Overview
Renewal Types indicate whether or not a contract is eligible for renewal and, if so, how that renewal is structured. As such, Renewal Types govern what happens to an agreement on its expiration date. Whether your contracts automatically renew, require an opt-in process, perpetually renew, or are non-renewing, Renewal Types captures this information to ensure that you and your team have visibility into what will happen to an agreement upon its expiration date. By aligning with a clear line of sight on how your renewals are structured, you can seamlessly ensure that your contracts remain compliant with organizational policies.
Why are Renewal Types Important?
Understanding Renewal Types is essential for effective contract management. They help you plan and execute renewals systematically, avoiding unexpected contract terminations or automatic renewals without review. This ensures that all contracts are managed according to the organization's strategic needs and compliance requirements.
By integrating robust Contract Statuses, Contract Stages, and flexible Renewal Types, you gain comprehensive solutions for managing the contract lifecycle.
This approach provides clear visibility and precise control over your contracts, allowing you to maximize the value of every agreement and navigate your contractual relationships efficiently.
Types of Renewal
There are four Renewal Types:
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Automatic: These contract have a pre-defined term end date and/or an opt-out date, and they will automatically renew their expiration date unless action is taken to prevent the renewal (e.g., an opt-out is initiated). A new agreement or contract is generated at renewal.
- Example: A software agreement that renews at the end of its annual term unless explicitly opted out of.
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Optional: Contracts falling under the Optional Renewal Type are eligible for renewal but require you to opt-in to the renewal. This type is generally used for agreements where you have the option to continue the contract but need to actively confirm your intent to renew.
- Example: A SaaS agreement without an auto-renew clause or a property lease agreement where you need to indicate your desire to renew at the end of each lease term.
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Perpetual: agreements that do not have pre-determined opt-out dates; the existing agreement will continue "as-is" until the contract is terminated. No “new agreement or contract” is ever generated unless the scope of services changes or the pricing is changed/re-negotiated. These can have any billing/renewal frequency (month-to-month, quarter-to-quarter, bi-annual, or even annual), but month-to-month is the most common.
- Disclaimer: We strongly recommend marking any annual contract as "Automatic" instead of "Perpetual". This will ensure the contract is reviewed on a regular cadence.
- Non-Renewing: Contracts categorized as Non-Renewing do not have a renewal clause and are not eligible for renewal. This type is typically used for agreements with fixed terms.
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- Example: A one-time consulting service agreement where the services provided are completed within a specific timeframe and do not require renewal.
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Best Practices for Renewal Types
- Use Automatic Renewal for agreements requiring regular reviews, such as annual contracts.
- Use Optional Renewal for contracts where active confirmation benefits strategic planning.
- Use Perpetual Renewal only for agreements with no defined end but clear termination processes.
- Always mark Non-Renewing for fixed-term agreements to avoid confusion.
Additional Information
For more details on managing renewal types, refer to the following documents: