Annual Auto-Renewal Clause May Become a Thing of Past in California
A new bill would make all monitoring agreements with annual auto-renewal clauses revert to just month-to-month renewals upon expiration of initial term. Requires renewal clauses to be more conspicuous in contracts.
There are a lot of trends that start in California, but this is one for all integrators to be aware of.
A new bill introduced in the California State Senate would end the practice of automatically renewing alarm or service agreements for one-year terms after the expiration of the initial term, unless the homeowner signs off on it. Integrators will be required to advise consumers of the annual renewal feature and have conspicuous language in the contract that they must sign.
Senate Bill 1428 introduced by Sen. Ed Hernandez (D) changes Section 7599.54 of the Civil Code in the Business and Professions section to read:
“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.”
Data show that most homeowners keep their same alarm monitoring for more than 10 years, and that long term has been a strong benefit of security monitoring.
“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,” says Ken Kirschenbaum, legal expert from Kirschenbaum & Kirschenbaum and regular Security Sales & Integration columnist.
He notes that many integrators have for years hidden the disclosure of an automatic annual renewal in the three-day right of rescission cancellation notice instead of in the initial monitoring contract.
“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,” says Kirschenbaum.
The new legislation only affects monitoring agreements put in place after January 1, 2017, but Kirschenbaum speculates that it will only be a matter of time before lawsuits arise from customers with existing annual auto-renewal agreements to challenge the validity in court.
“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,” he concludes.
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