Checklist: Drafting a business-to-business (B2B) contract with automatic renewals (USA)

Introduction

This checklist will assist in-house counsel and private practitioners when drafting a business-to-business (B2B) contract that provides automatic renewals; meaning the contract is automatically renewed on an annual basis without amendment. This checklist sets out the key issues and points to consider when drafting such an agreement. This checklist addresses the following steps:

1. Understand the parties and purpose of the contract
2. Consider whether to include automatic renewal terms
3. Include specific provisions for automatic renewal

The checklist is presented as a list of requirements that you can check off as they are addressed. There are explanatory notes to assist with drafting and which correspond with each step in the checklist.

This checklist can be used in conjunction with the following How-to guide: Reviewing an online sales or marketing agreement.

Step 1 – Understand the parties and purpose of the contract

Step 2 – Consider whether to include automatic renewal terms

Step 3 – Include specific provisions for automatic renewal

Explanatory notes

Overview

Automatic renewals are contract clauses that provide for an automatic renewal of a contract at some predetermined date, generally annually. They provide suppliers with business continuity and certainty as to anticipated cashflow. These types of clauses, also referred to as evergreen clauses, are common in long-term service, distribution, and supply contracts. They are also common in leases, where automatic renewal provisions mean that the lease may renew for another year if the tenant does not serve notice to vacate the property within the terms of the lease (eg, 60 days before the renewal date).

Most state laws provide for the protection of the general consumer rather than provide protection in a B2B context, but two examples of states with B2B provisions are discussed below (see Section 1.3.3). Currently, there are no overriding federal laws governing automatic renewal clauses in the commercial world, and businesses who are parties to contracts containing automatic renewal clauses will need to consider applicable state legislation and case law to determine if they are enforceable as drafted. While the Federal Trade Commission (FTC) finalized an amended Negative Option Rule in October 2024 that would have applied to both B2B and B2C transactions, the rule was vacated by the US Court of Appeals for the Eighth Circuit on 8 July 2025 before its scheduled enforcement date. See Custom Communications, Inc v FTC, No 24-3137 (8th Cir July 8, 2025). As a result, there is presently no federal standard in force governing automatic renewal clauses, and compliance obligations continue to be driven primarily by state-level legislation and case law. Businesses should monitor for further FTC action, appeals, or new rulemaking efforts that could reintroduce federal requirements.

In most cases, particularly in the context of commercial B2B contracts, courts strictly construe these provisions where the contract language is clear and unambiguous. If the contract language is not followed and notice is not given within the required time to terminate, the contract extends for another term automatically.

As a result, the parties may find themselves locked into an arrangement. In addition, if the notice is served incorrectly, this may result in wrongful termination of the contract and a potential claim for damages because of breach of contract. It is the responsibility of each party to the contract to ensure that they are aware of the provisions they agree to, and the conditions that apply should they wish to terminate the contract.

While case law may have historically enforced these clauses, some state legislatures have passed laws (see Section 1.3.3 below) that may make it difficult for parties to rely on automatic renewal clauses by imposing ‘clear and conspicuous’, timely notice and disclosure requirements. When businesses fail to comply with these specific state statutory requirements, the automatic renewal clause may be held to be unenforceable such that the contract is terminated rather than renewed. Companies incorporating automatic renewal provisions in their business contracts must ensure compliance with these state-level requirements and continue to monitor state regulations.

Step 1 – Understand the parties and purpose of the contract

1.1 Who are the parties to the contract?

B2B contracts are legal agreements between at least two parties, which are entered into when engaging in some type of business transaction.

1.1.1 Types of business entities entering into B2B contracts

Virtually any type of legal business entity may choose to enter into a B2B contract, including:

• a sole proprietorship;
• a partnership; or
• a limited liability company or corporation.

Business operations that might enter into a B2B contract include manufacturers, professional service providers, and retailers, among others.

1.2 What is the purpose of the contract?

The primary purpose of almost any contract – including B2B – is to specify the particulars of any given transaction as clearly as possible so that the contract protects the interests of each party. The best agreements are those that anticipate the various conceivable outcomes of the contract, so that potential remedies for breach or non-performance of a contract alleviate the need for litigation. Once the terms of a contract have been negotiated, it is often advantageous for one or both parties to simply renew it rather than renegotiate the terms all over again. See Section 2.2 below.

Even with the most robust agreements, there will be circumstances where one party to the contract may allege that they were harmed in some way by breach or non-performance and the parties cannot mutually come to a resolution – resulting in litigation. Consequently, it will be for the court to determine whether the contract has been breached and what the potential remedies should be for the breach. There may also be situations where the breach is negated due to various circumstances, such as where non-performance was justified. For example, the breach may have been due to impossibility to perform, as was frequently encountered during the pandemic.

1.3 What choice of law and jurisdiction clause will apply?

1.3.1 In what jurisdiction will the action be filed?

In the event a breach of the contract is litigated, an important determination that will need to be made is the choice of jurisdiction that will apply. A jurisdiction clause stipulates and nominates which jurisdiction’s courts will hear and determine any disputes. A well-drafted contract will include a jurisdiction (or ‘choice of forum’) clause that applies should a dispute arise requiring litigation. If no jurisdiction clause is included in the contract, the moving party may choose the jurisdiction where they file their claim, provided it satisfies the jurisdictional requirements of the forum selected. In turn, the respondent may then bring an action to have the plaintiff's action stayed if the selected forum is not convenient.

1.3.2 Which jurisdiction’s laws will apply?

In addition to the location of the lawsuit, the court will need to determine which jurisdiction’s laws are going to be applied to decide the dispute. For example, a suit for breach of contract between a California company and a Florida company might be brought in either state (based on the choice of forum clause), but the location of the court does not necessarily dictate which law will apply. The court where the case has been filed will have to determine whether to apply its own law or the law of another state, a determination which may be specified in the contract itself. As such, care should be taken to ensure the governing law clause specifies the substantive law of the appropriate state that is to apply, and a well-drafted contract will contain a choice of law provision.

In the event the contract is silent regarding the choice of law, the factors that a court may consider when determining which state law will apply include:

• where the contract was formed;
• where the relationship of the parties is or was based;
• where the contract was negotiated;
• the location of parties to the contract;
• the location of the performance of the contract; and
• state of incorporation of the party bringing the action.

Courts will generally enforce the choice of law provision unless, after review of the considerations above, it determines that the application of the chosen state’s law would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state. See eg, Ascension Insurance Holdings LLC v Underwood, C A No 9897 VCG (Del Ch filed Jan 28, 2015). In Ascension, the court declined to enforce a non-compete covenant in which the parties expressly agreed to apply a Delaware choice of law and venue to disputes. In declining to enforce, the court noted that while Delaware law permits and enforces reasonable non-compete clauses, the statutory law and public policy of California, the state where the contract was executed, did not permit the non-compete in question.

1.3.3 State laws limiting automatic renewal clauses

As stated in the ‘Overview’ section of this checklist, some states have enacted laws that address automatic renewal provisions in contracts. Legal counsel should ensure that clients under regulated contracts are familiar with their obligations. Most state regulation of automatic renewals is focused on the protection of consumers and may not address B2B relationships. Below are two examples of state provisions that apply to B2B contracts.

New York

General Obligations Law (GOL) section 5-903 applies to contracts that deal with service, maintenance or repair to or for real or personal property, and requires providers to serve notice to their customers that the contract will automatically renew. Specifically, the legislation provides that:

2. ’No provision of a contract for service, maintenance or repair to or for any real or personal property which states that the term of the contract shall be deemed renewed for a specified additional period unless the person receiving the service, maintenance or repair gives notice to the person furnishing such contract service, maintenance or repair of his intention to terminate the contract at the expiration of such term, shall be enforceable against the person receiving the service, maintenance or repair, unless the person furnishing the service, maintenance or repair, at least fifteen days and not more than thirty days previous to the time specified for serving such notice upon him, shall give to the person receiving the service, maintenance or repair written notice, served personally or by certified mail, calling the attention of that person to the existence of such provision in the contract.’ (GOL section 5-903(2)).

The statute defines ‘person’ as ‘an individual, firm, company, partnership or corporation’ and so, unlike many other state statutes, is not limited in application to consumer protection.

Virginia

Under Virginia’s House Bill (HB) 744 which was passed in April 2024, businesses must provide additional notifications prior to a contract extending due to an automatic renewal clause. Among other requirements, the law states that there must be clear and conspicuous presentation of the clause within the contract and notices of the consumer’s ability to cancel the automatic renewal. Under Va. Code section 59.1-207.45, the following terms are defined:

‘Consumer’ means (i) any individual who seeks or acquires, by purchase or lease, any goods, services, money, or credit for personal, family, or household purposes or (ii) any small business that seeks or acquires, by purchase or lease, any goods, services, money, or credit for business purposes.

‘Small business’ means a business that is at least 51 percent independently owned and controlled by one or more individuals, or in the case of a cooperative association organized pursuant to Chapter 3 (sections 13.1-301 et seq.) of Title 13.1 as a nonstock corporation, is at least 51 percent independently controlled by one or more members, who are US citizens or legal resident aliens and, together with 5 of 5 affiliates, has 250 or fewer employees or annual gross receipts of $10 million or less averaged over the previous three years. One or more of the individual owners or members shall control both the management and daily business operations of the small business.

Wisconsin

Wisconsin has also passed automatic renewal legislation (WI Stat section 134.49) that affects the enforceability of such clauses in certain B2B contracts. The statute creates and imposes specific disclosure and notice of renewal requirements under contracts. In particular, the Wisconsin statute requires that an automatic renewal clause be disclosed at the time the contract is entered into, and that a formal advance reminder notice is notified to the customer whose contract will otherwise be renewed for an additional term of more than one year. Under WI Stat section 134.49(1)(a), a ‘business contract’ is defined as:

‘Business contract’ means a contract that is entered into for the lease of business equipment, if any of the business equipment is used primarily in this state, or for providing business services, but only if the contract is for the direct benefit of the end user of the business equipment or business services.’

Utah

 Starting January 1, 2025, Utah businesses using automatic renewals or trial periods in consumer contracts need to comply with the new requirements of HB 174. This law aims to protect consumers from unexpected charges and unclear terms. Even though HB 174 does not apply to B2B contracts, focusing exclusively on protecting individual consumers, it serves as a good example for nuances in laws applicable to these types of contracts.

Contracts that automatically renew for a period longer than 45 days must provide clear notice to consumers. This notice must include the renewal date, the total renewal cost, and the options for cancellation of the contract. The business must provide this notice to the individual at least 30 but not more than 60 days before the day on which the automatic renewal provision takes effect.

Businesses offering free trials must inform consumers of the trial's expiration date, the price to be charged for the product or service, or any further purchase obligations, after the expiration date, and options for cancellation of the contract. A business that uses these trial period offers must provide the consumer with this notice, at least three days before the day on which the period of time under the trial period offer expires.

All notices must be easily noticeable. This means they must be in print, in larger type than the surrounding text, in contrasting type, font, or color to the surrounding text of the same size, or in a manner set off from the surrounding text of the same size by symbols or other marks that clearly call attention to the language. Alternatively, this notice could be communicated to the consumer through audio, in a volume and cadence sufficient to be readily audible and understandable.

Note that there are numerous exceptions to the statute that must be reviewed in order to ascertain its application to a particular contract.

1.3.4 Federal Trade Commission proposed rules impacting business-to-business transactions

Several proposed rules by the FTC may potentially impact B2B transactions. First, on April 28, 2022, the FTC announced a Notice of Proposed Rulemaking (NPRM) seeking public comment on a number of matters, including whether the Telemarketing Sales Rule (TSR) should be amended to prohibit material misrepresentations and false or misleading statements in B2B telemarketing transactions, and to require telemarketers and sellers to maintain extensive additional records of their telemarketing transactions. Specifically, on page 22 of the NPRM it states that:

The Commission is issuing an ANPR that seeks comments on the B2B exemption generally, including comments addressing whether the Commission should remove the exemption entirely. The Commission recognizes that requiring all B2B calls to comply with all TSR requirements would be a significant change that will require careful consideration. While that process is underway, the Commission proposes in this NPRM to require all B2B telemarketing calls to comply with the TSR’s existing prohibitions on misrepresentations articulated in Sections 310.3(a)(2) and 310.3(a)(4).

Subsequently, on March 23, 2023, the FTC announced a NPRM seeking public comment on whether its Rule Concerning the Use of Prenotification Negative Option Plans should be changed. ‘Negative option’ refers to a term or condition under which a seller may interpret a consumer’s silence, failure to take an affirmative action to reject a product or service, or failure to cancel an agreement as acceptance or continued acceptance of the offer. While the proposed rule includes many changes, of particular importance to B2B transactions would be the addition of 16 CFR Part 425.2(e),which would define the seller as:

(e) Negative option seller means the person selling, offering, promoting, charging for, or otherwise marketing goods or services with a negative option feature.

On October 16, 2024, the FTC finalized amendments to its Negative Option Rule, now called the ‘Rule Concerning Recurring Subscriptions and Other Negative Option Programs’ (the Amended Rule), significantly broadening its reach.

The rule would have established a federal baseline for automatic renewals, ‘click-to-cancel’ mechanisms, mandatory pre-billing disclosures, express informed consent, and three-year recordkeeping, with enforcement scheduled to begin on July 14, 2025 after an initial delay.

The updated Negative Option Rule sparked significant controversy, particularly regarding its application to B2B transactions. While the FTC's rules establish a federal minimum standard, the rule's expansion into the B2B arena surpasses most state laws, which typically focus on consumer protection. This has led to challenges asserting that the FTC has exceeded its enforcement authority. Notably, several industry and trade groups have  filed petitions for review: the Electronic Security Association, the Interactive Advertising Bureau, and the NCTA – The Internet & Television Association filed in the Fifth Circuit; the Michigan Press Association and the National Federation of Independent Businesses filed in the Sixth Circuit; and the US Chamber of Commerce and the Georgia Chamber of Commerce filed in the Eleventh Circuit, all on October 22, 2024. These challenges have since been consolidated and transferred to the Eighth Circuit. However, on July 8, 2025, the US Court of Appeals for the Eighth Circuit vacated the amended rule in its entirety following consolidated industry challenges, holding that the FTC had not complied with required procedural steps in its rulemaking. As a result, the amended Negative Option Rule is not currently in effect and none of its provisions are enforceable at the federal level.

Businesses should continue to comply with existing state-level automatic renewal laws (for example, in New York, Virginia, and Wisconsin) and other applicable federal requirements, such as the Restore Online Shoppers’ Confidence Act (ROSCA) and the Telemarketing Sales Rule, while monitoring for further FTC action, appeals, or a new rulemaking process.

Step 2 – Consider whether to include automatic renewal terms

2.1 What is the duration of the underlying contract?

The duration of the underlying contract will have a major impact on the decision on whether to include an automatic renewal or not. A contract with an initial long-term commitment would, generally, be less likely to have an automatic renewal. A renewal provision on a real estate lease with a 10-year initial term would be less desirable to the parties versus a one-year initial term. Contracts that offer short-term ‘trial periods’ (eg, 30, 60 or 90 days) commonly include automatic renewal periods that extend the contract for a longer term (eg, one year).

2.2 What is the purpose of an automatic renewal clause?

One primary reason that both parties to a contract would seek to include an automatic renewal clause is to avoid having to repeatedly renegotiate all the terms of an agreement at the conclusion of the term of the agreement (eg, annually). This alleviates the time and other resources that would need to be repeatedly expended for an agreement that is seemingly working to the satisfaction of each party.

Other factors to consider as to whether to include a renewal clause might include the following reasons:

• provides continuity to operations – a seller or provider of services, for example, would have greater predictability of their revenue stream when they incorporate automatic renewal clauses. This would be true for contracts like gym or club memberships;
• avoids the cost of changing providers or location – consider a business that enters into a one-year lease for their business operations. By utilizing a renewal clause, the business avoids potentially having to relocate at the end of the term; and
• alleviates the risk of price hikes – having the terms of a contract automatically renew may prevent an increase in price if parties were to renegotiate a new contract at the end of each contract term.

2.3 What is the previous relationship of the parties?

The prior relationship of the parties will have a major impact on the decision to utilize an automatic renewal provision. Commonly referred to as ‘course of dealing’, if the parties have historically incorporated renewal provisions into their contracts, then it would be likely that any new contracts would also include such clauses.

Similarly, where a particular industry typically utilizes automatic renewal provisions, this would influence the decision on any new agreements. Contracts that deal with a seller delivering products or services to consumers on a monthly basis are likely to utilize renewal contracts. Examples might include cosmetic products or internet streaming services.

2.4 Are there factors against including an automatic renewal clause?

The volatility in a particular market or industry will often influence the decision to incorporate an automatic renewal clause into a contract. Areas of volatility to consider are likely to include:

• changing conditions of performance (eg, availability of goods or supplies);
• changing market conditions; and
• uncertain or unreliable profit or loss projections.

Generally, the less predictability that exists in these areas, the less likely a renewal clause would be used.

2.5 Has inclusion of an automatic renewal clause been discussed with the other party?

An important consideration is whether an automatic renewal clause has been discussed by the parties. If not, the clause could subsequently be invalidated, especially in jurisdictions (eg, Wisconsin, see 1.3.3 above) that have disclosure requirements. The contract is also required to include the cancellation procedure.

Step 3 – Include specific provisions for automatic renewal

3.1 What is the duration of the renewal?

The parties to the contract must agree to the term of the renewal. The original negotiations and discussions around including the provision would guide the likely duration of the renewal. Generally, the original term of the contract would likely be the renewal duration so that a one-year contract would have a one-year renewal. However, other factors need to be considered as well. For example, a ‘30-day trial period’ would likely renew for a longer period (eg, one year).

3.2 Are any terms or conditions of the contract not renewed automatically?

Automatic renewal clauses typically would renew the contract in its entirety. However, there may be circumstances where one or both parties would seek to exclude a specific term or condition, such as where a price adjustment might be appropriate. Also, the laws of a particular jurisdiction might preclude some terms or conditions from carrying over. This will need to be set out expressly when drafting the contract terms.

3.3 Does automatic renewal apply to both parties?

When drafting the contract, consider whether the automatic renewal applies to one or both parties. This would be based on the facts and circumstances of the original agreement. For example, in a long-term lease, the contract may provide that the lessee gives timely notice of an intent to renew that may subsequently be revoked by the lessor.

3.4 How will the other party opt out of renewal?

The contract should be specific as to how either party would opt out of an automatic renewal. In some instances, the contract would detail how the party would opt out, including how, when, and to whom the notice to opt out must be delivered.

Consider, too, that some jurisdictions require that one party gives notice to the other that the contract will renew unless the other party opts out as provided under the terms of the contract.

3.5 Does the automatic renewal provision provide adequate notice of its terms?

As described in Section 1.3.3, above, some states have enacted legislation that requires the provider of goods or services to notify the other party to the contract that the contract will automatically renew. There are also other requirements related to these notification provisions, notably that the contract states in a ‘clear and conspicuous’ manner (such as bold or offset type) that the contract will renew.

3.6 Is the automatic renewal severable from the rest of the contract?

Given the various state legislative acts being taken, the parties may wish to consider including clauses that indicate that the renewal clause may be severable from the remainder of the contract in the event the renewal clause is held to be invalid or unenforceable. This can generally be achieved by what is commonly referred to as a ‘severability clause’.

Additional resources