Equipment Leasing and Finance Association - Equiping Business for Success

Automatic Renewal Clauses

Issue Overview

ELFA believes that all contract terms, including automatic renewal terms, should be properly and adequately disclosed and cautions against legislative attempts to dictate contract provisions between a lessor and lessee. Contract terms should be negotiated between the contracting parties to reflect their needs and not be subject to blanket mandates by government with no consideration of the contract parties’ individual interests.

Many states have enacted laws regulating automatic renewal clauses in tangible personal property and services in consumer contracts.  The ELFA website provides detailed information on the 4 state laws impacting commercial equipment lease finance contracts - Louisiana, New York, Rhode Island and Wisconsin.

In addition to ELFA state legislative advocacy addressing problems created by a particular bill, ELFA explains automatic renewal provides lessors time to prepare for the return / remarketing of equipment and helps protect lessor’s residual investment.  ELFA will point out issues such as a need to refurbish and remarket equipment for which the lessor bears the economic risk if its remarketing activity cannot recover investment plus carrying costs and targeted return.  The association also points out contracts that include an automatic renewal are commonplace in the commercial sector but examples across the broader marketplace range from cell phones and internet service provider contracts to lawn care in addition to equipment leases and many more.

ELFA advocacy in opposition to automatic renewal legislation is ongoing.  As an example of proactive advocacy, ELFA consulted with a nationwide committee of state legislators convened at the Council of State Governments (CSG) as they selected the Louisiana automatic renewal law (2010 Senate Bill 802 Act Number 906) as model ‘suggested state legislation’ when states consider automatic renewal legislation.  Exemptions within the Louisiana law are viewed as covering ELFA members although only legal counsel can resolve that the exemption for “banks, trust companies, savings and loan associations, savings banks, credit unions, finance or credit companies…” removes your company from the statute.  Anyone falling under the law is required only to provide conspicuous disclosure, which is not defined, as well as cite in the contract a means of cancellation.  No notice to lessees is required.  Lease contracts in noncompliance “shall revert to a thirty-day renewal contract in accordance with the same terms.”  Forceful ELFA advocacy against new automatic renewal legislation was not affected by selection of this Louisiana statute as a model to be referenced by other states.

Resources & Advocacy Materials

External Resources


Analysis

  • Louisiana | Overview of Automatic Renewal Law (Members Only). Contracts entered into on or after January 1, 2011 for the sale or lease of products or services in Louisiana must provide disclosure of any automatic renewal clause and the cancellation procedures. The law applies to all sales or leases of products or services to a "consumer" (an undefined term which includes commercial transactions) where the contract automatically renews unless the customer cancels.
  • Wisconsin | Overview of Automatic Renewal Law (Members Only). Wisconsin was the first state to pass automatic renewal legislation specifically targeting commercial contracts in 2009. The law created specific disclosure and notice of renewal requirements on contracts "for the lease of business equipment" or "for providing business services" with an automatic renewal period greater than one month.