Security & the Law: January 2010 Q&A
Q
I am the owner of an alarm company. I just purchased an additional small alarm company involved in the residential alarm business. Although the company I purchased has good contracts with its subscribers, I found out that the company had not provided notice of the right to rescind to its subscribers. What are my rights and what should I do?
A
If the contracts fall under the definition of a "home solicitation contract," it is a federal law and the law in each of the states that you must give the buyer notice of its three-day notice of its right to rescind. The consequences of the failure to provide the appropriate notice can be disastrous.
What is a home solicitation contract? Although the definition may vary from state to state, generally, it is a contract for sale or lease of goods or services made at other than the trade premises of the buyer.
Under the law generally, a buyer can cancel a home solicitation contract at any time, until the proper notice has been given. So, if the buyer suffers a loss or is in any way injured and if the alarm company is in any way implicated as being negligent and if the buyer than rescinds the contract as having failed to properly receive the notice of its right to rescind, there is no longer a contract and your company will no longer have the benefit of the limitation of liability and other protective clauses in your contract. Even if your company is not in any way negligent, there is also the possibility that your insurance company may deny coverage causing you to have to cover what may be very expensive legal costs of defense.
What can you now do to protect yourself?
If your deal for the purchase of the company has not yet closed, I would cancel the transaction until the appropriate notice to each of the potential parties involved was given and then adjust the purchase price accordingly. If the transaction has already closed, I would provide each of the subscribers involved with a new contract with the appropriate notice of the right of rescission. This would of course require a good deal of public relations on your part to avoid the possibility of the subscriber actually cancelling. A personal visit to the subscriber could turn out to be very beneficial.
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