What is an Evergreen Contract?
An evergreen contract is an agreement that automatically renews after its term ends unless you actively cancel it. Instead of expiring on a set date, it keeps rolling over monthly, quarterly, or yearly based on the renewal terms you agreed to at the start.
This structure saves you from having to renegotiate every time the contract period ends. It keeps business relationships running smoothly without interruptions. Common examples include software subscriptions, service agreements, and supply contracts.
The key feature with evergreen contracts is simplicity: once in place, the contract continues until you decide it should stop.
Synonyms
- Automatic renewal contract
- Indefinite term contract
- Self-renewing contract
How Evergreen Contracts Work
Evergreen contracts rely on automatic renewal. When the initial term ends, the contract renews for the next period without extra paperwork. You (or the client) only need to step in if you want to modify or end the agreement.
Most of them include seven key contract clauses, though there may be others depending on the agreement.
- Renewal period: Defines how long each renewal lasts, such as monthly, quarterly, or yearly.
- Notice requirements: Explains how much advance notice you must give to cancel, often 30 or 60 days.
- Payment terms: Outlines when and how payments will be made during each renewal cycle.
- Price adjustment terms: Allowing for rate changes at renewal, often tied to inflation or usage.
- Termination for cause: Outlining situations where either party can cancel immediately (like breach of contract).
- Performance obligations: Defining service levels or deliverables that must be met each renewal cycle.
- Dispute resolution: Setting out how conflicts will be handled if they arise mid-contract.
You’ll see evergreen contracts most often in recurring business relationships. SaaS companies use them for software subscriptions. Service providers rely on them for ongoing maintenance and consulting agreements. Vendors and suppliers use them to lock in steady demand and keep operations consistent.
Evergreen Contract vs. Fixed-Term Contract
An evergreen contract is ongoing and automatically renews. A fixed-term contract has a defined end date and expires unless you actively renew it.
There are four key differences between evergreen contracts and fixed-term ones:
- Duration: Evergreen renews continuously. Fixed-term ends on a set date.
- Renewal: Evergreen renews automatically. Fixed-term requires negotiation or signing again.
- Flexibility: Evergreen keeps operations seamless. Fixed-term gives more control over start and stop points.
- Administration: Evergreen reduces paperwork. Fixed-term requires more oversight to avoid lapses.
You choose an evergreen contract when you care about stability and less administrative work, like with subscriptions and recurring services. You choose a fixed-term contract when you need tighter control over timing, budgets, or deliverables, such as with project work, seasonal engagements, and large one-off deals.
Evergreen vs. fixed-term contracts
Advantages and Disadvantages of Evergreen Contracts
Now, let’s take a look at some of the pros and cons of evergreen contracts for businesses.
Advantages
Evergreen contracts streamline your operations. Automatic renewal without constant renegotiation frees your entire team to focus on delivery instead of paperwork.
They build predictability into your business. You know revenue or service commitments will continue unless someone actively cancels, which you’ll know about well beforehand if you structure the agreement right. This makes it easier to make financial projections and plan resources.
They also strengthen long-term relationships. Automatic renewal builds stickiness by removing the need for renewal consideration. That makes it less likely for competitors to swoop in and reduces the risk of missed renewals or accidental lapses (you don’t lose business because someone forgot to send a renewal notice).
And for your clients, they guarantee service continuity.
Disadvantages and risks
The same features that make evergreen contracts attractive also create risk. Automatic renewal means you’re stuck with outdated pricing or contract terms if you don’t monitor agreements closely. Over time, this hurts your profitability.
They also limit flexibility. If the market shifts or your needs change, you could be locked into a deal that no longer serves you. You can’t change the terms every time they don’t work anymore. It’ll frustrate your customers.
Even if you keep the provisions the same, customers will feel tricked if you’re overly discreet about the renewal. If you purposely don’t tell people when you charge them and they wind up forgetting about the subscription, your billing team will be dealing with a lot of angry customers.
This is exactly why you have the legal and compliance risks as well. Some jurisdictions (particularly the U.S.) require clear disclosures and cancellation options for evergreen clauses. If you don’t structure them properly, you could face disputes or penalties.
And on top of it all, they breed complacency if you’re not careful. Because they don’t require active renewal, you might overlook opportunities to renegotiate for better terms or improved service.
How to Terminate an Evergreen Contract
Ending an evergreen contract is straightforward if you know the rules. The most important factor is the notice requirement. Most contracts specify that you have to give written notice 30, 60, or 90 days before the renewal date. If you miss that window, the contract renews again.
Steps to follow for termination
For evergreen contracts, there are five basic steps all termination procedures follow:
- Review the contract. Check the renewal period, notice deadline, and required method (often certified mail or email to a specific contact).
- Prepare written notice. Keep it simple, too. State your intent to terminate, referencing the contract, and include the effective date.
- Send it correctly. Follow the delivery method exactly as outlined in the contract.
- Keep records. Save proof of delivery in case of disputes.
- Confirm with the other party. Request a written acknowledgment that termination has been received and logged.
Sometimes, much of this process will be automated. For instance, a SaaS product would have you’d update your billing details in the app, click a cancellation button, and the system handles the rest. If the contract has a 60-day notice period, the software won’t shut off immediately; it ends after that timeframe and you’ll get an automated email confirming the cancellation.
In other B2B industries, it’s usually more complicated. For example, ending a multi-year contract in logistics or facilities management will require formal letters, sign-offs from multiple stakeholders, and possibly negotiations over final invoices or service wind-down plans.
Tips for avoiding auto-renewal traps
In our more than a decade of experience, there are three things every company that successfully uses evergreen contracts does:
- Track renewal dates in a contract management system or calendar.
- Assign responsibility for monitoring renewals to a specific team member.
- Review long-term contracts annually to ensure terms are still favorable.
The key is discipline. If you manage dates and follow the contract’s requirements, you can terminate without surprises.
Legal Considerations for Evergreen Contracts
Automatic renewal clauses are generally enforceable, but they must be “clear and conspicuous.” Courts frequently side against vague or hidden evergreen clauses, especially when they catch the paying party off guard.
This is why lots of states in the U.S. have passed laws requiring upfront disclosure that it’s an auto-renewal contract. Some even mandate that businesses send renewal reminders before the next cycle begins.
Regulations vary by jurisdiction. For example, states like California and New York have strict consumer protection laws around evergreen agreements. Internationally, countries in the EU often require transparent cancellation options and explicit consent for recurring payments.
When reviewing or drafting evergreen contracts as a buyer or contracting business, pay close attention to clauses on:
- Notice period: How far in advance you must act to terminate.
- Termination rights: Specific conditions where either party can end the deal early.
- Automatic payment authorization: The terms under which recurring charges will be processed.
Because these details have real financial and legal implications, a legal review is critical. Before you sign (or before you terminate), have a qualified attorney check the language to make sure it protects your interests and complies with local law.
Evergreen Contract Best Practices
There are four best practices we recommend for every business structuring their deals using evergreen contracts, and for anyone entering an evergreen agreement with a vendor.
Conduct regular contract audits.
Review your evergreen contracts at least once a quarter. Check whether pricing, service levels, and contract provisions still make sense for your business today.
Use contract management software and shared calendar to record every renewal date and automate renewal reminders so you never miss a notice window.
Facilitate clear internal communication.
Centralize all your business’s evergreen contracts in a shared system that multiple teams can access. Set up automated alerts so finance, procurement, and legal receive notifications before renewal dates. And hold quarterly cross-department check-ins to review major agreements and flag contracts that need renegotiation or termination.
Renegotiate before renewal.
If you’re a buyer, give yourself leverage by starting renewal conversations well ahead of the notice period. Use the time to benchmark pricing, review vendor performance, and consider alternative providers. Even if you’re happy with the relationship, early renegotiation helps you secure better terms, updated service levels, or added flexibility.
As a vendor, your renewal strategy should include highlighting the value you’ve delivered, presenting performance metrics, and proposing adjustments that reflect rising costs or expanded service. Framing the conversation as a win-win (continued service with fair updates) reduces the risk of churn and surprise objections.
Keep important documentation handy.
Maintain a central repository for all contract-related documents. It’ll include the signed agreement, amendments, renewal notices, and termination correspondence. Store receipt confirmations from the other party as well. Having these records organized and accessible reduces the risk of disputes and guarantees you can prove compliance if you’re challenged.
Examples of Evergreen Contracts
The main kinds of evergreen agreements you’ll see are SaaS subscription agreements, service-level agreements (SLAs), and maintenance or retainer contracts.
SaaS subscription agreements
Most Software as a Service providers use evergreen contracts that renew monthly or annually. You sign up once, and the system keeps charging until you cancel. This model ensures steady recurring revenue and uninterrupted service delivery.
Service-level agreements (SLAs)
Vendors and IT support providers use evergreen SLAs. These agreements guarantee consistent service availability and performance metrics, which makes sense because they’re standard terms that don’t need much changing.
Maintenance or retainer contracts
Professional services like legal consulting, marketing, and facilities management use monthly or yearly retainers. These contracts provide ongoing access to expertise or upkeep for things that the client will always need.
Pitfalls and success stories
In 2022, Noom faced a major class action alleging that its “free trial” weight-loss app subscriptions locked consumers into long auto-renewals with confusing cancellation processes. Users claimed the evergreen terms were buried, and that cancellation was intentionally difficult.
The case settled for about $62 million, with Noom agreeing not only to pay out refunds but also to change its practices: clearer disclosures, separate opt-in for auto-renewals, and simplified cancellation.
This became one of the most high-profile examples of regulators and courts cracking down on subscription traps hidden in evergreen contracts.
There are plenty of examples of auto-renewal being the perfect model, though. For software and IT services companies, it’s an essential part of predictable revenue. The automatic renewals smooth out payment collections and improve customer lifetime value.
People Also Ask
What is an evergreen clause in a contract?
An evergreen clause is the part of the contract that makes it automatically renew after the initial term. It spells out the renewal period, notice requirements, and conditions under which the agreement continues.
Can evergreen contracts be renegotiated before automatic renewal?
Yes. In fact, renegotiating before renewal is a best practice. Buyers can push for better pricing or updated terms, while vendors can use the opportunity to adjust rates or expand service. The key is to start the process well before the notice deadline.
Are evergreen contracts legally enforceable in every state or country?
Not always. While evergreen clauses are generally enforceable, several states and countries regulate them. Some require clear disclosures, specific cancellation options, or renewal reminders. If you operate across multiple jurisdictions, check the local rules to stay compliant.
How can CLM software help manage evergreen contracts?
Contract lifecycle management (CLM) software tracks renewal dates, sends automated reminders, and centralizes documentation. It ensures your team never misses a notice period and gives you visibility into which contracts need review, renegotiation, or termination. This reduces risk and keeps your contract strategy under control.