Expirations, Terminations, and Renewals, oh my!
Contracts come in all shapes and sizes. Sure, there are legal elements that are needed to make a contract, such as an offer, an acceptance, and consideration, but there are two elements that are practically inherent in any contract—its start date and its end date.
Start dates are relatively simple because most contracts just begin on the date they are signed. If not all parties sign on the same day, then the contract is usually considered to begin on the date the last party signs. Sometimes, the parties may wish to delay the start date of the contract, and so the contract may explicitly provide for its own effective date. A contract may even have a retroactive effective date, but that is usually only done in special circumstances.
End dates can be a bit trickier, though. If a contract is silent as to its end date, it may be considered to continue indefinitely; or, if the obligations of the parties are definite in nature, then a contract may be considered to have ended when all of the parties’ obligations have been performed. Probably the easiest way to know when a contract has ended is when there is a specific end date stated in the contract itself. Sometimes this is expressed as a date certain, e.g. “April 25, 2022,” sometimes as a formula, e.g. “30 days from the effective date,” or sometimes by reference to a specific event, e.g. “the third anniversary of this agreement.” Sometimes, however, the end date of a contract is not so simple. For example, a contract can have a conditional end date, such as “upon X event or Y event, whichever occurs first.”
Generally, in contract nomenclature, a specific end date is referred to as an expiration date, although some practitioners use the term “expiration” interchangeably with the term “termination.” However, expiration and termination are conceptually different. The expiration of a contract is typically passive, i.e., neither party needs to act in order to trigger it, whereas termination is usually a right to end the contract upon the affirmative election of a party, which is typically made by giving advance notice to the other party. The right to terminate is usually reciprocal, i.e., either party can exercise it, but occasionally it is only enjoyed by one of the parties, depending on the party’s bargaining power or the nature of their obligations as compared to the other party.
Another concept in the world of contractual endings is renewal—or rather, nonrenewal. Some contracts have an initial term and then may be either automatically or affirmatively renewed for one or more additional terms, which are usually referred to as a “renewal term.” Some contracts state a limit on how many times it can be renewed, but some contracts will automatically renew perpetually, making them somewhat like the indefinite-term contracts discussed above. Typically, an automatic renewal will occur unless a party gives advance notice of their election to not renew. Conversely, contracts requiring a party’s affirmation to renew will not renew unless a party gives notice of their election to renew. In some contracts, the option to not renew is the only way to end the contract. In other contracts; however, there may be a right to terminate in addition to an option to not renew.
As a fun thought exercise, can you imagine a contract that by its terms could potentially end by expiration, termination, or nonrenewal?
Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our commercial and business litigation practice can be found here.