes creating restrictions, and the benefits and perils of their continued use.
• You will be able to review the different types of contracts and agreements.
• You will be able to recognize the benefits for the purchaser and for the seller.
• You will be able to identify pitfalls and perils.
• You will be able to discuss consumer protection and other statutes.