For what duration are you allowed to tacitly renew a contract?

For business contracts, there is no fixed statutory maximum term for which tacit renewal is permitted. A tacit renewal clause is valid in principle, but a court may annul it if the renewal term unreasonably burdensome . Whether a term is reasonable depends on the entire agreement, what is customary in the industry, and the consequences for the other party. Unlike with consumers, there is no hard limit; the assessment is always a case-by-case matter.

What is a tacit renewal clause?

An tacit renewal clause is a clause, often hidden in the general terms and conditions, that stipulates that an agreement automatically continues if the other party does not terminate it on time. If the other party does not terminate within the agreed notice period, the contract is extended for a new period. Examples include maintenance contracts, equipment leases, software subscriptions, and ongoing services.

The clause itself is permissible in principle. It only becomes problematic when the combination of a long extension period, a long notice period, and restrictive conditions results in the counterparty being bound for a disproportionately long period.

Consumer or business: an important difference

When it comes to the question of what is permitted, it makes a big difference who you contract with.

• Consumers: Strict rules apply to agreements with consumers (known in practice as the Van Dam Act). In short, a consumer contract may be terminated at any time after the first tacit renewal, with a notice period of no more than one month. Different rules apply to newspapers and magazines.
• Businesses (B2B): In principle, these consumer rules do not apply between business parties. Companies are generally bound by the supplier's general terms and conditions. Nevertheless, an unreasonable extension clause is challengeable in this context as well, partly through the so-called reflex effect of consumer law and the open standard that a clause may not be unreasonably burdensome.

For small business owners, such as sole proprietorships in a position comparable to a consumer, protection may extend further in certain cases. Whether this is the case depends on the circumstances of the case.

When is an extension period unreasonably burdensome?

There is no ready-made timeframe we can give you. What is reasonable or unreasonable depends on the specific situation, taking all factors into account. Two perspectives carry significant weight in this regard.

The agreement as a whole

The judge assesses the agreement, including the general terms and conditions, in its entirety. A tacit renewal weighs more heavily against the drafter if it coincides with:

• a (substantial) price increase upon renewal;
• a long notice period or restrictive termination conditions;
• a clause that has not been brought to attention sufficiently clearly.

If the extension actually leads to more favorable price agreements for the other party, the reverse is often true, and a clause will be less likely to be considered unreasonable.

What is common practice in the sector?

It is not only the contractual situation that counts. The judge also considers what is customary in the relevant industry, because this colors reasonable expectations. If a 12-month extension is common in a sector, a 48-month extension is considerably more sensitive. The reverse can also apply here: in an industry with long investment cycles, a longer term may actually be normal.

Extension period versus notice period

Do not confuse the renewal period with the notice period. The renewal period is the period during which the contract continues each time; the notice period is how far in advance you must give notice to prevent that renewal. Both can be burdensome individually, but it is precisely the combination—for example, a renewal for several years combined with a twelve-month notice period—that increases the likelihood of a judge intervening.

Practical example: tacit extension by 6 years unreasonable

A striking example is a ruling by the 's-Hertogenbosch Court of Appeal regarding the lease of a photocopier and printer. According to the lessor, the contract had been extended by six years because the lessee had not given notice twelve months before the end of the term.

Several circumstances worked to the landlord's disadvantage:

• Another clause allowed prices to rise by 10% annually, whereas the printer market is actually characterized by falling prices;
• A 12-month extension is common in this sector;
• the general terms and conditions were displayed in very small print and the clause in question was not sufficiently brought to attention;
• Moreover, the rented device was fully depreciated.

The court ruled that a six-year extension was unreasonably burdensome under these circumstances and annulled the clause. Importantly: this does not mean that a six-year term is always unreasonable. The outcome depended on the interplay of factors. It is precisely this that makes drafting and assessing such clauses specialist work.

What are the consequences if the clause is unreasonably burdensome?

If a renewal clause is deemed unreasonably burdensome, it is voidable and can be struck out. What remains are the other valid provisions, which determine when and under what conditions the agreement ends. In that case, there is no longer any question of a long-term tacit renewal.

If the agreement had effectively already ended, but the goods or services were still being used, the court may impose a market-rate compensation for use for that period. So you are not automatically left empty-handed, but the outcome is uncertain and can be costly.

Practical steps for entrepreneurs

If you want to avoid hassle regarding automatic renewal, pay attention to the following.

Do you draw up your own terms and conditions?

• Keep extension periods in line with what is customary in your sector.
• Use a reasonable, clear notice period and termination method.
• Clearly draw attention to the renewal clause; do not hide it in the fine print.
• Be cautious about stacking burdensome elements, such as automatic price increases on top of a long extension.

Have you signed a contract?

• Put the notice period for current contracts in your calendar well before the deadline.
• Preferably cancel in writing and with verifiable proof (for example, by registered letter or email with confirmation).
• Keep the confirmation of your cancellation so that you can prove later that and when you cancelled.
• Are you unsure whether a long-term extension will hold up? Have the clause legally reviewed before you pay or proceed.

A well-drafted business contract prevents many of these discussions beforehand. Do you still run into difficulties with a supplier insisting on a long extension? Our legal assistance for entrepreneurs can take over the correspondence and negotiations for you.

Frequently asked questions about automatic renewal

What is the maximum duration for the tacit renewal of a business contract?

There is no fixed statutory maximum term for business contracts. A renewal clause is valid in principle, but may be annulled if the term is unreasonably burdensome in the given circumstances. The assessment is always a case-by-case matter.

Does the Van Dam Act also apply to companies?

The protection provided by the Van Dam Act is primarily intended for consumers. Businesses are generally bound by the supplier's general terms and conditions. For very small entrepreneurs, such as some sole proprietorships, comparable protection may apply under certain circumstances. Whether this is the case depends on the specific situation.

What is the difference between the extension period and the notice period?

The renewal period is the period during which the contract automatically continues each time. The notice period is the time you must give notice in advance to prevent that renewal. A long notice period makes it more difficult to get out of a renewal in time and, combined with a long renewal period, is more likely to be considered unreasonably burdensome.

My contract has been tacitly extended by several years. Can I get out of this?

Possibly. If the extension period, combined with other onerous conditions, proves unreasonable, the clause may be challengeable. Whether that is possible in your situation depends on the exact clauses and circumstances. Have the clause legally reviewed.

Do different rules apply to newspapers and magazines?

Yes. For newspaper and magazine subscriptions, different rules apply to consumers regarding automatic renewal and cancellation. Are you unsure which rules apply to your situation? Then have the agreement reviewed by a lawyer.

What happens if a renewal clause is annulled?

In that case, the clause lapses, and the other valid agreements determine when the contract ends. A market-based usage fee may be due for the actual use of delivered goods or services.

As a supplier, how do I prevent my renewal clause from failing?

Keep terms in line with market rates, make the clause clearly known, and avoid piling up onerous elements. A legal expert can review your general terms and conditions against these criteria

Have your terms and contracts reviewed

Even a clause that appears valid at first glance can still fail based on sound legal reasoning and the right arguments. This makes drafting valid general terms and conditions and contracts specialist work. Whether you are drafting terms yourself or are bound by those of another, a legal review often prevents problems and unnecessary costs.

Do you want to know if your extension clause holds up, or are you stuck with a contract that continues unreasonably? The contract law at MKB Juristen will review the situation with you. Schedule a no-obligation intake and we will get to work for you immediately.