Term Limits In CA and Elsewhere - February 14, 2013

Term Limits In CA and Elsewhere  

 February 14, 2013

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 Question

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Hi Ken,

I enjoy your emails.

I would love it if you could write about California contract terms for monitoring services.  Many companies such as ADT modify there monitoring agreements to reflect a 2 year maximum term.  Yet, I see others such as Guardian doing as much as 5 year terms even for residential.

For as long as I have been in the alarm industry I\\\'ve never seen this 2 year term limit in writing.  I\\\'ve googled through the Consumer Affairs Alarm Bureau and still nothing.  A friend recently explained it was a general consumer services law in CA that would also cover cell phone contracts.

If you felt up to addressing this in a future email or send me a link to where you covered it before I would be appreciative.

Thanks so much.

Braxton

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Answer

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    I would normally defer to your very capable alarm industry counsel in California [they know who they are] but I think I have it right.  Hopefully we\\\'ll hear from them if not.

    There is no term limit in California or elsewhere, far as I know, that would effect your alarm contract term.  In fact, the Standard Form Contracts have a 5 year residential term and 10 year commercial term.  

    I believe ADT has been the focus of state Attorney General in CA action and it has agreed to limit its contract term.  That agreement applies to ADT, not anyone else who didn\\\'t specifically agree.  I am not aware of a limitation on term limit anywhere. at least by statute or consumer regulation. That doesn\\\'t mean, of course, that you can impose any length term just because your subscriber agrees to it.  Despite the very clear language in the US Constitution that no federal or state shall enact laws that impair the right to contract by private citizens [I\\\'m paraphrasing] as we all know there are a slew of laws that do in fact govern private contracts.  

    You should be able to express the justification for a longer term contract.  It\\\'s worth more to you for valuation of your business is not really the best explanation.  Better, it is justified because it defreys installation charges and spread out the cost of providing the anticipated service.  There may be times when this argument is hard to justify.  Take for example a scenario where you take over a monitoring account.  You charge for the conversion and set up and have a 5 year contract with monthly payments.  Subscriber breaches along the way and defends your collection action by claiming the term should be unenforceable.  I recall a decision by a lower court judge who refused to enforce a 5 year garbage removal residential contract because the contractor didn\\\'t show any reason for a long term contract - in other words, there was no attempt to show that recoupment for some start up was the purpose for the long term contract.  

    Alarm companies spend valuable time selling, designing, setting up and providing security services.  Typically these start up charges are not charged by the alarm company and not paid by the subscriber.  The long term contract is thus justified to accomplish the anticipated profit on the contract.  Continuity of providing the service may be another justification. 

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