Auto-renewal contracts: what should businesses check?

An automatic renewal clause (also called an evergreen or rollover clause) is common in recurring commercial contracts, such as framework supply agreements, industrial property leases, logistics services, technology maintenance and exclusive distribution. It lets the contract continue into a new term when it reaches its expiry date, without the parties signing a new contract.

Automatic renewal saves administrative cost and keeps the supply chain running without a break. But it is also a hidden trap in contract management. If the business misses the deadline for notice of non-renewal (the notice window), it is bound to a new contract term, even if the price or conditions have become unfavourable. If it then simply stops performing after the new term has started, it is in breach and may face a serious claim for damages.

Below we look in detail at the key points businesses must check in an automatic renewal clause, together with how disputes are resolved in Vietnamese courts and commercial arbitration.

1. The legal nature of an automatic renewal clause and how it works

Under the principle of freedom of contract in Articles 3 and 401 of the Civil Code 2015 and Article 11 of the Commercial Law 2005, the parties are free to decide how long the contract lasts and on what terms it is extended. Legally, an automatic renewal clause does not create a new contract. It is a continuation of the original contract, based on intentions the parties agreed in advance.

The clause works on the principle that silence is presumed to be acceptance:

• As the contract nears its expiry date, if neither party sends a written objection or request to end it within a set period (the notice window), the contract automatically remains legally effective for the next term.
• If a party wants to end the relationship, it must exercise its right not to renew (opt-out) in writing, on time and in the way agreed.

2. Seven key issues to check before signing and while performing the contract

Issue 1: Notice period and method for opting out (notice period and opt-out window)

• Common risk: The contract sets a very long notice period (for example, notice must be given 90 or 120 days before expiry) or a very strict form of notice. If the person in charge of the contract forgets the deadline or sends the notice just a few days late, the business loses its right not to renew.
• Court practice: Applying the principle that commitments must be respected, courts and arbitral tribunals hold that once the notice period has passed with no written objection, the new contract term has automatically taken effect. If the business then sends a notice ending the relationship, this is not treated as a refusal to renew. It is treated as unlawful unilateral termination of the contract. Under Precedent No. 21/2018/AL, a party that unilaterally terminates a contract with invalid notice, or notice that does not follow the agreement, must bear full liability for the counterparty’s resulting losses.
• What to check:
  • Set a clear and reasonable notice period (usually 30 to 60 days before the contract expires).
  • State clearly which methods of notice are binding: registered post with a post office receipt, email to a named address registered in the contract, or a certified electronic signature.
  • Avoid vague wording such as “notice within a reasonable time” or “notice by text message”.

Issue 2: Price adjustment and commercial terms in the new term (price lock vs price escalation)

• Common risk: The renewal clause says: “The contract is automatically renewed on the same terms and conditions.” After a 12-month term, high inflation, exchange rate changes or rising logistics costs make the old price loss-making for the seller, but the buyer does not agree to a price increase.
• Court practice: In disputes before the China International Economic and Trade Arbitration Commission (CIETAC), sudden changes in raw material prices were not accepted as force majeure or a fundamental change of circumstances that releases a party from its obligations. In Vietnam, Article 420 of the Civil Code 2015 sets a very high standard of proof for a fundamental change of circumstances. While the contract is being renegotiated, the affected party must still perform at the old price. If the seller refuses to deliver, it is in breach and must pay the difference in the cost of substitute goods under Article 74 of the CISG or Article 302 of the Commercial Law 2005.
• What to check:
  • Never let the price be “frozen” by default when the contract renews automatically.
  • Include a price adjustment mechanism: “Within 30 days before the start of a renewal term, the parties will renegotiate the applicable unit price. If no written agreement on a new price is reached before the expiry date, the Contract will automatically terminate and will not be renewed.”

Issue 3: Cap on the number of renewals and the length of each term (cap on renewal term)

• Common risk: The contract renews indefinitely (evergreen indefinite), year after year, with no end point. This turns a fixed-term contract into an indefinite one. Management loses control over its portfolio of partners and finds it hard to switch strategic suppliers.
• What to check:
  • Set a clear maximum number of automatic renewals: “The Contract may be automatically renewed no more than 02 (two) times, for 12 months each time. After that, the parties must sign a new Contract or a written renewal annex.”
  • Define the renewal term clearly. Avoid a case where the original contract runs for 03 years and the clause renews it automatically for an equal term (another 03 years), which exposes the business to legal risk for too long.

Issue 4: Conditions that must be met for automatic renewal (performance-based renewal)

• Common risk: The counterparty repeatedly delivered late, delivered defective goods or owed money for months during the previous term. But because the business carelessly failed to send a notice of non-renewal in time, the contract still automatically continues into the next year.
• Court practice: Under the principle of performing contracts in good faith and honestly in Article 3 of the Civil Code 2015, the benefit of automatic renewal should go hand in hand with compliance with the contract. However, if the contract does not make this a condition precedent, the party in breach can still argue that the contract has renewed automatically, and that the other party has no right to unilaterally rescind it if the earlier breaches did not reach the level of a “fundamental breach”.
• What to check:
  • Include conditions that exclude automatic renewal:

    “The Contract is renewed automatically only if, as of 30 days before the expiry date, Party A/Party B has not breached any fundamental obligation, has no overdue unpaid debts and has fully met the agreed performance indicators (SLA/KPI).”

Issue 5: Matching the validity of bank guarantees

• Common risk: A business, as the project owner or buyer, signs a contract with an automatic renewal clause. It assumes the bank’s performance guarantee or advance payment guarantee is automatically extended with the main contract. When the counterparty breaches during the renewal term, the issuing bank refuses to pay because the guarantee has expired.
• Legal basis and practice:
  • Under Article 20 of Circular No. 61/2024/TT-NHNN of the State Bank of Vietnam on bank guarantees, the validity period of a guarantee can only be extended where the parties have specifically agreed to it, in line with the law. A letter of guarantee is independent under URDG 758. Its expiry date does not adjust automatically to what happens under the underlying contract unless the guarantee itself says so.
• What to check:
  • State clearly the obligations of the guaranteed party: “If the Contract is automatically renewed, the Party providing security must provide an extended or new letter of guarantee with a matching term at least 15 days before the Contract enters the new renewal term. If it fails to do so, the beneficiary may call the full existing guarantee or refuse to renew the Contract.”

Issue 6: Statutory limits on standard-form contracts and consumer protection

• Common risk: Service businesses (holiday resorts, SaaS software, membership cards, retail) put automatic renewal and recurring account debit terms into their general terms and conditions or standard-form contracts with individual consumers.
• Legal basis and practice:
  • Under the Law on Protection of Consumer Rights 2023 and Decree 55/2024/NĐ-CP, a business that includes an automatic renewal clause in a standard-form contract must give a clear warning before renewal and an easy, convenient way for consumers to cancel the renewal. If the business renews and debits money without explicit consent, the clause may be penalised by the market surveillance authority and declared invalid.
  • In addition, under Precedent No. 42/2021/AL, terms in a standard-form contract must not take away a consumer’s right to choose a court. Consumers have every right to sue to have unclear automatic renewal terms set aside.
• What to check:
  • In consumer transactions: set up a system that sends a text message or email warning at least 30 days before renewal, with a one-click cancellation button in the digital interface.

Issue 7: Keeping the arbitration agreement and governing law in force

• Common risk: When the contract enters an automatic renewal term and a dispute arises, one party argues that the arbitration clause or the governing law clause (for example, applying the CISG or VIAC arbitration) only applied during the original term, not the renewal term.
• Court practice:
  • Under Article 19 of the Law on Commercial Arbitration 2010 and Precedent No. 69/2023/AL of the Council of Judges of the Supreme People’s Court, an arbitration agreement is fully independent of the main contract. Extending the underlying contract through automatic renewal automatically keeps the whole agreed dispute resolution mechanism in place.
  • Likewise, if an international contract is governed by the CISG (as recognised in Judgment No. 02/2022/KDTM-ST of the People’s Court of Binh Duong Province), the CISG continues to govern disputes arising throughout the renewal terms, unless the parties have clearly excluded it under Article 6 of the CISG.
• What to check:
  • State clearly in the renewal clause: “All other terms of the Contract, including the Governing Law clause and the Arbitration clause, remain fully binding during the renewal terms.”

3. Model automatic renewal clause for commercial contracts

Below is a balanced model clause that helps the business keep tight control over the risk of being bound to a contract against its wishes:

4. Summary table: risks and controls for renewal clauses

5. Documents and sources cited in this article

I. Legal instruments

1. Civil Code 2015 (Law No. 91/2015/QH13)

• Article 3: basic principles of civil law (freedom, voluntary commitment and agreement, goodwill, honesty).
• Articles 401, 404 and 405: effect of contracts, interpretation of contracts, and standard-form contracts.
• Article 418: agreement on contractual penalties.
• Article 420: performance of a contract when circumstances change fundamentally (hardship).
• Articles 422, 427 and 428: cases of termination, consequences of rescission, and unilateral termination.
• Article 429: limitation period for contract claims.

2. Commercial Law 2005 (Law No. 36/2005/QH11)

• Article 11: freedom of contract in commercial activities.
• Articles 300 and 301: contractual penalties and the 8% cap on the value of the breached obligation.
• Articles 302 and 304: liability to pay damages and the duty to prove actual, direct loss.
• Articles 310, 311 and 312: suspension, cessation and rescission of commercial contracts.

3. Law on Commercial Arbitration 2010 (Law No. 54/2010/QH12)

• Article 6: the court declines jurisdiction where there is a valid arbitration agreement that is capable of being performed.
• Article 13: loss of the right to object (waiver of right to object).
• Article 18: cases where an arbitration agreement is invalid.
• Article 19: full independence of the arbitration agreement from the underlying contract.
• Article 68: court jurisdiction and grounds for setting aside a commercial arbitral award.

4. Law on Protection of Consumer Rights 2023 (Law No. 19/2023/QH15) and Decree No. 55/2024/NĐ-CP

• Mandatory rules on controlling automatic renewal clauses in standard-form contracts and general terms and conditions with consumers.

5. Circular No. 61/2024/TT-NHNN of the State Bank of Vietnam

• Rules on bank guarantees, the independence of the guarantee undertaking, and conditions for extending a guarantee’s validity under Article 20.

6. Resolution No. 01/2014/NQ-HĐTP dated 20 March 2014 of the Council of Judges of the Supreme People’s Court

• Guidance on the Law on Commercial Arbitration regarding invalid arbitration agreements and arbitration agreements that are incapable of being performed.

II. International treaties and trade practice

1. United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG, Vienna)

• Article 1(1)(a): default application of the CISG to international sale of goods contracts.
• Article 6: the parties’ right to exclude or vary the provisions of the Convention.
• Articles 25, 49 and 64: fundamental breach and the parties’ right to declare the contract avoided.
• Articles 74 and 78: full compensation for loss and the obligation to pay interest on late payment.

2. Uniform Customs and Practice for Documentary Credits (UCP 600), International Chamber of Commerce (ICC)

• Independence of the documentary letter of credit (L/C).

3. Uniform Rules for Demand Guarantees (URDG 758), International Chamber of Commerce (ICC)

• Independent, unconditional on-demand guarantees.

III. Precedents of the Supreme People’s Court of Vietnam

1. Precedent No. 09/2016/AL: adopted by the Council of Judges of the Supreme People’s Court on 17 October 2016; sets the rule that no late-payment interest is charged on contractual penalties and damages.
2. Precedent No. 13/2017/AL: adopted on 14 December 2017; confirms that a letter of credit (L/C) under UCP 600 is independent and does not lose effect when the underlying international sale contract is rescinded.
3. Precedent No. 21/2018/AL: adopted on 17 October 2018; determines fault and liability for the full loss of profit when a contract is unilaterally terminated with too short a notice period.
4. Precedent No. 42/2021/AL: adopted on 24 February 2021; protects consumers’ access to Vietnamese courts when a standard-form contract contains a foreign arbitration clause (SIAC).
5. Precedent No. 69/2023/AL: adopted on 18 August 2023; confirms that a non-disclosure and non-competition agreement (NDCA) is an independent commercial agreement within the jurisdiction of arbitration, and sets the rule on loss of the right to object to arbitral jurisdiction.

IV. Notable court judgments and arbitral awards

1. Judgment No. 02/2022/KDTM-ST dated 16 March 2022 of the People’s Court of Binh Duong Province: a dispute over a contract for the sale of plant protection products between Company W (China) and Company S (Vietnam); the court dealt with an arbitration agreement that was incapable of being performed and applied the CISG directly.
2. Commercial appeal judgment of 2022 of the People’s Court of Ho Chi Minh City: recognised as lawful a clause on pre-estimated damages (liquidated damages, LD) in a construction contract, releasing the claimant from the duty to prove actual loss.
3. Decision No. 08/2019/QĐ-PQTT dated 25 July 2019 of the People’s Court of Hanoi: considered a request to set aside a VIAC arbitral award on the ground that it conflicts with the fundamental principles of Vietnamese law (point (dd), Clause 2, Article 68, Law on Commercial Arbitration 2010).
4. Award No. 063 of the Vietnam International Arbitration Centre (VIAC): dealt with the conditions for rescinding an international sale contract and found that a breach that is not fundamental does not give the buyer a right to rescind.
5. Awards of the China International Economic and Trade Arbitration Commission (CIETAC): applied Articles 25, 49 and 74 of the CISG in international disputes over palm oil and cotton yarn; rejected the argument that market price changes are force majeure that justifies refusing to deliver.
6. Toepfer v. Sao Mai: a judicial precedent in which a Vietnamese court refused to recognise and enforce a GAFTA international arbitration award (London), finding that damages based on speculation breach public order and the Vietnamese principle of compensating actual loss.