A Contract That Renewed Itself Three Weeks Before Closing

The situation

Lan and Kwame had already been through two rounds of document review before they came to our office. Lan worked as a hospital department manager and Kwame as a physiotherapist, and over several years they had built a side practice of acquiring small and mid-market businesses together, treating it as a long-term investment rather than a career change from their day jobs. Their current target was a company valued at roughly forty million dollars, their largest acquisition to date, and they had used a general business lawyer for the first review and then a second reviewer recommended by their accountant, hoping a second set of eyes would catch anything the first had missed.

Both reviews had focused heavily on financial statements, employment obligations, and the company's real estate leases, which is where problems most commonly turn up in a deal of this size. Neither review had gone through the company's customer contracts clause by clause, in part because there were dozens of them and doing so thoroughly takes real time, and in part because the earlier lawyers had reasonably assumed that a company's ordinary commercial contracts were the least likely place to find something that could derail a closing.

What brought Lan and Kwame to our office was not a specific concern about the contracts. It was a broader worry about cost and process. They had already spent a meaningful amount on legal fees across two reviews, the closing date had slipped once already, and what they wanted most from a third lawyer was not necessarily a different answer but a predictable one: a clear sense of what remained to be checked, how long it would actually take, and what it would cost, so they could plan around a firm date rather than another open-ended review.

We agreed to a fixed scope, a full pass through every material customer contract with a defined timeline, precisely because predictability was what they said mattered most. That review is what surfaced the problem neither earlier pass had found.

Kwame put it plainly on the first call: they did not need a lawyer to tell them the deal was risky in the abstract, they needed one to tell them, concretely, what still had to be checked and how long that would take. Lan added that the target itself had impressed them on every visit, well run, growing steadily, with a management team, led by the target's general manager, Adaeze, that they liked working with, and their worry was never really about the business. It was about whether the process of buying it would stay on a schedule they could plan around.

The problem

Buried in the company's largest customer contract, worth roughly a quarter of its annual revenue, was an automatic renewal clause. Left untouched, the contract would renew itself for another three-year term in just under three weeks, locking in pricing that had not been adjusted in several years and was now well below what the customer would likely pay if the contract were renegotiated fresh. Once the automatic renewal took effect, the seller would lose its leverage to renegotiate those terms before the acquisition closed, not its ability to raise them at all; the parties could still agree to amend the contract at any time, though the customer would have no reason to. Practically, Lan and Kwame would inherit the renewed terms for the balance of the new three-year term unless the customer chose to reopen them.

The clause itself was not unusual or hidden in any technical sense. It sat in the contract's general terms in ordinary language, the kind of provision that appears in a great many commercial contracts and is easy to skim past precisely because it looks routine. Both earlier reviews had likely seen the contract itself, since it was listed in the company's disclosure schedule, but a full contract-by-clause review of every material agreement had not been part of either engagement's stated scope, and a summary review of a long-running customer relationship does not naturally draw attention to a renewal date buried in the general terms.

The three-week window made this urgent in a way the earlier reviews' findings had not been. There was no time to renegotiate the underlying commercial terms from scratch, and no guarantee the customer, who had no reason to want anything to change, would agree to revisit pricing it was perfectly happy to see renew automatically. Lan and Kwame's instinct was to push the closing date back again to buy time, which was exactly the kind of delay and added cost they had come to our office hoping to avoid.

The choice, in practical terms, was between accepting a below-market contract locked in for three years as part of the deal, walking away from a term that could be renegotiated only with the customer's cooperation, or finding a way to manage the renewal date itself before it passed, without slipping the closing date the client had specifically asked us to protect.

There was also a question of who should raise the issue first. Raising it with the seller risked signalling a problem serious enough to justify a price reduction or a delay, exactly the outcome Lan and Kwame wanted to avoid. Saying nothing and letting the clause renew was not a real option either, since it would hand the seller no incentive to help fix a problem that, after closing, would become entirely Lan and Kwame's to live with. The path forward depended on framing the renewal date as a shared problem rather than a one-sided complaint.

What we did

1. Completed the clause-by-clause review of every material customer contract within the agreed scope. Rather than sampling a handful of representative contracts as the earlier reviews had effectively done, we reviewed all of them in full against the fixed timeline the client had asked us to hold, which is exactly what caught the renewal clause before it took effect rather than after closing had already happened.
2. Calculated the exact renewal deadline and worked backward from it. Once we found the clause, we confirmed precisely how many days remained before the automatic renewal became irrevocable under the contract's own terms, and built the rest of the response around that fixed date rather than around the acquisition's closing date, since the renewal clock did not care about the deal's own schedule at all.
3. Advised the seller's counsel of the issue directly, framing it as a shared problem. We approached the seller's lawyers not as an obstacle to closing but as a party with an equal interest in the contract's value, since a below-market renewal locked in now would also depress the purchase price if it were treated as a known defect rather than fixed before closing.
4. Negotiated a short-term amendment with the customer before the renewal date, rather than a full renegotiation. Instead of trying to rewrite the whole contract in three weeks, we worked with the seller, primarily through Adaeze, who already had the customer relationship, to approach the customer about a narrower amendment, extending the decision point on renewal by a further period rather than letting the automatic clause fire, which gave everyone room to negotiate the real terms afterward.
5. Kept the acquisition closing date separate from the contract renewal timeline. Because predictability mattered to Lan and Kwame as much as the ultimate outcome itself, we structured the contract fix as a parallel workstream running alongside the main closing process, rather than treating it as a condition that could push the closing date again, protecting the schedule they had specifically asked us to hold from the start.
6. Negotiated a price adjustment mechanism into the purchase agreement as a backstop. In case the customer amendment did not ultimately produce improved pricing, we built a mechanism into the purchase agreement itself adjusting the purchase price modestly if the contract's value, once finally renegotiated after closing, came in below an agreed benchmark, so the risk did not sit entirely with Lan and Kwame regardless of the amendment's outcome.
7. Gave the client a fixed weekly update rather than an open-ended status report. Knowing that cost and process predictability were the client's stated priority from the very first call, we set a standing weekly summary covering exactly what had moved, what remained open, and what it had cost so far, rather than leaving Lan and Kwame to chase the answer themselves.
8. Set a firm fee estimate for the additional work once the renewal issue was found. Rather than letting the fix run on an open-ended hourly basis, which is what had frustrated Lan and Kwame about the earlier reviews, we quoted a fixed additional amount for resolving the renewal issue specifically, so the surprise of finding the problem did not turn into a second surprise on their invoice.

The outcome

The customer agreed to the short-term amendment two days before the automatic renewal would otherwise have taken effect, extending the decision point by four months rather than locking in three more years on the old pricing. The acquisition closed on the revised date the client had agreed to, nine days later than the original plan but without the second open-ended delay Lan and Kwame had been trying to avoid.

The exposure was not eliminated. The contract still carried below-market pricing for the four-month extension period, and the eventual renegotiation, which happened after closing under Lan and Kwame's ownership, produced improved terms but not a full return to market rates, since the customer had leverage of its own as a long-standing relationship the new owners did not want to jeopardize. The price adjustment mechanism triggered modestly, reducing the purchase price by an amount reflecting the gap between the old pricing and what was ultimately agreed.

For Lan and Kwame, the clearer outcome was less about the dollar figure than about what they had asked for from the start. The process stayed on a schedule they understood, the costs were reported to them weekly rather than surfacing as a surprise at the end, and the contract problem, once found, was handled as a defined workstream rather than another reason to reopen the whole review. They have said since that the predictability of how the issue was handled mattered to them as much as the modest price adjustment it produced.

The experience also changed how they approached due diligence on their next acquisition, which they began evaluating about six months later. Lan has said they now ask any prospective lawyer directly whether a contract-by-clause review is included in the proposed scope, rather than assuming a general commercial due diligence review automatically covers it, since the London deal made clear how much can sit inside routine paperwork that nobody has specifically been asked to check.

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