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Contract increases
September 2, 2019
Contract increases
            I am working with a small acquisition in CA and the buyer is telling me the contracts cannot contain an increase clause and all of the sellers agreements which do are illegal and will need to have new agreements.  Unfortunately they are not on your contracts. 
            Is this correct for CA contracts?
            Thanks for your input 
Alarm Acquisitions
            It is not correct, for California or anywhere else.  The increase is a contract provision agreed upon by the parties.  As long as the increase meets the same test for enforcement as other provisions, it should be enforced.  So, for example, if the increase is unconscionable, it won’t be enforced.  The easiest way to define unconscionable is a term in the agreement “that no reasonable person would agree to and no reasonable person would ask another to agree to”.  The All in One agreements provide for an up to 9% increase each year, which the subscriber agrees to pay.  
            Of course there may be a statute somewhere that I am not aware of.  I had one of K&K’s law clerks research California.  Here is his report:
            The short answer is that increase clauses are not per se illegal in California. Overall, the legality of an increase clause in California would be analyzed under ordinary contract law principles, such as unconscionability, duress, etc. This bureau of labor statistics article indicates that such clauses are often contained in contracts across the country to account for increases in the cost of performing under the contract. In addition, the article indicates that an objective measure, such as the Consumer Price Index (CPI), could perhaps be used in a contract to gauge the amount by which the price of performance should increase. Id.
            For example, in Terra-Bushard, Ltd. v. Hatchell, No. G029723, 2003 WL 360048 (Cal. Ct. App. Feb. 19, 2003), as modified on denial of reh'g (Mar. 17, 2003), a California appellate court had to interpret an escalation clause contained in a 99 year lease. The CPI was mentioned in the contract as a basis upon which an increase in the rent could be made. While this CA opinion was unreported, it did not cite case law outright indicating that such escalation clauses are unlawful and void. Rather, the court cited ordinary contract law principles of interpretation from reported California decisions. Such principles included considering the parties’ mutual intent at the time of contracting. Pg. 5.
             Notably, the prices charged in a contract by a California public utilities company is subject to the potential review of CA’s public utility commission. One law applicable to CA public utilities companies states that  “[w]henever the commission, after a hearing, finds that the rates or classifications, demanded, observed, charged, or collected by any public utility for or in connection with any service, product, or commodity, or the rules, practices, or contracts affecting such rates or classifications are insufficient, unlawful, unjust, unreasonable, discriminatory, or preferential, the commission shall determine and fix, by order, the just, reasonable, or sufficient rates, classifications, rules, practices, or contracts to be thereafter observed and in force.” Cal. Pub. Util. Code § 728 (West).
            CA law defines public utilities as the following: “every common carrier, toll bridge corporation, pipeline corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation, water corporation, sewer system corporation, and heat corporation, where the service is performed for, or the commodity is delivered to, the public or any portion thereof.” Cal. Pub. Util. Code § 216(a). Notably, however, alarm companies are not included in this list.
            As a side note, California has laws that regulate automatic renewal or continuing service charges in contracts, with such CA laws mandating that these types of charges or clauses be “clear and conspicuous.” Cal. Bus. & Prof. Code. 17602(a)(1); Id. Section 17600 et seq. However, alarm company operators are excluded from the requirements of this law. See Id. Section 17605(d).
Matt Cavallo, JD, Law Clerk
Kirschenbaum & Kirschenbaum PC
516 747 6700 x 307

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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