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California Disclosure Law For Alarm Contracts With Automatic Renewal Provision - October 31, 2016


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CALIFORNIA DISCLOSURE LAW FOR ALARM CONTRACTS WITH AUTOMATIC RENEWAL PROVISION
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    Most people don't like hearing "I told you so", so I'm sorry.  I've warned about using automatic renewal terms for more than month to month because of the possibility of new legislation.  So to connect the dots, if you are in California and don't use the Standard Form Agreements you may be interested in new legislation in California which deals with the automatic renewal provision, a staple in all alarm contracts with recurring revenue [and services] features.  Section 7599.54 of the Business and Professions Code has been amended to include a new paragraph 9 which reads as follows:
    (9) For agreements entered into on or after January 1, 2017, that include an automatic renewal provision renewing the agreement for a period of more than one month, a clear and distinct disclosure shall be included separate from the terms and conditions of the agreement advising the consumer that the agreement he or she is entering into contains an automatic renewal provision. The disclosure shall include the length of time of the renewal term and specify that failure to provide notification of nonrenewal to the licensee, as required in the agreement, will result in the automatic renewal of the agreement. The consumer shall acknowledge being advised of the automatic renewal provision by signing or initialing the disclosure. The disclosure may be included on the same document as the three-day right to cancel form required by Section 1689.7 of the Civil Code. The automatic renewal provision shall be void and invalid without a separate acknowledgment of the disclosure by the consumer.
    This new provision won't apply to the Standard Form Agreements because the automatic renewal provision in those agreements are for month to month; therefore excluded from the statute.
    If you have a renewal provision that extends the term of the agreement for more than month to month you need to comply with the statute and provide disclosure.  Someone thought that it would be a good idea, perhaps less burdensome, to permit the disclosure to be in the Cancellation Form for the 3 day notice of cancellation.  I'm not so sure that's a good idea.  The cancellation form is used by the consumer to cancel the transaction.  You are not required to get a signature on that form when the contract is signed, though I do suggest that the customer initial the form and I provide for that initial on the form that we provide you with the Standard Form Agreements for residential subscribers.  
    I think a better idea is to include the Disclosure in the Disclaimer Notice.  If you have the Standard Form agreement and you've elected to modify the form for a renewal period exceeding month to month then be sure to have us modify the Disclaimer Notice for your use.  Since we don't recommend auto renewal for more than month to month we won't be including the disclaimer in the 3 day notice of cancellation or the Disclaimer Notice unless you ask us to.  
    What do you have to do about contracts entered into prior to January 1 2017 with auto renewal provisions?  I haven't studied the new statute or legislative history, so pardon me if my speculation has been considered.  According to the statute the new amendment applies only to those contracts entered into after January 1 2017.  But if you have a contract with automatic renewal provisions how long will the courts permit the contract to self renewal without the new disclosure?  Could be indefinitely, or it could be only until the renewal period after January 1 2017 expires.  I suppose we will find out.  Hopefully we'll find out in a collection case rather than a defense case where you need to rely on the contract terms.  
    Now might be a great time to consider getting the Standard Form Agreements and if you already have them then get them updated.  I suggest you don't change the automatic renewal provision.  Call our Contract Administrator Eileen Wagda at 516 747 6700 x 312 or email EWagda@KirschenbaumEsq.com to get new contracts or find out if your contracts need updating.
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