What happens when a contract expires? Do contracts even need to have an expiry date? And how does one avoid missing a date and ending up with their service cut off?
These are all important questions that many business owners have about contract expiration dates—the most common and simple feature in a contract, but perhaps one of the most important.
A missed expiration date can, in some cases, mean you lose access immediately to the tool or service you were paying for. In others, it can mean an automatic renewal of a subscription you didn’t want to keep.
Clearly, contract expiration dates are critical.
In this article, we’ll help you avoid missing expiration dates by covering the following:
- What is a contract expiration date?
- How are contract expiration dates determined?
- Where can you find a contract’s expiration date?
- How to avoid missing contract expiration dates
- Frequently asked questions
What is a contract expiration date?
A contract expiration date defines the end of the duration of a given contract. In other words, it’s the final day that the contract is in effect. Once that date has passed, the contract is null and any associated rights and contractual obligations end.
Contract expiration dates are set and agreed upon before the agreement is signed, such that all parties are made aware in advance of the point at which the contract becomes invalid.
Expiry dates are used specifically in fixed-term contracts, where the legal relationship between two parties ends on a specific date.
For example, if your company contracts a marketing agency to perform social media advertising services, you might do so for a strict period of 12 months.
The expiration date of the contract will stipulate precisely when that 12-month term comes to a close.
How are contract expiration dates determined?
A contract’s expiration date is determined during the drafting phase of the contract process.
How the expiration date is determined depends entirely on the contract in question (for example, an open-term contract might not even have an expiry date).
In the case of a fixed-term contract, however, the expiration date is determined based on the length of the agreement.
For example, if a 12-month agreement starts on October 16, 2023, its expiry date will be October 16, 2024.
The party drafting the contract is responsible for calculating and including this date, and the other party agrees to it when they sign the document.
Where can you find a contract’s expiration date?
Most contract expiration dates are found right at the beginning of the contract.
In other cases, you’ll find the expiry date in a section called “Term and Termination,” which outlines not only the length of the contract but how to terminate it and the conditions under which it is legally terminable.
Some contracts, though, won’t have an expiration date.
For instance, an employment agreement is generally indefinite and has no expiration date. Retainers—where someone provides a service on a monthly basis—may also be open-ended.
“My preferred way of working as a Fractional GC is to offer my services through a fixed monthly retainer. For example, a client can buy 10 hours a month, which we track together to ensure the work matches the retainer over time. Remember that you’re not simply charging for your time, you’re charging for the value you will bring to the table.”
~ Stephanie Dominy, Consultant GC, and Startup Advisor
The Future of Legal Leadership: Why Fractional GCs Are On the Rise
In other cases, contracts may be discharged through performance. For example, if you hire a web designer to build your company a new site, the contract will end once that site is built, not after a particular date has passed.
What happens when a contract expires?
Once a contract expires, any terms within it are no longer enforceable. The contract becomes void, and the parties involved are discharged from their obligations under the contract.
Depending on the nature of the agreement, there may be some further steps after this:
- A renewal conversation
- Offboarding and official close of relationship
- Carry-out of post-expiry activities like moving out of a property (in the case of an expired rental agreement)
How to avoid missing contract expiration dates
At this point, it should be clear that missing contract expiration dates is something you want to avoid. And as it happens, having a system in place to track contract expiry dates is a best practice for legal ops.
This system starts at the point where the agreement itself is formed. Both parties to the contract should be adequately informed of its expiry date.
This essentially means ensuring that the clause pertaining to the contract’s expiration is highlighted. If you want to go a step further, you may include the requirement for those signing to initial at the expiry date to confirm their agreement.
From there, you’ll want to set up some kind of automated reminder or tracking system. A basic solution here is to create a reminder on your calendar. Go a step further and set the reminder a month in advance of the actual expiry date. This way, you can determine whether or not you want to renew and prepare for any close-of-contract activities.
If, like most companies, you manage dozens of contracts at a time, this will likely get out of control and become tough to handle.
A contract management and tracking spreadsheet is another free and simple solution—download our Contract Tracking and Management Spreadsheet Template here.
For a more robust solution, look to contract management apps with built-in expiry tracking. The best of this software solution manages everything from drafting and redlining to eSignatures and automated renewal or expiry notifications.
One final tip is to build automated renewal clauses into each new contract you create. Here, you add a clause that states that upon expiry, the contract automatically renews (perhaps for another 12 months) unless a prior conversation to the contrary takes place.
This is a good practice for software companies who want to ensure ongoing service to their clients.
Frequently asked questions
#1 Does a contract have to expire?
No, contracts do not have to expire.
Fixed-term contracts do require an end date, but they aren’t the only type of contract that exists.
Employment contracts, for example, are often open-ended, as are many software subscription agreements. Additionally, some contracts are performance-based, such that the agreement only expires once the services stipulated in the contract are delivered.
#2 What time do contracts expire?
A contract expires at 11.59 p.m. on the date of expiry. Should the precise time of expiry be of critical importance, those responsible for drafting should be sure to include a timezone as well.
Track contract expiration dates in SpotDraft
Many organizations operate with expired contracts that don’t guarantee them the full rights of an enforceable agreement. Still, others are paying for software tools they don’t need.
But with a bit of automation driven by a powerful contract lifecycle management platform, legal teams can avoid missing expirations and get in front of renewals before that date approaches.
SpotDraft's contract management platform includes an easy-to-use, hassle-free way to track contract dates and timelines.