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5 Key Benefits of Using Rolling Contracts

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For business owners, acquiring and retaining customers is paramount, with contracts serving as a safety net for ensuring security and fostering trust in those business interactions. Rolling contracts are becoming increasingly popular in New Zealand due to their adaptability and flexibility. They differ from fixed-term contracts in that they allow for continuous renewal options, creating a flexible framework that adapts to the evolving demands of both individuals and businesses. This article explores five key benefits of using rolling contracts to sustain customer relationships.

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What is a Rolling Contract? 

A rolling contract is an agreement:

  1. with no pre-determined end date; and 
  2. that will only end once one party chooses to terminate the contract. 

These types of contracts differ from fixed-term contracts with a specified date. The contract ends when the specified date arrives, or the agreed service is performed. 

Rolling contracts are quite common in everyone’s daily life until termination by one of the contracting parties. Common examples of rolling contracts include:

  • subscription plans;
  • mobile phone plans;
  • gym memberships;
  • software licenses;
  • employment agreements; and
  • lease contracts.

Benefits of Rolling Contracts

The following sections unpack the benefits of using rolling contracts for your business.

1. Flexibility

The main benefit of using rolling contracts lies in their flexible nature. Unlike fixed-term contracts with a specified end date, your business can extend a rolling contract until a party in the contract decides to terminate. This adaptable function allows businesses in industries subject to frequent market fluctuations or operational scopes to demand fluidity. 

Rolling contracts have become more favourable in the New Zealand startup and small business space as they are highly adaptable to evolving operations when a company faces growth or change. These agreements often involve shorter terms and month-to-month arrangements.

This choice benefits the parties involved, allowing the other party to exit the contract if unsatisfied, similar to providing a probationary or trial period. Simultaneously, it grants businesses the ability to terminate relationships that do not align with their core values or strategic objectives. Therefore, using rolling contracts minimises the need for frequent and costly changes to the contract, saving time and resources. 

For example, adopting a rolling structure within employment contracts is considered best practice in some industries. It provides a more flexible framework for employers and employees to negotiate without the constraints of fixed-term arrangements. This collective agreement for a rolling written employment agreement benefits both sides because:

  • employers can adapt to business needs; and 
  • employees enjoy job security based on new opportunities or personal circumstances, such as incorporating parental leave. 

This mutual negotiation fosters a dynamic and supportive work environment between employment relationships if conducted on reasonable grounds. 

2. Financial Security  

Using a rolling contract allows your business to benefit from ongoing funding until either party ends the contract. However, the main drawback lies in the unpredictability of when your client will cancel the contract.

In response, consider imposing a minimum commitment period where clients cannot terminate, such as 12 months. This provides financial protection and security of knowing you will receive a fixed income for a set period. 

3. Risk Mitigation 

Rolling contracts can also reduce the common risks of entering long-term contracts, acting as a buffer when you encounter uncertainties while running your business.

The ongoing framework of these contracts allows parties to address unforeseen situations to reduce likely risks. This benefit enables you to navigate evolving regulations and market trends without being bound by a fixed-term agreement, which can help sustain long-term growth.  

4. Easy Renewal Process

Rolling contracts provide a streamlined renewal procedure compared to fixed-term contracts, which need renegotiation upon expiration. Typically, terms remain largely unchanged, offering slight adjustments or automatic renewal options. A streamlined approach makes it easier for you and your business to develop smoother operations and stronger relationships for heightening productivity. 

5. Client Retention 

While fixed-term contracts maintain long-term clients, rolling contracts can encourage customer retention and engagement. Rolling contracts allow contractual parties flexible negotiation options, improving client retention. 

Additionally, the ongoing nature of these agreements provides an opportunity for periodic reviews and adjustments, allowing them to remain relevant and beneficial for all parties involved. As a result, it offers a competitive edge to leverage in changing market conditions or technological advancements to secure more favourable terms or services. 

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Key Takeaways 

Rolling contracts offer companies a flexible, advantageous option to conduct their business. Their ability to adapt to changing business conditions, financial security, straightforward renewal process, and easier negotiation avenues for client retention make them highly desirable. However, it is crucial to note that rolling contract terms can be considered ‘unfair’ under the Fair Trading Act 1986. Therefore, seeking legal advice on your drafting is important to minimise this risk. 

If you want to adopt a rolling contract for your business, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

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