The latest contract modifications to the standard contracts [ Alarm Contracts ] (with recurring revenue -- which would be lease, monitoring and service) included a change in the initial term. The term of the contract, which years ago was typically 3 years, changed to 5 years well over 10 years ago, and is
now 10 years. Of course there is also an increase provision and I have retained the right of the alarm company to terminate or withdraw the increase if the subscriber does not want to pay an increase.
Just a few weeks ago we got a decision on a collection case that went to trial. We sought 80 percent of the balance of a 10 year term (about 8 years left), pursuant to the liquidated damage clause, and 80% of the stated value of the equipment, which was something like $3000.
There were other interesting issues in the case that the Judge had to deal with, but the issue for this article is the enforcement of the term, the liquidated damages and the equipment value.
The Judge gave the full amount calculated on the liquidated damage clause on the 10 year term, plus legal fees of approximately 33% on that amount. However the Judge gave nothing for the value of the equipment (we were seeking 80% of that amount also) because the Judge reasoned that if the customer had paid for 10 years, as she was being charged in the judgment, then the equipment would depreciate and have no value after that passage of time.
Though there was nothing in the record to support the Judge's speculation of the declining equipment value, the enforcement of the 10 year term and the recovery of legal fees, made the award high enough.
The contract also has the automatic renewal clause, but many companies are remise in sending out the required renewal notice. Will subscribers sign a 10 year term contract? Well, several of our clients have been using contract with that term for some time without issue. Your ability to sell it will depend on your marketing and sales pitch.