What does 'liquidated damages' mean in a security contract?

Liquidated damages is the legal term for a pre-set cancellation fee written into the contract. Instead of the company suing for actual damages if you cancel, both parties agree in advance on a number — typically 75% to 100% of the remaining contract value. It's enforceable in court in most states as long as it's not 'unconscionably high.'

Yes, in most states. Courts generally uphold liquidated-damages clauses when the percentage roughly matches the company's lost profit. 75% of remaining monthly payments is the most common figure for security monitoring contracts. A few states cap ETFs by statute; check your state's consumer-protection laws.

What is a 'minimum service fee'?

Some contracts add a flat minimum charge on top of the percentage-based ETF — typically $200–$500. The total ETF is then the larger of the two. Look for phrases like 'no less than' or 'minimum cancellation charge.'

Can the ETF percentage change after I sign?

No — the percentage in your signed contract is locked in for that contract term. However, if your contract auto-renews into a new term, the new term may have different ETF terms. Always re-read after a renewal.

Cancellation Fee Decoder: How to Read the ETF Clause in Any Security Contract

TL;DR

Every contract-based home security company writes its early termination fee (ETF) clause in legalese designed to look like fine print. The clause is almost always under headings like Early Termination, Liquidated Damages, or Cancellation Charges. The math reduces to one of three formulas: percentage of remaining payments (most common, usually 75–100%), fixed minimum (e.g., $250 flat), or the greater of both. Knowing how to find and translate the clause in 60 seconds is the single highest-leverage skill before signing.

Want to skip the manual decoding? Paste your contract into the Contract Analyzer — it extracts the ETF clause automatically and tells you the exact dollar amount + how it compares to industry norms.

The 3 ETF formulas you'll see

Formula 1: Percentage of remaining payments (most common)

What it looks like in the contract:

"Customer shall pay an Early Termination Charge equal to seventy-five percent (75%) of the monthly service charges that would have accrued for the remainder of the Initial Term."

Translation: months remaining × monthly rate × 0.75 = ETF.

Example: $49.99/mo, 36-month contract, cancel at month 18:

18 months remaining × $49.99 × 0.75 = ~$675

This is what ADT uses. Variants: 80%, 90%, 100% (Vivint sometimes).

Formula 2: Fixed minimum charge

What it looks like in the contract:

"In the event of early termination, Customer shall pay a Cancellation Fee of $___."

Translation: flat amount. Doesn't scale with how much of the contract is left. Often appears in shorter (12-month) contracts.

Example: $300 flat fee. Cancel month 1 = $300. Cancel month 11 = $300.

Formula 3: The greater of both (the trap)

What it looks like in the contract:

"Customer shall pay an Early Termination Charge equal to the greater of (a) seventy-five percent (75%) of remaining monthly service charges, or (b) Two Hundred Fifty Dollars ($250.00)."

Translation: whichever number is higher wins. This protects the company from getting just $25 if you cancel near the end of the contract.

Example: $49.99/mo, 36 months, cancel at month 35:

(a) 1 month × $49.99 × 0.75 = $37.49
(b) $250 minimum
ETF = $250

The 7 phrases that should make you stop reading

If your contract contains any of these, slow down and run the math before signing:

| Phrase | What it actually means | |---|---| | "Liquidated damages" | A pre-set ETF — usually significant | | "Minimum service fee" | Flat dollar minimum on top of percentage | | "Acceleration of all remaining payments" | The full remaining contract becomes due immediately | | "Reasonable attorneys' fees" | If you fight it and lose, you also pay their lawyer | | "Auto-renew for successive [N]-month terms" | Contract restarts unless you cancel in a tight window | | "Notice required no less than [N] days prior" | Miss the cancellation window and you're locked in for another full term | | "Equipment financing survives termination" | Your equipment loan continues even if monitoring is cancelled |

How to find the clause in any contract in 60 seconds

Search (Cmd/Ctrl-F) for "termination." Almost always lands you on the right section.
If that fails, search "liquidated." Backup keyword.
If still nothing, search "cancel." Sometimes the clause is under a generic "cancellation" header.
Read the surrounding 2 paragraphs. The percentage or dollar amount is always within a few sentences.
Plug into the ETF calculator with months remaining + monthly rate to see your real number.

What to do if the clause is unclear

Some contracts hide the ETF in a definitions section instead of a clearly-titled section. If you can't find a number after 5 minutes:

Upload the PDF to the Contract Analyzer — it extracts the ETF clause and shows the exact wording.
Email the salesperson and ask: "Can you confirm in writing the exact early-termination fee for this contract at month 6, month 24, and month 35?" Their written reply becomes part of your file if there's ever a dispute.
Run a calibration question: ask what the ETF would be on a hypothetical cancellation today. The answer should match the contract math. If it doesn't, the salesperson is either guessing or hiding something.

A note on auto-renewal and ETFs

ETF math gets stranger when contracts auto-renew. Three patterns to watch for:

Renews to month-to-month with no ETF. Best case. Read your contract for "after the Initial Term, this Agreement shall continue on a month-to-month basis."
Renews to a new fixed term with the same ETF. Worst case. You're locked into another 12+ months unless you cancel in a tight window.
Renews indefinitely with a smaller "renewal-period ETF." Middle ground. Less painful but still real.

The cancellation-window length is the key variable. Some contracts require 30 days' notice, some 60, some 90. Miss it by one day and you're locked in.

Free tools that pair with this guide:

Contract Analyzer — finds and explains every ETF-related clause
ETF Calculator — exact dollar amount per brand and term
Cancellation Fees by Brand — the 9 major brands ranked

This is consumer education, not legal advice. SecurityCompass HQ is independent.