With Contracts, the Customer is Always Wrong


BOSTON (TheStreet) — What do Tiger Woods, the New Jersey Nets and Verizon (Stock Quote: VZ) customers with iPhone envy have in common? Contracts they'd love to escape.

Woods' prenuptial agreement, the Nets' arena lease that runs through 2013 and Verizon's contracts for "advanced devices" seemed acceptable at signing. But these agreements can become expensive problems when better opportunities or life-changing events arise. Verizon charges defectors $350 in early termination fees. The Nets face a $7.5 million penalty if they switch arenas. And Woods stands to lose nearly half of his $600 million fortune for violating his marriage contract.

"When people want or need to get out of contracts, they'll assume they have a right to get out of that contract," says John Sternal, spokesman for LeaseTrader.com. "That's not the case in many situations."

Such is life in contractual America, where 65% of consumers surveyed by ComScore in December said they planned to ditch their current mobile phone and buy a Research In Motion BlackBerry within the next three months. Include the 20% who are eyeing iPhones and the 17% going for Google Android devices, and you're looking at prorated cancellation fees of $200 for T-Mobile and Sprint Nextel (Stock Quote: S) and $175 for AT&T (Stock Quote: T).

"Every industry needs to realize that times are changing and we live in a lease lifestyle society. We live for today and not tomorrow," Sternal says. "Companies are always parading new things out in front of us and we always want latest and greatest."

So how do you get out of it? Money is usually the only answer. Dying typically transfers the onus of a consumer's contract or lease to the cosigner or next of kin. Cell phone companies usually scale their early termination fees based on length of service, while adjustable rate mortgages have been notorious for inflicting penalties for early repayment.

Transferring the lease on your own or through Craigslist or sites like auto-focused LeaseTrader, TradeaLease or Swapalease only works if the landlord or company agrees to it. Car companies, including Honda (Stock Quote: HM) and Nissan, often place tight restrictions on lease transfers, charging fees in some cases.

Gym contracts can prove just as tricky. Some fitness chains bind users to agreements as long as they live within 50 miles of a facility, according to the Better Business Bureau.

If you don't feel like paying a fee or negotiating a settlement, avoiding contracts altogether is always an option. Verizon can't punish Droid users who drop their service if those users pay the phone's full $559 retail price and buck the company's plan. Seeking month-to-month agreements for apartments or fitness clubs like the inappropriately named Life Time Fitness (Stock Quote: LTM) removes stability, but limits liability.

In real estate, a lessee's rights tend to vary by state. Indiana lawmakers are pushing legislation that would allow renters who have been victims of crimes like burglary to break a lease with no financial penalties if they have a police report.

The least costly strategy, however, is for consumers to know what they're signing, revisit their agreements every year and educate themselves before they spend.

"You could eliminate a lot of this confusion if you could add contracts to the curriculum as early as high school," Sternal says. "If college is about preparing us for life, this would be a natural fit."

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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