QUESTION:

    Hi Ken:

    We enjoy reading your e-mails and look forward to receiving them. They are very informative and I send them to our managers as I receive them.

    I have a question or 2 about leases.

    There is some interest here in of starting up an alarm and video leasing program.   We did hundreds of leases in the 80's. Those are pretty much all gone now.

    Are there legal ( Federal or State ( Mass )(guidelines which must be observed? "Truth in Lending" that sort of thing. Are there leasing contracts available. Are we better off using a 3rd party for leasing?  What is the prevailing wisdom?

Thank you

Paul

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ANSWER:

    When I first began representing alarm companies the "model" transaction was a commercial transaction and the contract was a "lease".  The alarm company installed, serviced and monitored the system and always owned the equipment.  Even residential systems were installed using the "commerical" lease form.  Those days are of course long gone.  Today most systems are sold to residential subscribers and even commercial subscribers want to own fire alarms, CCTV and access control systems.  Small commercial jobs are often sold, not leased.

    My recommendation for a healthy alarm business operation is for there to be a balance between residential and commercial subscribers, intrusion and fire, sales and leasing.  Naturally not ever market is the alike and you may find yourself in an area where residential or commercial predominate.  

    When you look at your subscriber base you should understand that the subscribers under contract represent RMR.  Recurring Monthly Revenue equates not only into cash flow but the value of your business, because the business value is a factor of the RMR.

    The premium subscriber is the commercial lease.  You should be getting almost the same amount for installation that you would for a sale and the monthly charge is going to be higher because it's a lease.  You will retain ownership of the equipment which gives you greater leverage over the subscriber and the subsciber's location.  This type of contract will have the best value when you are figuring out the value of your business.  Commercial leases have more value than residential leases, and residential leasing is not the typical transaction.

    You should be using your own lease form, which you get at www.alarmcontract.com. 

    When you lease you do not involve Truth and Lending Law because you are not charging interest.  You are charging for leasing, installing, servicing and monitoring the system. But you do need to know about and comply with The Consumer Leasing Act, Title 15, USC section 1667.   

     I covered this Act in a previous article which you can read at  http://www.kirschenbaumesq.com/emailarticles.htm

       Do not confuse this with third party leasing programs where you are really selling the system to the third party who then leases it to the subscriber.  That transaction is in fact a lending transaction and the interest rates and other Truth and Lending Law requirements must be followed.  That's the third party leasing company's problem, not yours, unless you are hooked into them.  I'd stay clear and do your own leasing to maximize your profits and value of your business.

     Though you don't need to worry about the Truth and Lending Law, you do need to know about, and comply with

    If you check the available standard form contracts at www.alarmcontracts.com you will find:

commercial lease [generic for all alarms]

FIRE alarm lease

residential lease

CCTV lease

PERS lease