What is a Rollover Contract?

A contract is a valid and legal agreement between two or more parties, binding for goods or services to be rendered: Referred to as meeting of the minds. 1 A contract contains provisions for terms and performance (orally or written), underlying cooperation and trust. 2 When a contract is breached, specific remedies (penalties) maybe stipulated in the contract, enforceable from the time the contract became valid. 1 A contract may not be valid, if provisions of a law (Federal, State, local or otherwise) are not fulfilled and contract signed under duress. "Voidable contracts occur when one or both parties have a legal right to cancel their obligations." 2 A rollover clause (automatically renewable contracts 7 or Evergreen clause 13) in a written contract automatically renews a contract, after the anniversary date, (however terms may change) without any additional agreement or signature: Frequently applicable for supply and service contracts. 13 . The rollover clause should provide sufficient time for a party to 'opt out' before the contract renews automatically without any penalties. 4 Otherwise, terminating a rollover contract before or after the grace period, penalties could be assessed (Early termination charge - ETC 4). 3

The intention of a rollover contract: Retaining a customer's business, hopefully for an indefinite period of time (Not illegal or unethical). 5 A minimum contract period (MCP or fixed term contract - 8) could explicitly include a rollover clause: Renews at the end of the period, for example three months, six months or after one year. A rollover contract should be read carefully before signing, aware of the grace period for cancellation (For example: "if you wish to terminate the contract you must contact us in writing no sooner than 90 days and no later than 30 days before the anniversary of the contract signing date."). 7

The rollover contract provides information how a party should notify for cancellation or non-renewal: Phone, letter, E - Mail, etc. Charge for early termination written in the rollover contract, specifying the exact penalties, fees, interests or combination of charges, if the contract is cancelled after the signing anniversary date. If a party 'opt's out' during the grace period no charges are applied. 7 If notice is not given for cancellation, the evergreen clause provision automatically signs up the party for another year or period of time specified (Example: Wireless telephone service and membership at a gym). 6

In the United Kingdom, the Forum of Private Business (FPB - organization supports the interests of small and medium - sized business 9) does not support utility company's rollover contracts from one year to another: Customers are not adequately warned or provided with hardly any information to stop renewal of their contract. The FPB realizes unfortunate the consumer or party incurs a penalty for terminating a contract (early termination) for seeking an alternative supplier that is cheaper. 10

Concerns for rollover contracts: Unscrupulous companies may follow an unsavory agenda, not adequately providing sufficient time for cancellation and hard to get information (buried in small print, and wording often is vague and unclear 12) for the option to cancel the rollover contract. Consumers may opt for a less expensive competitor's contract, which maybe prohibitly costly, considering penalties for early termination. Positively rollover contracts for businesses and consumers easy to renew. Advisable to read the renewable terms for a rollover contract which may change, potentially costing the consumer or party more money after the renewal date. In 2008, renewable rollover contracts for Texas Utility subscribers often paid a new variable rate (fluctuate with the wholesale cost of power) compared to the previous fixed rate: Costing 18 to 20 cents per kilowatt-hour compared to paying 12 cents per kilowatt-hour for 12 or 24 months. 11

Businesses may offer incentives or bonuses for customers who choose to sign rollover contracts. This tactic is a persuasive lure to keep customers from competitors. Those who would like to have the rollover clause (evergreen clause) removed, possible through negotiations with the other party, before signing the contract. Consulting an attorney may help during the negotiations.

References:

1.) Contract - http://en.wikipedia.org/wiki/Contract

2.) Contract Law - Law & Legal Definition -

http://definitions.uslegal.com/c/contract-law/

3.) Contract Rollover - Unfair Contracts and Scams - http://www.unfaircontracts.info/Rollover/

4.) What is a rollover contract? - http://ask.ofcom.org.uk/help/services-and-billing/rolloverdef

5.) Contract Rollover - Unfair Contract and Scams - http://www.unfaircontracts.info/Rollover/

6.) Before the fitness phase fades - http://www.consumeraffairs.govt.nz/mediacentre/wordofadvice/2010/20100111.html

7.) What is a rollover contract? - http://ask.ofcom.org.uk/help/services-and-billing/rolloverdef

8.) Rollover contract legal? - http://answers.yahoo.com/question/index?qid=20080925021133AA95zwu

9.) Forum of Private Business -

http://en.wikipedia.org/wiki/Forum_of_Private_Business

10.) Premium member content - http://www.workplacelaw.net/news/display/id/19094

11.) Automatic Renewal of Electric Contracts Can Cost Texas Businesses Money -

http://blog.saveonenergy.com/2008/07/fixed-price-texas-electricity-rates-expiring-with-renewal-procrastination/

12.) Home phone contracts - your questions answered - http://www.which.co.uk/advice/home-phone-contracts---your-questions-answered/index.jsp

13.) Beware of Evergreen Clauses - http://www.detroitbusinesslaw.com/2009/06/beware-of-evergreen-clauses/