We signed a 3-year enterprise SaaS contract for $60K/year. Apparently there's an auto-renewal clause buried in Section 14.3 that auto-renews for another 3 years unless we give 90-day written notice before the renewal date. Nobody on our team knew about this.
The renewal date passed 2 weeks ago. The vendor is now saying we owe $180K for the next 3 years and won't let us out. Is this even legal?
Auto-renewal clauses are generally enforceable in B2B contracts, but several states have enacted laws requiring specific disclosures. What state are you in? Key states with auto-renewal laws:
Even without a specific statute, there's a common law argument that a renewal clause buried in fine print without adequate notice is unconscionable, especially if the vendor never reminded you of the cancellation deadline.
We had this exact problem with a marketing platform. Our attorney sent a demand letter arguing the auto-renewal was unconscionable because: (1) no reminder was sent, (2) the clause was buried in a 40-page contract, (3) the renewal term was disproportionate. They settled for a 1-year renewal at a 20% discount. Push back hard.
We're in California. The vendor never sent any renewal reminder. The clause is on page 23 of a 28-page contract.
California's Auto-Renewal law (ARL) requires "clear and conspicuous" disclosure of the renewal terms. If the clause is buried on page 23 and they never sent a renewal reminder, you have a strong argument that it doesn't meet the "clear and conspicuous" standard. Send a written cancellation notice immediately and cite the California ARL. Many vendors will back down rather than litigate this.
Pro tip for everyone: calendar the auto-renewal dates for every vendor contract the day you sign. Set a reminder 120 days before the renewal date. It's boring admin work but saves you from exactly this situation.
In our procurement department we require all auto-renewal clauses to be flagged during contract review, and we negotiate them down to 30-day notice / 1-year max renewal. Any vendor that insists on 90-day notice with multi-year auto-renewal is a red flag.
Update: Sent a formal cancellation notice citing the CA Auto-Renewal Law. Vendor initially held firm, but after our attorney sent a demand letter threatening an unfair business practices claim, they agreed to let us out with a 6-month wind-down period at the existing rate ($30K total instead of $180K). Still annoying but way better than being locked in for 3 years.
This comes up constantly. For template language to push back on auto-renewals, check the subscription trap demand letter templates.
Want to participate in this discussion?
Email owner@terms.law to request access