Evergreen clause

Evergreen clause
See also
Construction management contract Reliance letter Notice of cancellation Advance payment bond Periodic tenancy Commencement date Deed of surrender Contractual relationship Retention money

Evergreen clause allows automatically extend the contract for a specified period of time, if it is not previously renegotiated or canceled at the appropriate time. Contracts which include evergreen clause can create sizable long-term risk.

General terms

The general conditions shall include contract's start and expiry dates, evergreen clauses and termination clauses. There are many reasons to properly understand the contract, termination clause and the dates of its commencement and completion. If in the contract that has been concluded, there is no termination clause, it will not be possible to change suppliers until it is resolved.

However, the evergreen clauses may require that within a specified period of time the notice of termination will be delivered before the contract expires. If the written notification is not delivered not later than sixty days before the contract expires, the evergreen clause automatically renews the agreement for one year.

Evergreen Clauses can exist in consumer agreements but also in commercial contracts, including:

• Residential Lease Agreements
• Advertising Contracts
• Gym Memberships,

and many others agreements.

Automatic renewal

Evergreen clauses require a letter of termination before the contract ends, they are often proposed to entities with whom a long-term contract is concluded. It is very likely that the party of the contract will set a new counter-contractor between the agreement implementation and the last few months of the contract. Not sending a letter about the deadline to the contractor will result in an automatic extension of the contract, even in the absence of staff changes.

The contracting entity seldom receives benefits from the evergreen clause, so when it is detected by specialists, they should question the clause during the negotiations. An evergreen clause extending the contract for additional years is very common.

Effective annulment of the clause is possible by sending a notice immediately after the contract has been executed. Such important letters should be sent to the contractor by registered post with ordering confirmation of receipt, which is proof that the recipient has received the letter. It is very important to keep all the most important documents, because the complete contract files (when the dispute develops) are decisive for the contracting entity.

References

• Bholat M. (2012), Practice Management, An Issue of Primary Care Clinics in Office Practice, Elsevier Health Sciences, p. 675
• Kowalski J. T. (2012), The School Superintendent: Theory, Practice, and Cases, SAGE Publications, p. 382
• Payne J. and others (2011), Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing, John Wiley & Sons, p. 38
• Sims Curry W. (2008), Contracting for Services in State and Local Government Agencies, CRC Press, p. 154.

Author: Monika Sojka