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June 7, 2023 | BusinessContract Drafting

Automatic Renewal Provisions May Not Be So Automatic…

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Author(s)
Ru Hochen

Associate Attorney

Many states have recently undergone changes to their automatic renewal law (ARL) that could make businesses reconsider using automatic renewal provisions in their contracts.

For instance, a case in 2008 involving Isaac Asimov’s estate and literary agent Trident Media Group (TMG) highlighted the need for businesses to comply with New York’s ARL, codified at New York General Obligations Law (NYGOL) § 5-903.  In this case, TMG’s automatic renewal provision was called into question when Asimov’s estate attempted to terminate their services, while TMG claimed that the contract would automatically renew unless notice of termination was given 120 days prior to the next renewal date.  Asimov’s estate argued that TMG did not provide adequate notice of the impending automatic renewal, as required by NYGOL.

New York’s existing ARL

NYGOL § 5-903 states that an automatic renewal provision in a contract for services is unenforceable unless the recipient of the services is given written notice between 15 and 30 days before the expiration of a term highlighting the existence of the contract’s automatic renewal provision.  Notably, § 5-903 applies to both business-to-consumer and business-to-business contracts, but only those “for service, maintenance, or repair to or for any real or personal property” for which the renewal period is longer than one month.

New York’s updated ARL

In 2021, New York further reformed ARL.  The new ARL, effective as of February 2021, targets subscription services and imposes even stricter requirements for automatic renewal provisions.  Under New York’s new ARL, businesses must make the terms of automatic renewal subscriptions clear and conspicuous, with the provision being easy to understand and visually distinct from the rest of the agreement (in bold face, italics, or larger font).  Consumers must also affirmatively consent to the automatic renewal, and businesses must clearly communicate how to cancel the subscription, allowing for cancellation through the same method of enrollment.  If the consumer can sign up for the services online, then they must be able to terminate the agreement online as well.

Notably, New York’s existing ARL has not been repealed, so New York businesses must continue to comply with the existing ARL along with the new ARL.  The new ARL applies to nearly all automatic renewal or continuous service plans, regardless of subject matter (with few exceptions), but only for consumer contracts.  Business-to-business contracts are excluded from the new ARL but are still governed by New York’s existing ARL.

California’s ARL

Other states have similarly introduced or revised their ARLs, and the Federal Trade Commission has affirmed its commitment to enforce against unlawful offers. California, for instance, has been a leader in state ARL and recently further amended its ARL.

  • California’s existing ARL requires, for example, clear and conspicuous notice of all terms of the subscription offer, a consumer’s affirmative consent to those terms, and a simple means of cancellation.
  • California’s new ARL, effective as of January 2022, further requires that if a consumer agreed to a subscription with an initial term of one year or longer, the company must send the consumer a reminder notice between 15 and 45 days before the end of the initial term.

Conclusion

As a result of these legal developments, businesses should take a close look at their auto-renewal provisions and ensure that they comply with the applicable states’ ARL requirements to avoid rendering their contracts unenforceable.

If you need assistance with reviewing your contracts or have any legal questions, contact the experienced attorneys at Romano Law by calling 212-865-9848 or completing the contact form.

Contributions by Ruby Moscone.

 

Photo by Gabrielle Henderson on Unsplash
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