Are automatic renewal service contracts legal?

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Are automatic renewal service contracts legal?

We are a small 27 home HOA with a volunteer board of directors. Our 5 year trash

recycling contract expires at the end of this month. About 4 months ago, we solicited bids from 4 contractors, including our current contractor. Since we are concerned with street wear and tear caused by large vehicles, we inquired about reducing the size and frequency of trucks. Last week we signed a 5 year contract with a small family-owned business that will use 10,000 pound instead of 40,000 pound trucks and can reduce weekly pickups from 4 to 3. About 5 days ago, we notified our current contractor that we will not sign a new contract with them again. Then, days ago, our current contractor informed us that because we did not give them 2 months notification of cancellation, their contract will roll over into the 5 year auto-renewal phase next month. However, we can exercise termination of contract with a payout of 6 months, $2800 liquidated damages. Sure enough when we read the contract negotiated by a former board president more closely we found this information. Of course, our current contractor never warned us about this contractual obligation during the past 3 month period of our

communication via phone and email. How should we deal with this type of contractual situation?

Asked on December 18, 2016 under Business Law, Virginia

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

1) Yes, automatic renewal provisions are perfectly legal and not uncommon.
2) The other party to a contract has no legal obligation to warn you that are approaching when you must provide notice of nonrewal to avoid automatic renewal. It is your responsibility to be aware of this.
Based on what you write, you appear to be locked in and would need to exercise the buy-out provision.


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