Evergreen Contract: Definition, Uses, Cancellation, and Examples

An evergreen contract is an agreement that automatically renews at the end of its term and continues until one party gives notice to terminate. Parties agree up front that the contract will roll over for additional terms—often indefinitely—unless properly canceled.

Key takeaways

• Evergreen contracts automatically renew after their initial term.
• They remain in force until a party gives the required notice to terminate.
• Common uses include leases, service agreements, insurance policies, employee stock plans, and revolving credit.

How evergreen contracts work

Contracts specify a term (length of time they remain in force). An evergreen clause overrides a one‑time expiration by providing for automatic renewal—typically for the same duration as the original term—unless a party acts to stop it.

Note: Many evergreen agreements include a renewal window or deadline (commonly 60–90 days before renewal) during which a party must give notice to avoid automatic rollover.

Common places you’ll see evergreen clauses:
* Rental leases
* Service and subscription agreements
* Insurance and healthcare plans
* Employee stock option plans and dividend reinvestment plans (DRIPs)
* Guaranteed investment certificates (GICs) and other financial products
* Revolving loans and credit facilities

How to cancel an evergreen contract

Cancellation methods depend on the contract language:
* Give the required notice: Follow the contract’s termination procedure (timeline, method of notice).
* Mutual agreement: Parties can agree in writing to end or replace the contract.
* Replace with a new contract: A newly executed agreement that expressly voids the prior one supersedes it.
* Default: A party’s material breach can terminate an agreement, but this is generally undesirable and may lead to disputes.

Always check the contract for specific notice periods, delivery methods (e.g., written notice, email), and any penalties or fees for early termination.

Considerations and risks

Evergreen clauses offer convenience by avoiding repeated renegotiation, but they can lock parties into terms that become unfavorable. Common risks:
* Missing the termination window can result in renewal under outdated or less favorable terms.
* Automatic renewal can lead to ongoing payments or missed opportunities (for example, reinvesting into a higher‑yield product).
* Lack of clarity about notice requirements can produce disputes.

Perform due diligence before signing: know the renewal date, required notice period, and cancellation procedure.

Examples

• Employee stock option plans: Plans may add shares annually (an “evergreen” allocation) to maintain incentive pools unless the board terminates the provision.
• Rental leases: A one‑year lease may automatically convert to another fixed term or month‑to‑month occupancy unless timely notice is given.
• Insurance policies: Auto and home insurance commonly renew yearly unless the policyholder cancels; insurers typically notify insureds of changes before renewal.
• Revolving loans: Credit lines that remain available indefinitely until the lender or borrower ends the facility, subject to good standing.

Practical tips

• Read the renewal and termination clauses carefully before signing.
• Note renewal deadlines and set calendar reminders well in advance.
• Negotiate opt‑out or shorter renewal periods when possible.
• Provide termination in writing and retain proof of delivery.

Evergreen clauses can simplify ongoing relationships but require attention to timing and process to avoid unintended renewals.