Key Takeaways

  • An evergreen contract is one that automatically renews unless terminated by either party.
  • These contracts are common in leases, service agreements, subscriptions, and insurance plans.
  • Unlike auto-renewal contracts, evergreen contracts renew indefinitely.
  • Parties can terminate an evergreen contract by mutual agreement, default, or specific contractual terms.
  • Risks include lack of awareness about renewal dates and unintended long-term obligations.
  • Legal challenges or jurisdictional laws may restrict indefinite contract renewals.
  • Contract management systems and alerts help mitigate the risks associated with evergreen clauses.

An evergreen contract is an agreement between parties that automatically renews (or rolls over) after each maturity period or completion, unless one of the parties gives notice to terminate or defaults.

About Evergreen Contracts

There's usually a renewal period of 30 to 60 days before the agreement renews. Unless one party chooses to terminate the contract during this time, the agreement automatically renews. Renewal continues until cancellation.

Many organizations and attorneys try to avoid evergreen contracts, but evergreen clauses are still in a number of the following:

  • Service agreements
  • Leases
  • Purchasing contracts

These types of contracts can create sizable long-term risk.

One of the terms contractual parties sign off on is the length of time each side is bound by the agreement. A contract's duration varies widely. The parties are expected to fulfill their duties for as long as the agreement is in force.

Some contracts include an evergreen or automatic renewal clause. This means that if neither side terminates the agreement on the expiration date, the contract continues for another similar time period.

Evergreen clauses may take one of the following forms:

  • The contract provides that it expires on a specific date with automatic renewal for an indefinite period until one of the parties provides notice of termination.
  • Alternatively, it may provide that the agreement simply continues indefinitely until one of the parties cancels.

Evergreen clauses are found in many types of contracts, such as the following:

  • Employee stock option schemes
  • Health care plans
  • Dividend reinvestment plans
  • Insurance coverage policies
  • Revolving loans
  • Magazine subscriptions

Why Businesses Use Evergreen Contracts

Evergreen contracts offer convenience and continuity for both parties, especially in long-term business relationships. They eliminate the need to renegotiate or renew terms regularly, which can save administrative time and reduce disruptions to services or product deliveries. For instance, companies may use evergreen contracts for:

  • IT and software licensing agreements
  • Equipment rentals and maintenance services
  • Outsourced operational tasks like janitorial or security services
  • Business-to-business (B2B) subscription services

Because evergreen clauses allow uninterrupted operations, businesses often favor them when predictability and reliability are paramount.

Risks and Legal Challenges of Evergreen Contracts

Despite their efficiency, evergreen contracts can pose legal and financial risks:

  • Unintentional Renewals: A common pitfall is that parties forget about upcoming renewal dates, leading to unplanned obligations.
  • Lack of Negotiation Opportunities: Evergreen clauses may reduce the chance to revisit and renegotiate terms, especially if the market changes.
  • Legal Enforceability: Some jurisdictions limit how long a contract can renew automatically without reaffirmation. For example, in Illinois, courts may void indefinite renewals if they are deemed unreasonable over time​.
  • Imbalance in Power: Evergreen clauses can favor one party, particularly in consumer-facing agreements where termination procedures are unclear or cumbersome.

For businesses, it's crucial to regularly audit contracts and include clear opt-out language to mitigate these risks.

The Difference Between Auto Renewal and Evergreen Contracts

Given the definition, it should be noted that evergreen and auto-renewal contracts aren't the same.

An auto-renewal contract renews automatically only for a specific number of times. For instance, an auto-renewing five-year lease might include a one-year renewal provision. This provision gives the tenant the opportunity to continue living in the building for another year without renegotiating the lease terms. When the renewal period ends, the lease expires.

By contrast, evergreen contracts go on indefinitely until one of the parties provides notice.

Key Elements to Look for in Evergreen Clauses

When reviewing or drafting an evergreen contract, pay close attention to the following terms:

  • Renewal Interval: How long is each renewal period (e.g., annually, monthly)?
  • Notice Period: When and how must termination notice be given to prevent automatic renewal?
  • Termination Procedure: Are there requirements for termination, such as written notice or specific forms?
  • Modification Terms: Does the contract allow changes during the renewal period or only upon expiration?
  • Fee Adjustments: Will prices or service fees increase automatically upon renewal?

These provisions help determine whether a contract is truly evergreen or simply includes a short-term auto-renewal clause.

How to Terminate Evergreen Contracts

There are a few ways to terminate evergreen contracts:

  • By agreement
  • By default
  • By other terms

Because contracts are mutual, voluntary agreements, they can be terminated by mutual agreement. This includes evergreen contracts.

If both parties want to alter or terminate the agreement, they generally draft a separate termination agreement. Once signed, the original contract is terminated and not enforceable. In its place, the termination agreement — which is considered a separate contract — applies.

If a party defaults on the agreement, this usually voids it. For instance, if you run a business that contracts with a waste management company and the company stops picking up your trash, you can terminate the contract for cause.

Some contracts include clauses that outline how long after default they can be terminated. Other contracts are governed by the termination laws in their jurisdiction. For example, home loan contracts fall under laws that determine when foreclosure sales can occur.

Another way to terminate an evergreen contract depends on the terms outlined in the agreement. If one party won't agree to void the contract and neither side has defaulted, it's possible to negotiate a new, slightly amended agreement.

If it's not possible to renegotiate, the only other option might be to hire an attorney and try to figure out if any part of the contract gives you the right to cancel it. Sometimes, contracts have provisions that are illegal and unenforceable. An attorney can help you figure out if there's a way you can terminate an evergreen contract.

In some cases, a party can notify the other party in writing of its intention to terminate. There may be a cancellation fee. When a contract includes specific termination provisions, it usually trumps local laws. You may be able to get out of a contract by taking the case to court since many courts don't look favorably on automatically renewing contracts.

You don't want to end up being stuck in a situation that you eventually need to get out of, so make sure you don't agree to auto-renewal terms unless that's what you want. Consult with a legal professional to help you understand all of a contract's legalese.

Best Practices for Managing Evergreen Contracts

To minimize risk and maintain control over your obligations, follow these best practices:

  1. Use Contract Management Software: Tools that track renewal dates and send automated alerts can prevent missed cancellation windows.
  2. Review Agreements Annually: Set internal reminders to revisit contracts at least 30–60 days before the renewal date.
  3. Negotiate Clear Opt-Out Clauses: Ensure the contract includes transparent language around termination timelines and procedures.
  4. Centralize Documentation: Keep contracts stored in a centralized, accessible location for legal and administrative teams.
  5. Assign Ownership: Designate someone responsible for each evergreen contract, so no renewal goes unnoticed.

Having a structured approach reduces the chance of surprise renewals and can support your legal position if disputes arise.

Frequently Asked Questions

  • What is an evergreen contract?
    An evergreen contract is a type of agreement that automatically renews after each term unless one party provides timely notice of termination.
  • How is an evergreen contract different from an auto-renewal contract?
    Auto-renewal contracts usually renew for a fixed number of times or periods, while evergreen contracts continue indefinitely until canceled.
  • Are evergreen contracts legally enforceable?
    In most jurisdictions, yes — but they must contain clear terms. Some states limit the enforceability of indefinite renewals without adequate termination rights.
  • Can I cancel an evergreen contract at any time?
    It depends on the agreement’s terms. Some allow cancellation at any time with notice; others restrict termination to specific renewal windows.
  • What are common examples of evergreen contracts?
    Examples include magazine subscriptions, B2B service contracts, SaaS licenses, insurance policies, and some loan agreements.

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