Alarm Equipment Remains Personal Property

Why does, or should, properly drafted alarm agreements provide that the installed equipment will remain personal property? In a Lease the equipment remains the property of the alarm company and on a sale it remains property of the subscriber or buyer. All of the Standard Form Agreements [] include that provision and once in a while a subscriber will call it into question, especially when the subscriber is focused on typical sales tax treatment for capital improvements which requires a permanent installation. 

Generally there are two types of property, real and personal. Real property is real estate. Personal property is everything else. Fixtures are a gray area because a fixture is personalty that becomes affixed to real property and becomes part of the real property; it loses its personal property characteristic. Sheet rock and roof tiles are personalty when delivered to the job site; they become part of the realty when installed. A wall mounted television is personalty when delivered to the house and remains personalty after it's installed. But that same television, if built into a customized walnut cabinet, may become real property. 

Fixtures present a gray area and sometimes the agreement of the parties can clarify the situation. While you can't agree that an apple is an orange, you can agree that the built in television remains personal property. A fixture that can be removed without damaging the integrity of the building can remain personalty. Alarm equipment is screwed into the wall or affixed in a way that removal will not damage the structure. I am not referring to leaving marks or damaging a paint job. 

Alarm devices can arguably be characterized as personal property after installation. Wiring and conduit present a more difficult issue, but even these items can usually be removed without damaging the building. A good argument could be made that wiring and conduit that cannot be replaced because a building is no longer under construction becomes part of the realty. I think this would be a fact sensitive issue.

Why do we in the alarm industry care? We care because there are laws that prohibit the enforcement of certain protective provisions in the Alarm Agreement if the protective provision is applied to the improvement, alteration, maintenance or repair of real property. If an alarm system was classified as real property we may not be able to enforce certain protective provisions. Since alarm systems are personalty and remain so after installation, or at the very least fall into the gray area of fixtures, by agreement we seek to clarify the ambiguity and agree that the equipment remains personalty. 

Getting back to the sales tax issue, my position has been that you can provide the Capital Improvement certificate. For tax purposes the installation will be treated one way and for contract enforcement another way. I’m not a tax expert. But many would consider me an expert in alarm defense cases, and I can assure you that relying on the enforcement of the protective provisions is a lot more important that the sales tax issue. Leave the provision defining the equipment as personalty in the agreements.