Comment on automatic renewal changes / ISC Schedule February 23, 2024

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Comment on automatic renewal changes / ISC Schedule
February 23, 2024
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Comment on automatic renewal changes from article on February 12, 2024
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Ken,
          Regarding your suggested changes to the automatic renewal clause, I realize you are trying to have them comply with state laws but in reality is it really necessary? Of course, the technical reason for doing this is to eliminate the “need” to notify customers of intent to extend based on the automatic renewal clause (most contracts out there now do so annually) and more importantly keep all of the terms of the agreement (like limited liability) “in force” while providing service.
          In the past, you and I have discussed the risks and rewards of relying on the usual automatic renewal clause without sending notice. We always felt that sending out the required notification could (would?) be a signal to the customer to shop, with no offsetting benefit, so we decided not to send the notices. The consequence? During my 50 years in the business, I can remember only two occasions where a customer actually cancelled based on failure to notify of intent to rely on the automatic renewal. I am certain that if those notices were sent routinely over time period many more accounts would have cancelled, not to mention the cost of sending out those notices.
          In practice, I submit there is no downside to not sending the notice. If one doesn’t, could the customer then cancel for the alarm company not complying with the notice? Yes, but with only the 30 day renewal period in your revised language the customer effectively would have that right anyway.
          As for jeopardizing the effect of the limited liability and other protective clauses going forward, this also should not be a cause for concern. The “penalty” for not sending the notice and the customer then canceling is the loss of the customer, period. In these cases the contracts become voidable, not void. That means they are enforceable up until the effective date of the cancellation. So, any “incident” that occurs before service is cancelled will still be covered by the contract. The only caveat to this would be if the alarm company continued to provide service after the effective date of the cancellation, which is never advisable because doing so would be the same as providing service with no contract at all.
          A couple of other observations:
—the laws you cited pertain strictly to contracts with consumers, meaning they do not apply to commercial accounts, and
—the laws became effective Jan. 1, 2024, meaning any contract entered into before then is not effected.
          Bottom line: while providing the required notice or changing contracts to limit automatic renewal clauses to 30 days would be fully compliant with the law, in the real world I submit there is no practical benefit in doing so.
  Robert,Esq

Response
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          Allow me to welcome you to the “real world”, the world occupied by the vast majority of alarm company owners.  They need to be concerned with complying with consumer laws, for many reasons.  Among the reasons,
  *  failure to routinely comply with consumer laws, especially the automatic renewal provision, could be viewed as deceptive business practice [something you kind of hint at when you say you don’t want to wake the customer up].  The consequence for this could be suspension or revocation of license, requiring you to return all money charged during renewal period, even if you continued to provide service.
  *  buyers of the alarm accounts will want a representation that seller has complied with renewal laws and will either not buy the accounts or severely discount the multiple for the accounts
          I don’t necessarily disagree with you about the enforcement of the contract, specifically the protective provisions, in the automatic renewal period when no notice was provided.  But, neither of us are judges and we are discussing the issue in a “class room” conversation and not facing some horrible set of facts that may sway a judge to refuse to enforce the contract.  You may not be right about the contract being “voidable” as opposed to “void” and sitting in court facing massive damages is not the time to find out.
          Automatic renewal statutes differ state by state; the certainly are not uniform and the consequences for non-compliance are not uniform either.
          I think you may be wrong about the renewal period too, because you suggest that renewal is year to year.  The Standard Form Agreements, which I believe are used by almost half the alarm companies in the United States, provide for month to month, even in states with no current automatic renewal clause.  The reason for that is because you may also be wrong about when a new law may affect a contract.  I don’t think a contract entered into prior to enactment of the law means its exempt forever.  I think the better view would be that the contract is enforceable until the next renewal date, and then compliance with the automatic renewal law applies. Sometimes the statute will specify and other times it may not; again you don’t want to be in court when you find out.
          Month to month renewal term is not suggested lightly; I recommend it even in states with no automatic renewal law, just in case a new law shows up.  All of the automatic renewal laws [might be one exception] exempts month to month automatic renewal, so there is no notice required for month to month renewal.  While month to month may not get you the long term you’d like to have, at least you know that the contract will be enforced during the extended period.
          The best practice would be to get a new contract signed prior to renewal.  That would involve surveying and hopefully upgrading the system and services.  Technology changes a lot during the initial term when you have 5 years for residential and 10 years for commercial [and even for less time for those of you who shortened the Standard Form Agreements].
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ISC schedule

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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Garden City, NY 11530
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ken@kirschenbaumesq.com
www.KirschenbaumEsq.com