June 07, 2006

Automatic Renewal Provision
Why is there such a problem with this topic? Alarm contracts have automatic
renewal clauses in them. Some contracts are for an initial term of 3 to 5
years, some 10 or more. The renewal can be for 1 year, 5 years, or whatever
you make it.
An automatic renewal clause should and will be enforced (its legal) unless:
1. there is a statute that prohibits it
2. there is legal case law that refuses to enforce it (usually on the
grounds that the particular provision is unconscionable [shocks the
conscience of the court).
I am not aware of a Federal law that deals with the automatic renewal
clause (if you know of one let me know the statute). Some states do have
statutes that deal with the issue. In New York for example an automatic
renewal clause is not enforceable unless the provider of the service (the
alarm company) sends a separate notice advising the customer of the
provision. The notice has to be sent by certified mail or personally
delivered between 15 and 30 days prior to the renewal date. Failure to give
the notice renders the automatic renewal provision unenforceable.
Check the statutes in your state to find out if there is a similar
provision that you must comply with.
If there is no state law provision then you only need to be concerned that
your contract term does not run afoul of common sense or decency. A 5 year
initial term with a 10 year renewal written in obscure print buried in the
contract may not be enforced. I think you get the idea. The standardized
contracts that I offer to the trade are 5 year initial term and 5 year
renewal. We have not had difficulty with those terms. We have also had
success with 10 year initial term contracts with 5 year renewals.
For a list of the standardized contracts see our web site at the Alarm Law
Issues page.
Some alarm companies have a policy of sending out new contracts rather than
relying on their renewal provision. Unless the new contract is for an
extended period and the renewal is for a shorter period, like one year, I
don’t see the wisdom in going to the trouble of preparing and sending a new
contract. If you are required to send a notice of the automatic renewal you
should comply with that; after all, the new contract may not get signed and
returned.
Another little mistake I think some companies make is to send out a new
contract and call it a renewal contract. The phrase "renewal contract" has
caused many different types of problems in litigation. One thing you need
to be mindful of is that the contract, now labeled a "renewal contract" may
have several provisions in it that have triggering events that will not be
taking place with the renewal contract, such as an installation of
equipment, or a provision that says the contract is for 5 years after the
installation of equipment. In a renewal situation that provision can cause
the subscriber to claim that the equipment was installed long time ago when
the first contract was signed and therefore the 5 years ran before the
renewal contract was even signed, thereby permitting the subscriber to
cancel anytime; not a position you need to litigate and one you can easily
avoid by knowing what is in your contract.

If your contract has an automatic renewal provision in it then I suggest
you rely on it. If you want to have a new contract signed during the term
of an existing contract that is fine. You should probably offer some
incentive for a subscriber to sign a new contract, such as a free
inspection, free piece of equipment, an upgrade in equipment or a rate
freeze or decrease. Giving something for the new contract will help
establish your consideration and avoid an issue that the subscriber was
duped into signing a new long term contract. Let a sense of fairness be
your guide.