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Automatic Renewal of Leases of Business Equipment and Contracts for Business Services After May 1, 2011

Corporate Services Law Alert Mark T. Ehrmann, Cristina M. Choi

Wisconsin Statute Section 134.49, effective May 1, 2011, may change how companies doing business in Wisconsin draft automatic renewal provisions in their business contracts and administer contracts with automatic renewal provisions going forward. The new law applies to any contract that is a "business contract," which is defined as a contract for the lease of business equipment if the business equipment is used primarily in Wisconsin or for providing business services, but only if the contract is for the direct benefit of the end user of the business equipment or business services. A "business contract" does not include the following:

  • A contract where the customer agrees to purchase an undetermined amount of business services or lease an undetermined amount of business equipment for a pre-determined minimum payment that is $250,000 or more.

  • A contract for the lease or purchase of real property.
  • A contract for the lease of a vehicle for which a certificate of title has been issued.
  • A contract for the lease of medical equipment.
  • A contract derived from a tariff issued by an energy utility.
  • A contract for the lease of equipment that is for personal, family or household purposes.
  • A contract for the purchase of services that are for personal, family or household purposes.
  • A contract for the lease or purchase of access services.
  • An interconnection agreement offered by a telecommunications utility.
  • A contract for the lease or purchase of telecommunications services that meets certain requirements.
  • A contract that permits the customer to terminate an automatically renewed or extended contract by giving the seller notice, and notice is not required more than one month before the date of the customer's intended termination.
  • A contract to which a federal, state or local government is a party.
  • A contract between a cooperative association and a member of the cooperative.
  • A contract for the lease, maintenance, repair, service or inspection of elevator or escalator systems.

Under the bill, if a business contract provides that the contract will be automatically renewed or extended for an additional contract period of more than one month unless the customer declines renewal or extension, the seller must provide the customer with a form containing certain disclosures or include the disclosures in the contract and obtain the customer's initials on the same page as the disclosures. The disclosures include certain information regarding a renewal or extension, including:

  • A statement that the contract will be renewed or extended unless the customer declines renewal or extension.

  • A statement indicating the duration of the additional contract period that would result from an automatic renewal or extension.
  • A statement indicating whether an increase in charges to the customer will apply upon an automatic renewal or extension.
  • A description of action the customer must take to decline renewal or extension.
  • The date of the deadline for the customer to decline a renewal or extension.

Also under the bill, if a business contract provides that an automatic renewal or extension results in an additional contract period of more than one year, the seller must give the customer a reminder notice prior to renewal or extension. The notice must be provided by mail, by personal delivery, in a monthly invoice, by a facsimile, or by electronic mail, and it must be provided at least 15 days, but not more than 60 days, before the deadline for the customer to decline renewal or extension. The reminder notice must contain the following information:

  • A statement that the contract will be renewed or extended unless the customer declines renewal or extension.

  • The deadline for the customer to decline renewal or extension.
  • A description of any increase in charges to the customer that will apply after renewal or extension.
  • A description of action that the customer must take to decline extension or renewal.

The bill also voids a business contract provision that requires a customer to permit the seller to match any offer the customer receives from, or makes to, another seller after the end of the contract's stated term (right to match provision).

If a seller fails to comply with the bill's disclosure or reminder notice requirements, the automatic renewal or extension provision is unenforceable, and the contract terminates at the end of the current contract term. Also, if a seller fails to comply with the reminder notice requirements or attempts to enforce a right to match provision, the bill allows a customer to bring an action or counterclaim for damages. In such an action or counterclaim, a seller is not liable if: 1) the seller has established and implemented written procedures for complying with the reminder notice requirements and the prohibition against right to match provisions; 2) the seller's conduct was not willful or malicious; and 3) the seller refunds amounts the customer paid after the contract was renewed or extended.

If you would like more information regarding this new statute or assistance in complying with it, please contact Mark Ehrmann at (608) 283-2479 / mark.ehrmann@quarles.com, Cristina Choi (608) 283-2463 / cristina.choi@quarles.com or your Quarles & Brady LLP attorney.