June 07, 2006

 

Automatic Renewal ProvisionWhy is there such a problem with this topic? Alarm contracts have automaticrenewal clauses in them. Some contracts are for an initial term of 3 to 5years, some 10 or more. The renewal can be for 1 year, 5 years, or whateveryou make it.An automatic renewal clause should and will be enforced (its legal) unless:1. there is a statute that prohibits it2. there is legal case law that refuses to enforce it (usually on thegrounds that the particular provision is unconscionable [shocks theconscience of the court).I am not aware of a Federal law that deals with the automatic renewalclause (if you know of one let me know the statute). Some states do havestatutes that deal with the issue. In New York for example an automaticrenewal clause is not enforceable unless the provider of the service (thealarm company) sends a separate notice advising the customer of theprovision. The notice has to be sent by certified mail or personallydelivered between 15 and 30 days prior to the renewal date. Failure to givethe notice renders the automatic renewal provision unenforceable.Check the statutes in your state to find out if there is a similarprovision that you must comply with.If there is no state law provision then you only need to be concerned thatyour contract term does not run afoul of common sense or decency. A 5 yearinitial term with a 10 year renewal written in obscure print buried in thecontract may not be enforced. I think you get the idea. The standardizedcontracts that I offer to the trade are 5 year initial term and 5 yearrenewal. We have not had difficulty with those terms. We have also hadsuccess with 10 year initial term contracts with 5 year renewals.For a list of the standardized contracts see our web site at the Alarm LawIssues page.Some alarm companies have a policy of sending out new contracts rather thanrelying on their renewal provision. Unless the new contract is for anextended period and the renewal is for a shorter period, like one year, Idon’t see the wisdom in going to the trouble of preparing and sending a newcontract. If you are required to send a notice of the automatic renewal youshould comply with that; after all, the new contract may not get signed andreturned.Another little mistake I think some companies make is to send out a newcontract and call it a renewal contract. The phrase "renewal contract" hascaused many different types of problems in litigation. One thing you needto be mindful of is that the contract, now labeled a "renewal contract" mayhave several provisions in it that have triggering events that will not betaking place with the renewal contract, such as an installation ofequipment, or a provision that says the contract is for 5 years after theinstallation of equipment. In a renewal situation that provision can causethe subscriber to claim that the equipment was installed long time ago whenthe first contract was signed and therefore the 5 years ran before therenewal contract was even signed, thereby permitting the subscriber tocancel anytime; not a position you need to litigate and one you can easilyavoid by knowing what is in your contract.

If your contract has an automatic renewal provision in it then I suggestyou rely on it. If you want to have a new contract signed during the termof an existing contract that is fine. You should probably offer someincentive for a subscriber to sign a new contract, such as a freeinspection, free piece of equipment, an upgrade in equipment or a ratefreeze or decrease. Giving something for the new contract will helpestablish your consideration and avoid an issue that the subscriber wasduped into signing a new long term contract. Let a sense of fairness beyour guide.