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Is 80% an enforceable liquidated damage for subscriber breach
July 6,  2024
Is 80% an enforceable liquidated damage for subscriber breach
     We are negotiating a Commercial All in One and the subscriber is challenging the 80% of balance of contract if there is termination, especially by us.  What is proper response?
      The 80% liquidated damage comes into play only when the subscriber defaults and breaches the contract.  The alarm company can't simply demand 80% once the contract starts or anytime thereafter unless the subscriber defaults.  The simple solution for the subscriber is, don't default.
    The issue seems to be is 80% of balance of payments a reasonable liquidated damage in the event of a default.  The answer is yes.  
   The corollary question is whether the 80% constitutes a penalty and is thus unenforceable in court.  The answer is no, though in in some scenarios it may be more difficult to argue in support of the 80%,
    When any work installing a new system or repairing an existing system is part of the contract it is common for the "after-install" services to required for a minimum time so that all the payments can be anticipated.  So if there is a $2500 installation and then a 60 month monitoring and repair plan with monthly payment of $100, the alarm company expects to get $6000 over the 5 years in addition to the $2500 on installation.  The cost of the installation may be less, or more than the $2500.  The cost of the monitoring with or without a repair or inspection plan, may be a fixed cost, if only monitoring, or a risk cost component if there is repair service and inspection; certainly there is a cost and not all of the $8500 is profit.  
    In this scenario the $2500 is paid on installation.  If the subscriber defaults in the 60 month term the contract calls for all RMR due as of the breach and 80% of the balance of the term.  Liquidated damages should be used when proving actual damages is likely to be impossible or difficult to prove; guessing is not generally accepted as dispositive testimony.  
    Without the liquidated damage of 80% the alarm company would be required to prove actual damage, requiring a trial or hearing, even if the subscriber defaulted in the lawsuit.  If there was a trial the alarm company would likely testify that it's cost of providing the services was less than 20% and therefore it was entitled to more than 80% of the balance of the contract.  
    Alarm companies are providing the service, presenting the contract to the subscriber, and entitled to contract terms as long as they are reasonable.  There are a slew of court cases where liquidated damages of 80% of balance of contract have been enforced.  Historically the alarm industry used to seek 100% of the balance of contract but courts began objecting since the alarm companies were not continuing to provide the services, a reasonable consideration.
   At least one business model in the industry requires subscribers to pay for the installation and the entire term of the contract payments at time of installation which I suppose eliminates the issue of collecting on the RMR.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301