Contract Renewal vs. Contract Extension: What’s the Difference?

Updated June 23, 2023
9 min read
Contract Renewal vs. Contract Extension: What’s the Difference?

Introduction

Contract extension and contract renewal are two commonly used terminologies. Regardless of the type of legal contract, renewals and extensions are implemented when both parties agree to extend the existing contract. However, minor technical differences exist between a renewal and an extension contract. This post will explore the differences and understand what you need for your legal contracts. 

What are Contract Renewals?

A contract renewal refers to extending the duration of the existing contractual agreement beyond its predefined expiration date. But a typical renewal doesn’t only include an extension date. Instead, there are amendments and provisions to the existing contract as agreed by both parties. 

As a result, it allows agreeing parties to continue their legal contract and opens the door to renegotiating the terms. Typically, renewals work well for readjusting specific conditions in an agreement.

What Are Contract Extensions?

A contract extension refers to extending the duration of the existing contract as both parties wish to continue on the same agreement terms. It ensures that the agreeing parties can legally continue their dealings as a termination date arrives closer.

That’s why an extension contract is usually signed when the termination period is closed. Sometimes, an extension also applies to creating a new agreement or replacing specific terms and conditions in the original contract. Generally, such agreements are called ‘Supplemental agreements.’

It is important to note that the original agreement stays valid after a contract extension agreement. However, the extension allows both parties to amend some terms and conditions.

What Is the Difference Between Contract Renewal and Contract Extension?

In many ways, contract extensions and renewals are similar, allowing the parties to continue the existing agreement. However, the primary difference is that an extension contract does not nullify the original contract. On the other hand, a contract renewal replaces the original even if the agreement has few changes.

Suppose you’re offering services or products to a company for a specific duration and wish to continue the agreement beyond the expiration date. In that case, a contract extension will suffice for your needs. 

On the other hand, if you want to change the types of nature of products or services, update service charges or product prices, revisit payment options, or any other terms in the contract, you will need a contract renewal which will turn the original contract invalid. Both parties enter a new agreement with updated terms and conditions.

How to Manage Your Contract Renewals and Extensions

Business owners can find managing multiple contracts challenging and tracking expiry dates challenging. That’s why they need a structured system to ensure a streamlined system where they can assess various contract terms and conditions and decide whether they need an extension or a renewal. 

Typically, it starts with gathering updated information about current and legal affairs from reliable online platforms like Lawrina. For instance, if there is a recent change in legal matters, you should ensure that your existing contracts adhere to the updated policies. 

Once you have the updated information, you can implement a management system to track and regulate your contract extension. Here are some essential tips for managing extension contracts and renewals.

Create a playbook with selected clauses and conditions

Having a contract playbook saves time. It’s essentially a template that allows you to prepare terms and conditions in advance. Typically, many parties make the error of not having a set of terms at the start of a contract negotiation. And since there is already too much work related to contract dynamics, adding new clauses can be pretty tedious. 

So, creating contract extension agreements for specific clients and product types is a good idea. It saves time and makes sure that your contract complies with legal affairs.

Check your key parameters regularly

Regularly checking contract parameters can save you from suddenly approaching deadlines. Typically, when you ignore contract deadlines, you can find yourself struggling to draft a new contract overnight, which amplifies the chances of mistakes in the new extension contract. 

Moreover, you may have to compromise on certain conditions because you prefer drafting the contract within the due time. Therefore, having a contract extension calendar and parameter checker saves you from unwanted hassles and helps you manage deadlines smoothly.

Keep track of your deadlines in a standardized way

If you’re a company that deals with many clients and businesses, it can be a challenge tracking deadlines and streamlining them. Therefore, you need a standardized approach to make sure everything runs smoothly. 

But interestingly, you don’t need a highly sophisticated system to standardize deadline tracking. You can start with the following approach:

  • Use a reminder system to alert the contract manager about the approaching deadlines. You can use tools like Google Calendar or similar tools to set up a reminder system. Moreover, you can use spreadsheets and highlight deadlines or implement an email-based reminder system so that you never miss out on an approaching deadline;

  • When a reminder system is in place, you will need to manage the renewal process next. This is critical because there must be a backup option if your customer doesn’t respond to the renewal reminder within time;

  • If you have many contracts and clients, you can also consider using specialized software that automates reminders, deadline tracking, etc. The software ensures a better-streamlined management process for your contract extension. Moreover, many software also allows users to enter the relevant details, terms, and conditions that can generate a renewed contract within no time.

Streamline your processes

The contract extension is a sophisticated process. If you miss a step, you can miss out on important upgrades in terms and conditions, leading to serious financial consequences. 

That’s why an automated and streamlined process is key to ensuring long-term success for your contract extension management efforts. Moreover, streamlined processes make tracking and debugging any potential problems in the extension contract easier, helping you preserve your clients and extract more business from them.

Unveil the Potential of Your Contract Management

Contract management is simpler than it seems. Especially with predefined contract extension templates, and dedicated software, it’s easier for businesses to manage their contract deadlines and prevent any legal or financial consequences. 

Hence, you can unravel the potential advantages of contract management for your business by ensuring a proper contract management system.

Conclusion

Contract extension and renewal are almost similar, but now that you know the technical difference between them, you can figure out which one you will need when your next contract deadline approaches. Moreover, it’s best to use a contract extension template to save time and ensure compliance for your matters related to business contracts. 

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Article by
Inna Chumachenko
Lawrina

Inna Chumachenko is the Content Lead at Lawrina. She is responsible for managing all the content found on the blog, guides, and other website pages. Inna has a degree in philology and a vast interest in law. In her role at Lawrina, Inna oversees the content team, establishes collaborations with writers, and curates content from various contributors.

If you have any questions or suggestions regarding the content for Lawrina, please feel free to contact Inna directly via email at i.chumachenko@lawrina.org or connect with her on LinkedIn.

Frequently Asked Questions

When should I use a contract renewal?

If you are standing at the crossroads of an expiring contract, and both parties want to continue the agreement, contract renewal is your go-to solution. It's like giving your contract fresh air, allowing you to extend its lifespan while preserving the tried-and-true terms and conditions that have served you well. With such renewal, you can extend the contract while keeping the existing terms and conditions intact, with the option to make minor adjustments if needed.

 

Both parties can revisit and adjust specific conditions within the agreement: pricing terms, service charges, payment options, or changes in products or services. Consider it an opportunity to spruce things up and make minor adjustments.
 

When should I use a contract extension?

Imagine a scenario where you and the other party are happily cruising along with your existing contract, and you both want to keep the wheels turning without rocking the boat. People use a contract extension when both parties want to prolong the duration of the existing contract without making significant changes to the agreement. It's your ticket to prolonging the journey on the same path, embracing the familiar terms and conditions that have been the foundation of your successful partnership. 

Does a contract extension nullify the original contract?

A contract extension does not wield the power to wipe out the original deal from existence. Instead, it serves to extend the validity of the original agreement. The initial contract holds sway unless explicitly altered through the extension agreement.