Evergreen Clauses: Both sides of the coin

An evergreen clause will usually sound something like: "This agreement shall automatically renew for another one (1) year term, unless either party provides notice to the other of its intent to terminate this agreement not less than thirty (30) days before the end of the then current term."

Evergreen clauses are beneficial when providing routine service because consumers are locked in on a subscription-style basis. In leasing agreements, they can assist in keeping the price stable. As a lease is a contract of significant value, the lessee is likely to remember when the contract renews and when notice of termination is required.

Another benefit of an evergreen clause is its low-maintenance nature; both parties can enjoy an ongoing contract without any added exertion on their behalf.

However, evergreen clauses do tend to favour the provider in a contract. They are not perceived as being beneficial to consumers or small businesses as they can be difficult to terminate, locking unwitting or disorganised parties in for extended periods of time. They are specifically dangerous for contracts of low value, as the consumer is unlikely to remember when the contract renews and can consequently be locked in for another period. The same also applied to long-term renewal periods, such as 10 years. Evergreen clauses promote complacency in the relationship as both parties may miss the opportunity to renegotiate the contract and potentially a better deal.

Unlike some international jurisdictions, there is no current legislation or prohibition in common law in Australia against evergreen clauses. Hence they are frequently included in commercial agreements in Australia. However, there is some protection for consumers and small businesses. From a consumer’s perspective, evergreen clauses can be deemed unfair by virtue of Australian Consumer Law. Small businesses can now seek protection under the Treasury Legislation Amendment (Small Business And Unfair Contract Terms) Act 2015 (Cth). Under this recent amendment, a small business can seek to have an unfair term in a contract declared void by a court. A small business is one with fewer than 20 employees at the time of entering the contract and for the law to apply the contract must not exceed $300,000 (or $1 million for contracts longer than 12 months).

If you are a provider, note that whether an evergreen clause will be deemed unfair or not will depend on individual circumstances. The clauses aren’t illegitimate as a whole, but care should be taken if including them in a contract. If you are consumer and have found yourself trapped by this tricky little inclusion in a contract don’t hesitate to investigate your options.