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What is a Contract Renewal?

Contract renewal is the extension of an existing contract for a new term, the duration of which is specified in the contract. The renewal is often effective with no new consideration, although it is important to look to the laws of a particular state when considering this issue.

In many instances, the terms of the contract being renewed remain the same. Many contracts contain an automatic renewal clause which provides that the existing contract will automatically be renewed for a period of time specified in the contract, unless one party provides notice to the other of the intent to end the contract upon its scheduled termination. The contract provides the method and timing required to provide the notice.

The terms “renewal” and “extension” are sometimes used interchangeably by both lay people and lawyers, alike. However, the context of their use, and the law of a particular state, can play a role in how these terms should be used. “Extension” normally refers to a lengthening of time for an existing contract. “Renewal” normally contemplates an entirely new contract. This can be a distinction without a difference in some situations, but in complicated contracts it can have legal consequences. Courts might even interpret the words differently, depending on the type of contract at issue, such as a lease, note, insurance policy, or other type of agreement.

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