Renewal Rule 

Definition

You can renew a fixed-term contract using a renewal rule.

Use

The renewal rule controls the end of the contract. There are two types of renewal rules: automatic renewal and renewal options.

Structure

Determine which renewal rule you want to use:

·        Contracts with Automatic Renewal Only

...

                            a.      One-time renewals (for instance renewal of two years with a period of six months for submitting rejection). After that, the contract term automatically becomes unlimited, with the notice period prescribed, for example, by law in some countries

                            b.      Recurring renewals (for example, the contract is renewed each year for a subsequent year with a period of six months for submitting rejection).

                            c.      Unlimited renewals (for example, the contract becomes unlimited at the end of its term and can be terminated at the end of the year with a period of three months notice).

You can specify the following combinations:

a) One or more one-time renewals

b) One or more one-time renewals followed by a recurring renewal

c) One or more one-time renewals followed by an unlimited renewal

·        Contracts with Renewal Options Only

There are one-time options as well as recurring ones. If an option is not accepted, all subsequent options are null and void. If the option is accepted in writing, the renewal takes effect. Notice has to be given on a contract within a set period.

If notice is not given and no option accepted in writing, the contract automatically changes to one without a fixed term where the periods of notice defined by law apply.

·        Contracts with Renewal Rules and Renewal Options

When renewal options are not accepted, then renewal rules become effective.

Example

Fixed-term contract with options and renewals

·         Period of notice (6 months before contract end)

·         Option rule (2 options every 5 years)

·         Renewal rule (one-time renewal for two years with a period of 6 months for submitting rejection; then recurring renewal at intervals of 1 year with a period of 6 months for submitting rejection).

 

Renewal Rules	Term	Date of Notice	Acceptance of Option/ Renewal Refusal (=Notice)
Term of fixed-term contract	01/01/1995   12/31/1999	06/30/1999
1st option	01/01/2000   12/31/2004	06/30/2004	06/30/1999
2nd option	01/01/2005   12/31/2009	06/30/2009	06/30/2004
1st renewal	01/01/2010   12/31/2011	06/30/2011	06/30/2009
2nd renewal	from 01/01/2012 by one year each time	each year on 06/30	each year on 06/30