The Legal Side: How long should alarm contracts last?

The alarm business is built on recurring revenue and is supported by written contracts. The longer your contract, the more valuable the contract is to the alarm company. By that we mean not how many pages the contract is, but for what period of time does the subscriber obligate itself to pay the alarm company and concomitantly, the period of time the alarm company agrees to provide its service - generally monitoring, service, lease of the systems, etc.

My standard contracts have term of contract preprinted in them. The residential contracts -- for monitoring and service – are pre-set at 5-year terms. Fire inspection is for seven years. Commercial lease is 10 years.

I get telephone calls and emails regularly asking me if the term of the contract can be changed. Nine out of 10 of these calls want to shorten the term, sometimes to three years and sometimes even to a quick one-year term. The alarm company seeking to provide for the shortened term always expresses the rationale that its subscribers want a shorter term and competition is to fierce.

My response is always the same. You can shorten the term to anything you want, but why would you? Keep it as is and if a particular subscriber wants a shorter term then cross out the number and insert whatever number you want for the term. Most subscribers are going to sign the contract with the preprinted term, and that term is going to be longer and more valuable to you than a shorter term contract.

How do we pick these terms? Part of this is custom and practice in the industry. The other aspect is profitability (I’ll get to that below).

Are there statutes that limit the length of contracts? Not many if there are any, and I don't know of any.

Will Consumer Affairs offices or Attorney General offices complain about terms in contracts? Yes, and you need to be careful not to offend common sense, which is another way, in less legal technical terms, of being certain your contract and the term length is not unconscionable.

Will courts enforce long term contracts? Not if they are unconscionable, which means shocking to the judge. Expect an unconscionable contract to be loosely defined as one that someone of right mind would not sign and one that someone of right mind would not offer to be signed.

I recently read a lower court case in New York where a waste removal company who supplied a 7-yard dumpster and picked up weekly had a seven-year term in its contract, and the contract renewed after that with some language not relevant here. There were all kinds of provisions permitting the waste company to raise rates and cancel if it wanted. Upon breach of contract by the home owner, the waste company sued for the balance on the 7 years. The judge refused to enforce the contract, found it unconscionable and tossed it out. The judge found no justification for a seven-year lock on that contract. I think he is right…for the waste removal industry. The waste company did nothing other than place a dumpster at the premises and pick it up weekly. The company had no other investment in the job.

The alarm industry is different. In our industry, the installing and servicing company usually makes an investment at the premises in the form of a below-cost installation along with a commitment to service the equipment over the term of the contract. In order to recoup its investment and spread the performance cost over the life of the contract a longer term contract is justified. Also, unlike the waste removal industry, longer term contracts are customary in the alarm industry. Waste removal contracts are more likely to be for one or two years at most.

In conclusion, don't take this issue of contract length for granted. Be reasonable and keep your eye on the pulse of the industry

About the author: Ken Kirschenbaum, Esq., is a New York-licensed lawyer practicing with Kirschenbaum & Kirschenbaum PC, a Long Island legal firm with a rich history of assisting clients in security and alarm related matters. Ken can be contacted via email at ken@kirschenbaumesq.com. His website, www.kirschenbaumesq.com, features a great supply of legal information and court rulings relevant to the security industry. You can also sign up for Ken's discussion list from his homepage.

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