Extension option clause (option years) template clause

    Updated: 16 October 2026

    Please note: these example clauses are intended as a starting point, not as legal advice. Always adapt the text to your specific situation and have important contracts reviewed by a legal professional.

    Clause text

    1. This agreement is entered into for a fixed period of [number, e.g. 24] months, starting on [date] (the "Fixed Term").

    2. Customer may extend this agreement [number, e.g. two] times, each time by [number, e.g. 12] months (an "Option Period"). Supplier shall accept any option exercised in time. The total term shall not exceed [number, e.g. 48] months.

    3. Customer exercises an option by sending Supplier a written notice no later than [number, e.g. three] months before the end of the current period (the "Exercise Date"). Notice by email is valid if sent to [role or email address] and received by Supplier. If an option is not exercised in time, this agreement ends automatically at the end of the current period, without any need for termination.

    4. No later than [number, e.g. two] months before each Exercise Date, Supplier shall send Customer a written reminder stating the Exercise Date and the prices that will apply in the next Option Period. If Customer does not receive that reminder in time, the Exercise Date moves to [number, e.g. one] month after Customer receives it, but never beyond the last day of the current period.

    5. During an Option Period, the prices of the preceding period apply, adjusted by the percentage change in the consumer price index (CPI, all items) published by Statistics Netherlands (CBS) over the twelve months before the Exercise Date, capped at [percentage, e.g. 4]% per Option Period. All other terms remain unchanged.

    6. Customer may exercise an option for part of the services or sites only, provided it specifies this in the notice under paragraph 3. The fees shall then be reduced in accordance with the price schedule in Annex [X].

    7. This agreement ends automatically when the last Option Period expires. If Supplier continues to perform after that date, this shall not count as automatic renewal and shall not create an agreement for an indefinite term. Any bridging arrangement shall be agreed in writing for no more than [number, e.g. six] months.

    What does this clause mean?

    This clause gives you, the customer, a right rather than an obligation. Once the fixed term ends, you decide whether to continue; the supplier committed to that when it signed. That is what an extension option is, and it works the opposite way to a renewal clause with automatic renewal. There, you have to act to get out. Here, you have to act to stay in, and under paragraph 3 silence means the contract ends.

    Most templates leave out paragraph 4, and it is the paragraph that makes the clause practical. The supplier wants you to extend, so let the supplier send the reminder. If the reminder does not arrive, your deadline moves. That safeguard earns its place: Weshare (2025) found that 95% of organisations lack full visibility into their contractual obligations. An exercise date sits right in that blind spot, because nothing goes wrong until it is too late to fix.

    Paragraph 5 stops the exercise of the option from turning into a fresh negotiation on the supplier's terms. Paragraph 7 closes a gap that opens surprisingly often. After the last option year the supplier keeps delivering, you keep paying, and without noticing you end up in an indefinite term contract with a notice period nobody has thought about.

    When should you use this clause?

    Use this clause for services where you want a year or two of experience before committing further: cleaning, security, catering, maintenance, managed services and software licences. It is also the standard structure in public tendering. The options must be set out in the tender documents and their value counts towards the estimated contract value, because an option added afterwards is legally a new contract.

    If the supplier has to invest heavily up front, it will want certainty and will push for a minimum contract duration instead. The two combine well: a fixed term long enough for the supplier to earn back its investment, followed by one or two option years.

    Take care with business critical services. Forget to exercise the option and you reach the end date with no supplier at all. Paragraph 4 reduces that risk but does not replace your own record of the exercise date.

    Customize these elements

    • 1Set the notice period in paragraph 3 by how long it would take to line up an alternative. If a new sourcing round takes six months, a three month window leaves you no realistic way to say no.
    • 2Pick an index in paragraph 5 that matches the cost base of the service. For labour intensive services such as cleaning, a collective wage index tracks real costs better than CPI. The [price indexation clause](/en/clause-library/price-indexation-clause-template/) sets out the options.
    • 3In public contracts, include the maximum term from paragraph 2 in the estimated contract value, even if you do not expect to use the options.
    • 4Schedule a [supplier evaluation](/en/glossary/supplier-evaluation/) well before each exercise date, so the decision to extend rests on performance rather than habit.
    • 5Record every exercise date as a separate deadline in your contract management system, apart from the end date, and keep your exercise notice and the supplier's acknowledgement with the contract.

    Sources

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