October 22, 2010

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Question

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    My customer is terminating 5 year monitoring contract, about half way through, due to financial problems.  What is he obligated to pay to satisfy the agreement, and can you direct me to the section on your contract that talks about it?  Thanks.

Dan Mahoney

Safe & Sound

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Answer

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    All the Standard Form Contracts have a "legal" paragraph.  That paragraph deals with the consequences of the subscriber's default.  When recurring revenue is being charged the subscriber will owe 80% of the remaining balance of all payments due under the contract.  You would look to the paragraph titled "Term" to see the length of the contract term.

    Where the equipment is leased you will also be given the option of selling the installed equipment to the subscriber for 80% of the "agreed value" of the installed equipment.  Make sure you fill out the "agreed value" when you fill out the contract.

    You will also be able to recover your legal fees for chasing after your defaulting subscriber.

    My contracts do not have an "early termination" right that the subscriber can exercise, nor do they have late fees or other monetary charges that appear punitive.     When you enter into a contractual relationship with your subscriber you agree to perform certain services and you expect to be paid in return.  This is the bargain you've made with your subscriber and you should be able to rely upon that bargain.  Think about it.  Based upon the bargains you make with your subscribers you develop expectations - expectations of revenue stream - so you arrange to rent or purchase an office, hire personnel, buy trucks, create inventory, hire professionals [buy my Standard Form Contracts] and incur other general overhead expenses.  Subscribers don't think about your expectations or needs, nor do they care.  Absent unusual circumstances you should hold your subscribers to their end of the bargain, as long as you have performed your end.  If your subscriber revenue is unreliable then you put your entire business in jeopardy.