Are contracts that automatically renew enforceable?

file9941319384634Contract provisions that provide for the automatic renewal of the contract for a set period of time after the initial term expires are common in alarm monitoring contracts.  But are they enforceable?

The short answer is it depends–on your state’s law and whether you are following it.  Increasingly, automatic-renewal provisions are being scrutinized and subject to state laws banning or restricting their use.

Currently, at least sixteen states have laws banning or restricting contracts that automatically renew– including Arkansas, California, Connecticut, Florida, Hawaii, Illinois, Maryland, New Mexico, New York,  North Carolina, Oregon, Pennsylvania, South Dakota, Tennessee, Utah, Wisconsin.

Each state’s law is a little different, plus new legislation is being enacted all the time, so make sure you educate yourself on your state’s requirements and follow them.  But broadly speaking, many of the laws require conspicuous disclosure of the automatic renewal division, plus notice of the renewal before it happens.

The penalties for non-compliance with these laws range from making the automatic renewal unenforceable, to deeming your behavior a deceptive trade practice, which can subject you to a civil lawsuit or attorney general enforcement action and can carry stiff fines and penalties.

Alternatively, you can avoid the morass of compliance with automatic contract renewal laws altogether by removing the automatic renewal provision in your contract.  Yes, I know this will increase your administrative work and require you to be more organized about your contracts.  But the upsides are plenty.

1.   You’ll have happy customers.  Customers just don’t like being forced into contracts, even for services they benefit from and expect to continue.  Plus, they don’t like having one more thing added to their list of things to remember–their alarm services contract expiration date.

2.  Your customer’s contract will be up-to-date with the latest terms that comply with your state’s laws.    If you have to enter into a new contract with your customer every couple of years, this provides the perfect opportunity for you to stay abreast of any changes in the law that affect your contract.  It also provides a natural opportunity for you to get your customers to sign a new contract.

3.   You’ll have the tremendous opportunity to meet fact-to-face with your customer to sign a new contract.  This can solidify your connection and personal relationship with the customer.  It also allows you an opportunity to inspect the alarm system to make sure it is working correctly, to suggest upgrades to the system, and to let your customer know about new state of the art products.  In other words, it provides you with more sales opportunities.

In the end, you must decide what is right for your business.   If you stick with automatic contract renewals, just make sure you follow the law in your state exactly.    But don’t continue with the practice just because that’s what you’ve always done.  Give some thought to deleting this provision from your contract–there are plenty of upsides for a business that is organized enough to keep up with expiring contracts and intent on providing good customer service.


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