The Dangers of Removing an Alarm Contract’s Automatic Renewal Clause

A proper alarm contract has an automatic renewal clause. Subscribers who insist on deleting that provision don’t realize the consequences.

The Dangers of Removing an Alarm Contract’s Automatic Renewal Clause

Most alarm contracts have a “term” specifying a number of years the agreement is to run and an automatic renewal provision. Generally the renewal term is month to month and can be canceled on 30 days’ notice prior to a renewal. Some renewal notices have longer terms, at times equal to the original term.

Statutes that prohibit or condition automatic renewals generally exclude a month-to-month renewal, which is why the Standard Form Agreements (alarmcontracts.com) includes it.

The term provision raises a few issues …

Can you change the term?

Yes, the length of the contract is a business decision. If you’re making an investment in the subscriber you may need a longer term to recoup your investment. Consider also the service plan term.

A new or takeover account may have more repair service at the beginning of the relationship and you’ll need a longer term to recoup all the service calls at the beginning of the relationship. Also be careful because there will come a tipping point where the older system requires more repair service. It’s your job to figure out the right term.

How can you change the term?

You cross out the printed term, say five or 10 years, and handwrite the new agreed upon term. If you have electronic contracts your form will have to accommodate that change if you permit it.

Do you even need a contract or one with a “term,” and if you cross out the entire term paragraph will the contract simply renew month to month?

A proper contract with your subscriber is essential. It’s your contract that defines your duty owed to your subscriber; the contract eliminates, reduces or shifts exposure and liability. The contract enables you to find a central station willing to monitor your accounts and an insurance company willing to offer you E&O coverage. It’s the contract that creates value and equity in your business.

Remember this question as you’re going to hear it when you want to sell your company, your alarm contracts and accounts, and finance your operation: “What’s your RMR under contract, and what contract do you have and has every customer signed it?”

A proper alarm contract has an automatic renewal clause. Subscribers who insist on deleting that provision don’t realize the consequences. Alarm companies that permit deleting the automatic renewal are looking for trouble. There are only a few options once the automatic renewal provision is deleted:

  • Alarm company assumes burden of notifying subscriber the contract will be coming to an end, along with all services.
  • Subscriber assumes duty of letting alarm company know the contract and services are coming to an end.
  • No one has any obligation to notify the other that the contract is coming to an end or has terminated, along with all services. Then there are only two options: alarm company continues to provide service after termination of contract or alarm company terminates all services.

In most cases, when the subscriber insists on deleting the automatic renewal clause there is no mention of any notice requirement. Upon expiration of the contract the alarm company is faced with the two options, continue service without contract or terminate (obviously a new contract can be entered into).

If the alarm company continues service it could reasonably argue that the expired contract continues, by implication or some other theory. Do you really want to gamble your business on that argument? I can’t recommend it.

If the contract expires then so does your protection; so does the value in the account. You will be gambling your company for the monthly charge, and believe me if there is a claim it won’t be worth it. You should explain to your subscriber they must agree to a month-to-month renewal.

If they won’t, be sure to include in the Disclaimer Notice and Schedule of Equipment and Services that all services will end upon expiration, without notice, and in the case of fire alarm service, you will be notifying the AHJ of termination of service. No exceptions.

About the Author

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Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.

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