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Contracts typically include an end date or state that it will be for a fixed period. Where the contract explicitly states the end date, 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.
But what if the parties simply continue as if the contract is on foot after it expires? 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 the following:
- whether the parties communicate or act in any way that would suggest they were extending the contract;
- any relevant correspondence between the parties about the old contract’s expiration and extension.
Following this, there are three possible legal outcomes:
- the contract continues between the parties either on the same terms or varied terms;
- the parties enter into a new contract; or
- there is no contract between the parties (in this scenario, there may be an obligation on one of the parties 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 parties have had a dispute over specific terms.
If the parties’ current dealings deviate from the terms of the expired contract, then the court is more likely to determine whether the parties have entered a new arrangement or have no agreement between them at all.
Continue reading this article below the form3. What Have the Parties Said?
A court will examine the parties’ communications and conduct to assess what a reasonable person would have understood as 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?
You should seek legal advice if you have ‘affirmed’ your expired contract. 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 notify the other party. You must carefully serve the notice to avoid breaching a renewed contract or be liable for damages.
5. 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 arrangements and their expiry dates or deadlines. If you miss the expiry date, be careful of any verbal or written confirmation that may affirm the contract or create a new one.
6. What Should I Do If I Notice My Contract Has Expired?
If you notice that your contract will end shortly or has already reached its expiry, it is best to take some proactive steps and decide what to do next. There are generally three options for the parties to choose from upon expiry.
Ending the Contract
The contract may specify a way in which the contract is to end or may simply expire at the end of a date. Upon ending the contract, you may simply walk away from the contract if there is nothing more to gain out of the relationship.
Entering Conversation
Once the contract expires, it is difficult to maintain and enforce the existing responsibilities under the contract. If both parties are interested in maintaining a relationship, it is prudent to enter an open conversation to discuss the next steps. Parties can discuss whether they wish to extend the relationship and negotiate whether there are any new responsibilities they want to be bound by.
Enter Into a New Agreement
If both parties would like to continue their relationship with either the same terms, amended terms or a combination of the two, they can enter into a new agreement. This resets the relationship. The new agreement will determine each party’s rights, obligations and any new dates to which the parties are subject.
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Key Takeaways
When a contract includes an end date, parties may choose to extend the agreement, enter a new one or allow the contract to end. However, if parties simply continue with the contract after its expiry, they must consider the legal consequences.
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Frequently Asked Questions
While both parties continue adhering to the contract terms, it may suggest that the parties intended to have the contract’s old terms dictate their new relationship. A court will consider the contract as a whole and the parties’ actions before deciding how much the old contract will dictate the continuing relationship.
The court will consider a range of factors to make their determination regarding the contract’s validity. These factors can include how the parties acted towards each other; what the parties said or communicated to each other (face to face, by email and telecommunications), and actions each party took to avoid doing something (i.e. failing to respond to communications or not attending relevant meetings).
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