A contract expires in two ways – either the contract states a specific end date or fixed period that the parties have agreed on, or the obligations of both parties are performed so the contract ends automatically. Following an expired contract, the parties can engage in discussions to either:
- extend the agreement;
- enter into a new arrangement; or
- choose to allow the contract to come to an end.
However, there may be situations where parties simply continue as if the contract is on foot after its expiration date. The question arises as to the parties’ legal position and whether the contract is valid. This article will consider the legality of an expired contract in more detail.
1. What Will a Court Consider?
When determining the legal position of the parties, the court will consider whether:
- the parties communicated or acted in any way that would suggest they were extending the contract;
- there are any relevant correspondences between the parties about the old contract’s expiration and its extension; and
- the parties displayed an intent to be legally bound in an agreement either expressly (through a conversation or in writing) or by implication from the parties’ actions.
Following this, the possible legal outcomes include:
- the contract has continued between the parties either on the same terms or varied terms;
- the parties have now entered into a new contract; or
- there is no contract between the parties (in this scenario, one party may be obligated to pay the other for services rendered).
2. What Can We Learn From the Expired Contract?
If both parties continue ‘business as usual’, this will suggest that the parties intended to have the contract’s old terms dictate their relationship. The court will then decide whether the entire expired contract applies or only parts. This decision turns on whether the parties have had a dispute over any specific terms or not. If the parties’ current dealings deviate from the terms of the expired contract, the court is more likely to determine the parties have entered a new arrangement, or that the parties have no contract between them at all.
An example of this may be where you hire a contractor for a specified period, but the period expires and the contractor continues to work for you. They carry out the same tasks outlined in the agreement, and you continue to pay them per the agreed payment terms. The courts may find this to be a clear-cut example of ‘business as usual’ and determine that the contract did not expire.
Continue reading this article below the form3. What Have the Parties Said?
A court will look at the parties’ communications and conduct to assess what a reasonable person would have understood to be the parties’ intentions. That is, the court will apply an objective and not a subjective test.
4. What If I Have Continued With a Contract?
If you have ‘affirmed’ your expired contract, you should seek legal advice. It may be that you want to continue with the expired contract and renew the terms. If that is the case, you should take active steps to enter into a new contract. If you do not want to continue with the agreement, you should put the other side on notice. You must carefully serve the notice so as to avoid breaching a renewed contract or be liable for damages.
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5. Can I Breach the Contract Once It Has Expired?
Whether you breached the agreement or not will depend on whether the contract is still in place. If both parties continue to perform their obligations, there is a risk that a court may find the contract to not have expired. Therefore, you could breach the contract the same way you could have breached it prior to the end date.
There are also often clauses in a contract that survive its expiry, including confidentiality and liability clauses. For example, a confidentiality clause may require the parties to keep confidential information confidential beyond expiry. You should familiarise yourself with these obligations to ensure you do not breach any contracts.
6. How Can I Avoid This Situation?
It is best to be on top of your contracts and have a sound management system in place. Try to keep a catalogue of your contracts and their expiry dates or deadlines. If you miss the expiry date, be careful of any confirmation – either verbally or in writing – which may affirm the contract or create a new contract.
Key Takeaways
If your contract has passed the end date but you are unsure about whether it is still valid, you need to review your contract and each parties’ actions. This may be because one or both parties have continued with their obligations and you would like the agreement to remain intact, or you may want to end the arrangement permanently.
For more information about your commercial contract, our experienced contract lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Generally, contracts do not automatically renew. They usually come to an end after the passing of a specific date or event or the completion of a project.
To determine the validity of an expired contract, a court will consider whether the parties communicated or acted in any way to suggest they were extending the contract. A court will also analyse relevant correspondence between the parties about the old contract’s expiration and its extension. Finally, a court will assess whether the parties displayed an intent to be legally bound in an agreement.
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