KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Does contract go month to month if no automatic renewal
December 8, 2020
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Does contract go month to month if no automatic renewal
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Ken
We have a subscriber whose contract, the Commercial All in One, has the entire Term paragraph crossed out; that includes the automatic renewal clause. The contract has expired and the customer is giving us a hard time signing a new contract. Should I consider the contract renewable month to month, or what should I do?
Hank
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Response
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Most alarm contracts, and certainly the Standard Form Agreements, have a "term" specifying a number of years the agreement is to run, and then contains an automatic renewal provision. Generally the renewal term is month to month and can be canceled on 30 day notice prior to a renewal. Some renewal notices have longer terms, at times equal to the original term. Statutes that prohibit or condition automatic renewal generally exclude a month to month renewal, which is why the Standard Form Agreements have month to month renewal.
The "term" provision raises a few issues.
* Can you change the term? The answer is yes. The length of the contract is a business decision. If you're making an investment in the subscriber you may need a longer term to recoup your investment. Consider also the Service Plan term. A new account or a take-over account may have more repair service at the beginning of the relationship and you'll need a longer term to recoup all the service calls you make at the beginning of the relationship. Also, be careful because the will come a tipping point where the older system will require more repair service. It's your job to figure out the right term.
* How can you change the term? Easy enough; you cross out the printed term, say 5 years or 10 years, and handwrite the new agreed upon term. If you have electronic contracts your form will have to accommodate that change if you permit it.
* Do you even need a contract, or one with a "term" and if you cross out the entire term paragraph will the contract simply renew month to month?
A proper contract with your subscriber is essential. It’s your contract that defines your duty owed to your subscriber; the contract eliminates, reduces or shifts exposure and liability. The contract enables you to find a central station willing to monitor your accounts and an insurance company willing to offer you E&O coverage. It’s the contract that creates value and equity in your business. “What’s your RMR under contract, and what contract do you have and has every customer signed it?” Remember that question, because you’re going to hear it when you want to sell your company, your alarm contracts and accounts and finance your operation.
A proper alarm contract, certainly all of the Kirschenbaum Contracts ™ have an automatic renewal clause. Subscribers who insist on deleting that provision don’t realize the consequences. Alarm companies who permit deleting the automatic renewal are looking for trouble. There are only a few options once the automatic renewal provision is deleted:
* alarm company assumes the burden of notifying the subscriber that the contract will be coming to an end, along with all services.
* subscriber assumes the duty of letting the alarm company know that the contract and services are coming to an end
* no one has any obligation to notify the other that the contract is coming to an end or has terminated, along with all services
Then there are only two options:
* alarm company continues to provide service after termination of contract
* alarm company terminates all services
In most cases, when the subscriber insists on deleting the automatic renewal clause there is no mention of any notice requirement. Upon expiration of the contract the alarm company is faced with the two options, continue service without contract or terminate [obviously a new contract can be entered into]. If the alarm company continues service it could reasonably argue that the expired contract continues, by implication or some other theory. Do you really want to gamble your business on that argument? I can’t recommend it.
If the contract expires then so does your protection; so does the value in the account; you will be gambling your company for the monthly charge, and believe me, if there is a claim it won’t be worth it.
You should explain to your subscriber that it must agree to a month to month renewal. If it won’t, be sure to include that in the Disclaimer Notice and the Schedule of Equipment and Services, that all services will end upon expiration, without notice, and in the case of fire alarm service, you will be notifying the AHJ of termination of service.
No exceptions.
