Contract Disputes Involving Renewals: What if One Party Refuses to Renew on Reasonable Terms?

Leases, licenses, franchise agreements, service agreements, and other commercial contracts frequently include provisions concerning renewal. In many cases, it will be in both parties’ best interests to expressly contemplate the possibility of renewal, as this can provide confidence for the future and help facilitate the growth of a long-term relationship. With that said, renewal clauses can give rise to disputes as well—particularly when only one party wishes to renew or the parties are in disagreement about what constitutes a fair deal going forward.

When facing disputes regarding renewal, it is important for both parties to work quickly to make informed decisions focused on the future. Once the renewal date passes, things can get much more complicated. With this in mind, if your company is facing a renewal dispute, what do you need to know? Keep reading for some important insights from an experienced Miami breach of contract lawyer.

5 Key Questions in Commercial Contract Disputes Involving Renewals

Renewal disputes can present a variety of different issues depending on the relevant contract language and the specific circumstances at hand. Here are five key questions for making informed and strategic decisions when facing a commercial contract dispute involving a refusal to renew:  

1. Does the Contract Include a True “Right” or “Option” to Renew?

Assessing the parties’ respective rights in a commercial contract dispute involving a refusal to renew starts with examining the renewal language in the contract. Renewal clauses vary widely—from clauses that provide an explicit “right” or “option” to renew to clauses that establish various renewal conditions and provide broad discretion to one or both parties.

If a contract provides an unconditional right or option to renew, then interference with a party’s exercise of this right or option may provide grounds for a breach of contract claim. With that said, other considerations could still come into play, and it will be necessary to conduct a thorough legal analysis focused on the totality of the circumstances at hand.

What if the contract doesn’t address renewal at all? This is often among the more straightforward scenarios. If a commercial contract is silent regarding renewal, then, generally speaking, neither party has an obligation to renew. As a result, if one party is ready to let the relationship end, it will generally be free to do so.

2. What Are the Conditions for Renewal?

If a commercial contract includes a renewal provision that contemplates the possibility of renewal subject to certain conditions, then carefully reviewing these conditions will be a key step in both parties’ legal analysis of their renewal dispute. While renewal conditions can take many different forms, some more common examples include:

• Staying in compliance throughout the prior contract term
• Providing notice of intent to renew by a stipulated deadline
• Paying a renewal fee (i.e., in the case of a license or franchise agreement)
• Meeting the other party’s (i.e., a licensor’s or franchisor’s) then-current standards for approving new contracts
• Either remaining bound by the terms of the parties’ existing agreement or signing a new contract that is acceptable to both parties

If a party that is seeking to renew fails to meet any of the conditions for renewal, this can justify a decision not to renew. However, the implied covenant of good faith and fair dealing could potentially come into play—and if the party that doesn’t wish to renew interferes with or improperly denies satisfaction of the contract’s renewal conditions, a dispute may be warranted.

3. How Much Discretion Does the Contract Provide to One or Both Parties (if Any)?

Discretion is a common issue in renewal disputes as well. Oftentimes, contracts will provide one or both parties with discretion over whether to pursue renewal. If a party has a contractual right to exercise discretion, then exercising that discretion in good faith generally will not provide grounds for a dispute. Oftentimes, a party’s discretion over renewal will be framed as a right to “approve” the other party’s request to renew.

4. How Does the Implied Covenant of Good Faith and Fair Dealing Apply (if At All)?

Commercial contracts are generally subject to an implied covenant of good faith and fair dealing under Florida common law. However, whether—and to what extent—this implied covenant applies during the renewal phase often depends heavily on the terms of the parties’ contract. In particular, if a party has discretion or a right to approve the other party’s request to renew, successfully arguing that a refusal constitutes bad faith as opposed to a valid exercise of business judgment may prove challenging.

5. Is Renewal the Best Option Under the Circumstances at Hand?

If the parties to a commercial contract are facing a dispute at the renewal phase, this raises an important practical question as well: Is renewing the parties’ contractual relationship truly the best option under the present circumstances?

In some cases, the answer will be a clear “Yes.” If the relationship is valuable to both parties, and if the parties’ dispute relates to the terms of renewal as opposed to a fundamental disagreement over whether to renew, then spending more time at the negotiating table or pursuing mediation or arbitration may allow the parties to continue their relationship amicably and on mutually agreeable terms.

On the other hand, if only one party is interested in preserving the relationship, then a claim for damages may be more appropriate—assuming grounds exist. Ultimately, when facing renewal-related disputes, both parties need to make informed and strategic decisions based on the specific circumstances and practicalities at hand.

Discuss Your Company’s Options with a Miami Breach of Contract Lawyer at Edelboim Lieberman

Is your company facing a renewal dispute? If so, we can help you make informed and strategic decisions about your next steps, and we can represent your company in targeting a favorable resolution. To speak with an experienced Miami breach of contract lawyer in confidence, call us at 305-768-9909 or request a free initial consultation online today.