Auto-renewal clause

Definition

A contract term that renews the agreement by itself unless someone cancels.

Why It Matters

Recurring revenue often rests on this one sentence, so read it in diligence rather than assuming it: what the notice window is, whether renewal needs the customer to do anything, and whether the clause survives assignment to a buyer. A book of evergreen contracts is also a cancellation calendar, and if most of them renew in the same month, that month is where the revenue risk lives. Some states limit enforcement against consumers, which matters for any home-service book.

In numbers: A monitoring book worth $40,000 a month across 300 evergreen contracts with a 30-day notice window can lose 10% of itself in one renewal season if the transition is handled badly.