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Question
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Ken,
I own a small Texas Alarm Company. Five years back, we purchased the monitoring contracts of another small company. The original contracts term were one and three years. However,the "Evergreen" automatic renewal was four five years. Is automatic renewal clause enforceable in the Sate of Texas?
R
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Answer
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Texas doesn't have a statute that prohibits automatic renewal, nor does any statute address auto renewal specifically [as far as I know]. You can check states that regulate auto renew by statute here: https://www.kirschenbaumesq.com/page/alarm-law-issues
But any contract is going to be subject to a challenge of unconscionability; a very unreasonable contract or term of contract that no reasonable person would accept or offer; one that shocks the conscience of the Judge. I don't think it's too much of a stretch to think that a one or two year contract that renews for four or five years is going to raise plenty of concern. That is especially the case if nothing new is offered for the renewal, and you are unable to show some economic justification for the lengthy renewal. These are never build in to the alarm contracts, though I suppose you could do it. For example, you could have a one year monitoring and service contract that provides that in the event of xx number of excessive alarm signals or xx number of service calls or service expense, the contract will automatically renew for a period of time. You might be able to justify the lengthy renewal based on unanticipated unusually high expense during the original term. I am not advocating this approach, just using it as an example.
The Standard Form Contacts call for monthly auto renewal after a 5 year residential term and 10 year commercial term. Month to month should be enforceable in any jurisdiction that currently has legislation and any that is likely to enact legislation because month to month is generally excluded from the statute.
As to value of contract, I doubt that a month to month auto renewed contract is going to be worth much less, if it is worth less, than a longer auto renewal term. Once in renewal the contract is worth a bit less than original term, but not enough to start playing games and risking criticism that you are engaging in deceptive business practices.
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