Lazy Tax: Paying money for something unnecessarily when a little effort may save you money.
Reviewing your agreements before they automatically renew could allow you to renegotiate the terms and save you money!
Many agreements contain clauses that allow the agreement term to automatically renew upon expiry, unless a party requests otherwise. For example, a 1 year agreement may automatically renew for a further 1 year term upon expiry, unless a party gives 3 months’ notice that it does not wish to renew.
While it can be convenient for both parties to have automatic renewals, there are some major risks with these clauses.
Review the Terms: The first risk is that it would be easy to allow an agreement to automatically renew without reviewing its terms each year. Reviewing an agreement allows you to determine whether the current terms are working for you – and if they aren’t, you may be able to negotiate a new agreement that is more favourable to you.
Don’t miss the deadline: It is easy to miss the deadline to provide notice for non-renewal at the end of the term. In the example above, you would need to leave more than 3 months’ prior to the end of the agreement term to review and terminate before renewal. It is essential to be organised when you have automatically renewing agreements to ensure plenty of time for review of the arrangements, business approval and giving notice of termination.
The risk is even higher if the agreement automatically renews for a long term; such as an agreement automatically renewing for an additional 3 years. It could be the case that you miss the deadline and are then stuck in an unhappy agreement for a very long time.
Be aware of automatic price increases: Additionally, many agreements contain clauses that allow for price increases, including automatic increases each year (usually in accordance with CPI indexes). By taking the time to actively review your contracts at the end of each term, you could be getting yourself a better price – don’t be a payer of the lazy tax!
We note that many of the terms discussed above could be considered “unfair” terms under the Australian Consumer Law, but if your contracts are business to business, you would only be protected under these provisions if a party to the agreement is considered a “small business”. As such, it is particularly essential that large businesses understand the risks and potentially negotiate out of such terms in their agreements.
If you need assistance in reviewing your agreements, whether or not they contain automatic renewal clauses, contact me at or call me at 1300 033 934 for a no-obligation quote.