How to Terminate Evergreen Contracts

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If your contract is evergreen, it contains language that automatically renews the contract when the initial term is up, saving both parties the chore of renegotiating. However, the simplicity of the evergreen clause is also its downfall. Because evergreen contracts are designed to self-perpetuate, it can be incredibly hard to get out of them.

Evergreen Contracts

  • Generally speaking, it is not legally possible to create an open-ended, perpetual contract. Evergreen contracts get around this restriction by specifying an initial contract term -- how long the contract remains in force -- and then including words which automatically renew the term for a further full term unless either party does something to stop the renewal. If neither party does anything, the contract simply continues.

Termination by Contract

  • All evergreen contracts have a mechanism for ending the contract -- if they do not, they are perpetual contracts and legally void. While termination provisions may vary markedly from one contract to another, any party who follows the termination clause to the letter brings the contract to an end. In their simplest form, evergreen termination provisions allow one party to end the contract simply by giving written notice to the other. Other clauses contain a number of cumbersome procedures the canceling party must follow in order to terminate the agreement. This includes penalty fees and strict time limits for serving notice of termination, typically within a short window of opportunity, for example 30 days before or within the end of the current term.

Termination by Mutual Agreement

  • Regardless of its renewal provisions, an evergreen contract is a contract like any other and thus may be terminated by agreement. This requires the cooperation of both parties: One party cannot unilaterally compel the other to end the contract. To terminate a contract by mutual agreement, both parties must sign a short termination agreement that brings the principal contract to an end. They are then free to walk away from the deal or enter into a new contract without the evergreen provisions.

Termination by Breach

  • Breach of contract is a legal term describing the situation where one party does not fulfill his obligations under the contract. There are various degrees of breach, ranging from the significant, known as "material breach," to acts which may not themselves violate the contract but show an intention that one party will not perform his contractual duties. When one party beaches the contract, the other has various legal remedies. Commonly, he will sue for his monetary loss. However, where there is material breach, the aggrieved party may be able to terminate, or rescind the contract. Whether an act of default is sufficient to warrant rescission is usually a matter for the court.

References

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