Is it time for the alarm industry to change the way it conducts its business? Long-term planning is essential for all businesses. The alarm industry has long employed term contracts with automatic renewal clauses to perpetuate recurring revenue. While this business plan has worked well, it is increasingly coming under legislative attack. Let's deal with the issue now.

The alarm industry is different in several ways from other "home improvement" contractors, or other building trade contractors in the commercial setting. One laudable distinguishing factor is that you deal with security, an issue that has unfortunately become paramount in everyone's mind. But the less attractive aspect of the business is that it is terribly competitive. Unlike the typical home improvement contractor, you can't figure a job with 100 percent profit. More likely you are concerned with how much you will lose on the installation. Your benefit comes from the long-term relationship and the recurring revenue that you will receive. When you factor this in, you can actually make a good living and, more importantly, develop a nest egg when you are ready to sell your business and retire.

Recurring revenue-generating contracts require the subscriber to make periodic payments, typically monthly or quarter annually. The contracts that call for recurring revenue are usually the commercial lease, monitoring contract and service contract. If you are just installing and not monitoring, you are walking away from the recurring revenue. Same with service. If you have a "per call pay as you go" relationship, you do not have the benefit of recurring revenue.

We have seen the term of the contract increase. Long ago the typical term was three years. It is now common to see five years in consumer contracts and 10 or more in commercial leases, monitoring or service contracts. With automatic escalation or a provision allowing you to increase the charges, long-term contracts become less risk for you.

The automatic renewal provision has always been a staple in the recurring revenue alarm contracts. But the provision is coming under attack in legislation around the country. The time to deal with this legislative assault is now, not when you find your contracts invalidated, or worse consequences.

If you go to my web site, www.KirschenbaumEsq.com, under Alarm Law Issues, you will see that we have posted legislation from several states. Our research has not found legislation in most states, but our search may not be complete, and it appears that this issue is receiving sufficient interest to put alarm companies in all states on alert.

There appear to be two variations with laws affecting the automatic renewal clause. At least one state outlaws renewal completely. Others have strict requirements on what notice you need to give the subscriber. While at least one statute provides that violation of the notice will constitute deceptive trade practice, you run the risk that law enforcement or the courts will consider persistent violations a deceptive trade practice, opening you to all kinds of damages, financial and perhaps more.

Your solution is easy to suggest, but perhaps difficult to digest. If your state permits the renewal clause but imposes notice requirements, you must comply with those requirements; not some of the time but all of the time. Compliance starts today, not next year.

If you know you won't, don't want to, or can't comply, then you must change the contract to a month-to-month renewal. Even in those states where no renewal is permitted, the damages for month-to-month will be less severe.

The standard security contracts I offer to the trade will be updated immediately to provide for month-to-month renewal. I suggest that you take this time to upgrade your contracts with this change and others that have been made over the past year.

Of course, the best solution is to constantly re-sign your subscribers on new contracts before the original term expires. That practice will avoid renewal issues and it will ensure that your subscribers have the latest contract forms, provided you are keeping current on your contract upgrades (for contracts, see www.alarmcontracts.com). The practice of upgrading your subscribers to new contracts makes more sense then you might think. Periodic visits to your subscribers will have tremendous benefit to you. Not only will you be renewing and strengthening your relationship with your subscriber, but you will have the opportunity to inspect the security system, suggest upgrades and increase your recurring revenue. Remember, your existing subscriber base is often your best opportunity for new business, through upgrades, new or different protection and referrals. If you have the burglar alarm system, why don't you also have the fire alarm? What about CCTV, and I don't mean the standalone system that you install and walk away, but the one where you provide data storage and central station monitoring so that you can generate recurring revenue. If you don't suggest new and other systems to your subscribers, they may not be aware of the availability of the systems, or they might not think you provide and service those systems.

If you are aware of legislation involving the automatic renewal clause, please let me know.

Kenneth Kirschenbaum may be reached at Ken@KirschenbaumEsq.com.