WHAT EVERY BUSINESS NEEDS TO KNOW ABOUT EVERGREEN AGREEMENTS
There are many advantages to evergreen provisions for a business. An evergreen provision is an optional portion in a contract that makes is renew automatically, usually on a yearly basis. It usually provides that the contract will be renewed at the end of each year unless one of the parties notifies the other party or parties in writing during the 30 days before automatic renewal. This 30 day window is important, because it is the only time each year when the contract can be cancelled without paying damages to the other parties.
These provisions can benefit a company by essentially allowing them to have one contract that can be cancelled after one year if needed or can be continued indefinitely. In other words, it creates a long-term contract, while leaving some room to get out of the contract if things do not work out. But there is a downside. The window to get out of the contract is usually very short, and if you miss it, you can be stuck for another year until it comes back around.
What if you want to get out of a contract with an evergreen provision? In Illinois, evergreen provisions are generally enforceable if the contract is for a reasonable period of time. So if the contract is renewable each year automatically, but the whole contract automatically terminates after 5 years, the evergreen provision will most likely be enforced. However, if the contract does not have an end date (it could potentially go on forever), evergreen provisions are generally not enforced beyond a reasonable period of time.
So if you or your company is stuck in a contract like the ones discussed here, you may need to take another look to see if there really is no way out. Also, if you are a distributor, specific federal and state laws may affect your rights in regards to evergreen agreements, as well, potentially causing a different result.
Be aware this is a brief discussion of just a few laws and provisions that may govern evergreen provisions and contracts. Prior to entering into any evergreen provision or contract, you should be sure that the concept complies with all governing rules.
Should you have questions about your business contracts or compliance with other laws governing your company or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.
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