Tips for reviewing cable service provider agreements
In 2009, 87.8% of American households had either a cable or satellite TV subscription; however, by the end of 2019, that number dropped to just 65.3% of American households, as more American households “cut the cord” and turned to internet-based TV subscriptions, such as Netflix, Hulu and YouTube TV. With this steep drop in cable and satellite TV subscriptions, cable service providers are motivated more than ever to keep and find as many subscribers as possible. One way for them to accomplish this is to reach out to community associations and offer bulk or discount rates in exchange for the right to exclusively market their services in the community. If a community association is approached by a cable service provider with an agreement that promises bulk or discount rates to the homeowners, the board of directors (the “board”) should review the agreement carefully with the following tips in mind as these agreements many times are written for the benefit of the cable service providers and may run afoul of federal law:
- Does the agreement comply with federal law?
Federal law prohibits a cable service provider from requiring homeowners to use only its cable services. Specifically, 47 CFR 76.2000 states the following regarding exclusivity clauses in cable service provider agreements:
(a) Prohibition. No cable operator or other provider of MVPD [multichannel video programming distributor] service subject to 47 USC 548 shall enforce or execute any provision in a contract that grants to it the exclusive right to provide any video programming service (alone or in combination with other services) to a MDU. All such exclusivity clauses are null and void.
(b) Definition. For purposes of this rule, MDU shall include a multiple dwelling unit building (such as an apartment building, condominium building or cooperative) and any other centrally managed residential real estate development (such as a gated community, mobile home park, or garden apartment); provided, however, that MDU shall not include time share units, academic campuses and dormitories, military bases, hotels, rooming houses, prisons, jails, halfway houses, hospitals, nursing homes or other assisted living facilities. (emphasis added).
Federal law also protects a homeowner’s interest in using and maintaining a satellite dish instead of using a cable service provider. 47 CFR 1.4000(a)(1) prohibits the following:
Any restriction, including … any private covenant, contract provision, lease provision, homeowners’ association rule or similar restriction, on property within the exclusive use or control of the antenna user where the user has a direct or indirect ownership or leasehold interest in the property that impairs the installation, maintenance, or use of:
(i) An antenna that is:
(A) Used to receive direct broadcast satellite service, including direct-to-home satellite service, or to receive or transmit fixed wireless signals via satellite, and
(B) One meter or less in diameter or is located in Alaska;
(ii) An antenna that is:
(A) Used to receive video programming services via multipoint distribution services, including multichannel multipoint distribution services, instructional television fixed services, and local multipoint distribution services, or to receive or transmit fixed wireless signals other than via satellite, and
(B) That is one meter or less in diameter or diagonal measurement;
(iii) An antenna that is used to receive television broadcast signals; or
(iv) A mast supporting an antenna described in paragraphs (a)(1)(i), (a)(1)(ii), or (a)(1)(iii) of this section; is prohibited to the extent it so impairs, subject to paragraph (b) of this section.
Accordingly, while a cable service provider may contract for exclusive rights to market within a community, it cannot prohibit homeowners within that community from signing up with another provider. Therefore, a board should verify that the proposed cable service provider agreement is not prohibiting homeowners from using other cable service providers or satellite dishes and that the agreement otherwise complies with federal law.
- How long will the agreement run?
Verify how long the agreement is set to run, such as whether it is for a few years or as long as 10 or 12 years, especially considering recent declines in cable and satellite TV subscriptions. An agreement that provides bulk or discount rate for cable or satellite TV services but locks in the community association for the next 10 years may not be beneficial to an association whose homeowners are by and large “cutting the cord.” The board should also highlight any automatic renewal periods, which automatically extend the agreement unless either party gives written notice within a certain time frame, so the association does not later miss a window of opportunity to end the agreement without cause.
- Who will pay the cable service provider and what rates will they charge?
Determine the compensation structure set up by the agreement, specifically: (1) who the cable service provider will bill for the services provided; and (2) whether the cable service provider can unilaterally change its service rates during the agreement.
First, the board should look to see who the cable service provider will bill for their services. A cable service provider may propose billing the association directly, with the association passing along those expenses to its members through assessments, or it may propose billing the homeowners directly. From an administrative standpoint, having homeowners billed directly likely is more beneficial to the association as the association then will not be responsible for including the costs within its assessments or collecting them from members who do not pay.
However, if the board decides it does want the association to be billed directly for these services or if the agreement already states it will only bill the association, the board will need to determine how many units or lots the cable service provider is including within the expenses and review its governing documents on how assessments can be apportioned across the community. If the agreement will charge for all units or lots in the community, regardless of whether those units or lots actually use the service or sign up for a different service, then the association may be able to assess these costs against all the homeowners. However, if the agreement will only charge for those units or lots that sign up for the service, then the board will need to verify whether the governing documents permit it to assess these costs only to those homeowners who signed up for the service as opposed to all the homeowners.
Second, the board should also verify what monthly or yearly rate will be charged for the services and whether the cable service provider can change the charged rate unilaterally throughout the term of the agreement. The initially-promised bulk or discount rate may not be as beneficial to the association or its homeowners if the cable service provider can later increase those rates to an amount that is not as competitive as other cable service or internet-based providers.
- Is the cable service provider responsible for repairing or replacing the premises resulting from its equipment?
The cable service provider will need to install distribution systems, wires, boxes and more in order to set up these services in the community. Accordingly, the board should verify that the cable service provider has agreed to perform all work in a proper and workmanlike manner and in compliance with federal law, local codes and industry standards. The board also should ensure the agreement requires the cable service provider to be responsible for any repairs or replacements to the premises resulting from the operation, maintenance or repair of the cable services.
- What programming will the cable service provider provide?
Focus on the language regarding the programming that the cable service provider is offering, including whether they can change the type of programming that provided without the association’s or homeowners’ prior consent.
- Can the agreement be terminated before it expires?
Verify there is language discussing how a party can end the contract before it is set to expire. In cable service provider agreements, this language may include a “cause” requirement, or an actual breach of the agreement (as opposed to being able to terminate the agreement for no reason), along with written notice of the breach and a time period for the breaching party to cure its default before the agreement can be ended.
- Does the agreement require you to not reveal its terms to your members?
Does the agreement include a confidentiality clause that requires the association to not reveal the terms of the agreement to any other person or entity with only limited exceptions? MCL 450.2487 permits members of nonprofit corporations, which include many community associations, to inspect the books and records maintained by the association so long as the request is reasonably related to a person’s interest as a member. Because of the member’s right to view such an agreement if a proper request is made under MCL 450.2487, the board should make sure any confidentiality clause will not bar a member’s proper request to review the agreement.
If a cable service provider approaches your association with a proposed agreement to provide bulk or discount rate cable services to your community, you should carefully consider on what terms the cable service provider is offering these services, including whether the agreement itself complies with federal law, who expenses will be billed to, what services will be provided, how the cable service provider may change those services throughout the agreement and whether the proposed billing structure is compatible with the association’s governing documents. If your association is reviewing a cable service provider agreement, we recommend you consult with counsel knowledgeable in community association law to help advise you on its terms and possible revisions that may need to be made so it complies with the association’s governing documents and applicable laws.
Kayleigh B. Long is an attorney with Hirzel Law, PLC and focuses her practice in the areas of appellate law, community association law and civil litigation. Ms. Long received her Bachelor of Arts degree in International Studies from Indiana University. Prior to attending law school, Ms. Long joined Teach for America, teaching kindergarten in Harper Woods, Michigan and southeast Washington, D.C., and received a Master of Arts in Teaching from Oakland University. Ms. Long then obtained her Juris Doctor degree from Indiana University Robert H. McKinney School of Law, where she graduated in the top 5 of her class and served as the Senior Executive Editor on the Indiana Law Review. Her law review note was published in the Indiana Law Review, and she has published a law review article in the Denver Law Review. She can be reached at (248) 478-1800 or [email protected].