KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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More comment on month to month renewal / Comment on temperature sensors in smoke detectors
May 4, 2022
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More comment on month to month renewal from article on April 28, 2022
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Ken
Excellent explanation on month to month valuation.
Thanks .
Jim Sr
james t wooster
jtwooster@alarmfunding.com
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Ken
In Reading the article on the month-to-month renewal I was just wondering am I spinning my wheels by trying to get new contracts signed from existing customers versus them being on a month-to-month renewal. The goal is to have all customers on renewed contracts for near future sale purposes.
Bill W
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Response
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Good question and a perennial one. Can you rely on the automatic renewal in your alarm contract rather than try and get a new contract signed?
There are a few ways to ask that same question:
* do you need to get new contract signed or can you rely on automatic renewal
* is it better business practice to get new contracts signed
* is looking for new contracts going to rock the boat and result in losing subscribers
* are contracts in renewal worth the same as contracts in original term
There are some answers, though some of the answers are optional preferences. Here’s why. Unless you are in a state that prohibits or regulates automatic renewal you can rely on the automatic renewal as long as you comply with state [and sometimes local] requirements. Generally these requirements are for consumer [residential] contracts and require conspicuous notice in the contract of the automatic renewal provision and some other notice to the customer prior to the automatic renewal term or terms. But if there isn’t a law or you comply with the law, the automatic renewal should be enforceable.
One issue regarding the automatic renewal is the renewal term. Even if not technically in violation of any law you may find that enforcing a long term renewal terms problematic; some judges will refuse to enforce the renewal term, finding it “unconscionable” or finding some other reason to relieve the customer from the effects of the renewal term. We see this when the renewal term is for a long time and there seems no justification [read that as “consideration”, in contract terminology] for the long term. Renewal terms can be month to month, annual, “for like term” [same length as the original contract], or much longer, 5 to 10 or more years. You will find enforcing the renewal terms [and we are talking about in a collection situation, because the renewal term will likely be applied in a defense situation] will be easier the shorter the term. Why?
Well take a residential alarm customer; low end. Basic system installed for few hundred dollars and monitoring term is 36 or 60 months. There is good argument justifying the original term that I won’t point out here. But if contract renews for “like term” [or worse, longer than the original term] and the alarm company provided no new consideration [upgrade system; any additional equipment or service; free months] then it becomes harder to justify the renewal term.
Renewal terms are necessary, so don’t make that mistake. You don’t want to enter into an alarm contract for a fixed term that ends with renewal, especially if you aren’t going to give notice of the expiration of the contract term, and you shouldn’t have to undertake that obligation with the potential of making another mistake. You shouldn’t have a security or fire alarm service simply end without the subscriber having plenty of advance notice. If your subscriber insists on no renewal, which I have seen a handful of times, be sure to include in the Schedule of Equipment and Services and also in the Disclaimer Notice that “This contract and all alarm company services will end upon expiration of the contract term without notice”. If that doesn’t get the subscriber to agree to at least month to month be sure to terminate the service exactly on time; don’t provide any alarm service without benefit of a contract in place.
I think the best practice is to engage the subscriber during the final year of the original term, offer a survey and upgrade and make an effort to get a new contract signed, even if that new contract has the term shortened from 5 or 10 to one year renewal, which is better than month to month, at least psychologically [because it’s not really worth more monetarily]. A new contract supported by new consideration [some upgrade] will be easier to enforce, will have an updated contract and should be worth more than the old contract in renewal.
So before I conclude, let me anticipate the next question, which is “didn’t you say that contracts in renewal are worth same as contracts in original term?” Yes I did say that. But renewal v original term is only one factor to consider on valuation, and when looking at a portfolio of accounts some renewal isn’t going to change the valuation [or multiple offer]. If all the accounts are in renewal that may drive the multiple down a bit, but all new contracts with less than a one year track record might drive the multiple down even more.
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Comment on temperature sensors in smoke detectors from article on April 5, 2022
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Ken
I just want to give accolades to the answer provided by Joe Sacchetti of Catskill security systems in regards to the temperature sensors in the 5808 smoke detectors. He’s spot on.
Thank you,
David Febbraio
Structured Home Solutions, LLC
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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