Monitoring Contracts Examined

Author: Brian Rhodes, Published on Feb 12, 2012

Contracts for monitoring intrusion detection / alarm monitoring systems are one of the most fundamental elements of using such solutions. The terms and conditions in those contracts have a significant impact on the cost and flexibility to the user and the profitability of the provider. In this note, we examine the key issues and common problems found in renewal clauses, notification of terminations and penalties for termination.

Pricing / General Terms

These monitoring contract agreeements often constitute the bulk of the monetary outlay for these types of systems by no small accident: in the present market, the cost of installing these systems is fiercely competitive.

A very common ‘introductory’ price of $99 to acquire alarm intrusion equipment and begin monitoring of that equipment does not approach the true acquisition cost of such equipment.

If a generic home alarm system costs $1000 - $1200 to purchase, wire, install, and configure, consider that:

  • Buying the cost of the system upfront is prohibitive to many owners
  • Monitoring contract terms of 48 – 72 months are commonly proposed to finance the amortization costs of the system equipment and install, and still render the invoiced amount as ‘reasonable’ in the marketplace.

System Hardware Ownership

It is worth noting that the equipment installed is not always purchased by the owner of the monitoring contract, and that legal ownership of the system components are an issue to be determined by the specific contract language.

Purchasing Monitoring Service

For the ongoing persistent service of ‘monitoring’ the system – that is, to actively receive and interpret alarm signals sent from the panel- pricing is commonly billed ranging from $25 - $40 per month, per alarm panel. Consider that the vast majority of smaller installing dealers (and even some larger regional installing dealers) purchase this service via subcontract from 3rd party monitoring companies at wholesale rates. Typically, the wholesaling monitoring company bills from $4 - $8 dollars per monitored account.

This pricing is based on wholesale billing to the alarm dealer/installer, who then accounts for the administration cost of discrete account invoicing and contract management.

Get Video Surveillance News In Your Inbox
Get Video Surveillance News In Your Inbox

The ability for the installed alarm system to operate independently of a persistent monitoring service is also a matter of specific contract language. In some cases, the alarm system is disabled for use once monitoring service is cancelled or discontinued.

A persistent source of poor public opinion for the alarms industry is the rather unscrupulous and sometimes illegal practice of ‘locking a panel out’ in such a manner as it cannot be reprogrammed to work with another monitoring entity beyond the initial monitoring provider. Similar to setting an ‘administrator’ password, often the most expedient option to resolve this issue is the costly replacement of otherwise functioning hardware.

Duration of Monitoring Contracts

The contract term of agreement for which the system is monitored is commonly written to be 3 or 5 years. This length is variable depending on prevailing conditions in both the local market and company writing the contract.

For the sake of illustration for this update, consider a common ‘Terms and Conditions’ for an alarm service. In this example, the contract term is set a three (3) years.

Exceptions to this contract are highly dependent upon the specific language of the contract. For example: often times moving, being deployed in the military, or experience of other economically distressing conditions do not modify the contract and are not commonly appealed successfully. However, contracts are often transferrable from one party to another. A common first recommendation is to ‘sell the contract to a neighbor, or future home owner’ during dispute resolution.

Auto Renewal Clause

Perhaps the most despised, yet potentially profitable, element of the monitoring contract is the ‘auto renewal clause’. Here is an excerpt from an actual contract:

"The initial term of this Contract is for three (3) years. Our alarm monitoring and notification services will begin when the equipment is installed and is operational, and when the necessary communications connection is completed. This Contract will automatically renew for successive thirty (30) day terms unless terminated by either party's written notice at least thirty (30) days before the end of the then-current term. If terminated, this Contract ends on the last day of the then-current term."

In the example above, after three (3) years, the monitoring contract ‘auto renews’ for successive thirty (30) days periods, until the cancellation conditions are met. In some examples, ‘auto renew’ cycles are sometimes written for a year or multi-year intervals.

Notification of Termination

The cancellations conditions must also be met in order to ‘successfully’ cancel an auto renewing contract. Often times, some form of written notification (and outstanding balance payment) must be posted to the monitoring company via certified mail during an interval prior to the actual contract ending date. It is a common complaint for contract holders to attempt to cancel a monitoring contract before the ‘end date’, but yet after the ‘notification deadline’ and find themselves ‘auto renewed’ for another service interval.

Penalties for Termination

Examine the language from the example agreement:

YOU AGREE THAT THE CHARGES DUE UNDER THIS CONTRACT ARE BASED ON YOUR AGREEMENT TO RECEIVE AND TO PAY FOR THE SERVICES FOR THREE (3) FULL YEARS. ACCORDINGLY, YOU AGREE THAT: IF YOU TERMINATE THIS CONTRACT DURING ITS INTIAL TERM YOU WILL PAY US AN AMOUNT EQUAL TO 75% OF THE CHARGES TO BE PAID BY YOU DURING THE REMAINING INTITIAL THREE (3) YEAR TERM OF THIS CONTRACT. THIS AMOUNT IS AGREED UPON DAMAGES AND IS NOT A PENALTY."

You will notice the ‘early termination fee’ amounts to damages equal to 75% of the value of the remaining three (3) year contract. These penalties are wildly disparate depending entirely upon the writers of the contract.

It is important to understand these common elements of monitor contracts so that the ethical behavior behind these contracts can be contrasted. The attributes described above are common to most monitor contract agreements, but the scope and specific language of those elements can vary significantly from one provider to the next.

Comments : PRO Members only. Login. or Join.

Related Reports on Monitoring

Global Real-Time Video Surveillance - EarthNow on Apr 20, 2018
A new company, EarthNow, with backing from Bill Gates, Airbus and more, is claiming that: Users will be able to see places on Earth with a delay...
Alarm.com Business Market Expansion on Apr 13, 2018
Alarm.com has millions of subscribers, but the company has traditionally been mostly a residential/home focused offering.  ADC's new Smart Business...
GDPR For Video Surveillance Guide on Apr 12, 2018
The European Union’s General Data Protection Regulation (GDPR) comes into force on May 25, but there is much confusion and no clear guidelines on...
Eocortex / Macroscop VMS Company Profile on Apr 09, 2018
Eocortex is the international brand of Russian VMS manufacturer Macroscop. Macroscop was founded in 2008, and the Eocortex name created in 2013. We...
VMS New Developments Spring 2018 (Avigilon, Exacqvision, Genetec, Hikvision, Milestone, Network Optix) on Apr 04, 2018
What's new with VMS software? In this report, we examine new features and releases for Spring 2018 to track different areas of potential...
Cellular (4G / LTE / 5G) For Video Surveillance Guide on Mar 06, 2018
In this report, we explain using cellular for video surveillance including: 4G vs LTE vs 5G 4G standards 5G future Advantage: Placing cameras...
Door Position Switches (DPS) For Access Control Tutorial on Mar 05, 2018
Door position switches do not get enough respect. They solve a major problem of access control systems yet are frequently ignored or...
Assa's Lowest Power Draw Maglock: Securitron M680E Examined on Feb 14, 2018
Securitron produces some of the most extreme maglocks on the market, including massively strong maglocks and even ones with integrated CCTV cams...
Simplisafe 'All New' Generation 3 Tested on Feb 08, 2018
Feared by the traditional alarm industry, Simplisafe has launched its 'all new' Generation 3 platform that they declare is "Stronger. Faster....
"First Of Its Kind" Stove Knob Alarm Sensor (2GIG) on Jan 15, 2018
At CES 2018, 2Gig/Nortek announced the Stove & Grill Guard, a "first of its kind" sensor in the security industry, allowing users to be...

Most Recent Industry Reports

The Yolo Bro And The Death of Journalism on Apr 24, 2018
There's an old quote: The job of the newspaper is to comfort the afflicted and afflict the comfortable Unfortunately, the opposite is more...
DMP Adds Ring Video Doorbell Integration on Apr 24, 2018
Video doorbells have become one of the hottest items for security systems. After several years with no doorbell, DMP has announced integration with...
Milestone 2017 Financials Examined on Apr 24, 2018
For ISC West 2018, Milestone released ... their financials, touting "strong revenue growth in 2017". However, there were discrepancies with the...
Chinese Manufacturer Kickstarter Campaign Huge Success (EverCam) on Apr 23, 2018
In a week, a Chinese manufacturer's expertly done Kickstarter campaign has received $1.4 million in pledges, an incredible amount for a video...
Favorite Biometrics 2018 on Apr 23, 2018
Biometrics are on the rise, or at least integrator opposition to them is declining, according to new IPVM integrator statistics.   Almost half of...
Dahua and Hikvision Win Over $1 Billion In Government-Backed Projects In Xinjiang on Apr 23, 2018
Dahua and Hikvision have won well over $1 billion worth of government-backed surveillance projects in China’s restive Xinjiang province since 2016,...
May 2018 Camera Course on Apr 20, 2018
Save $50 on early registration until this Thursday, the 26th. Register now (save $50) for the Spring 2018 Camera Course This is the only...
Global Real-Time Video Surveillance - EarthNow on Apr 20, 2018
A new company, EarthNow, with backing from Bill Gates, Airbus and more, is claiming that: Users will be able to see places on Earth with a delay...
Dedicated Vs Converged Access Control Networks (Statistics) on Apr 20, 2018
Running one's access control system on a converged network, with one's computers and phones, can save money. On the other hand, hand, doing so can...
April 2018 IP Networking Course on Apr 19, 2018
This is the last chance to register for our IP Networking course. Register now. NEW - 2 sessions per class, 'day' and 'night' to give you double...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact