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COMMENTS ON AFA LAWSUIT AND LEASING FIRE ALARM SYSTEMS FROM ARTICLE ON JANUARY 29, 2016 
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Ken
    All the recent discussions about the leasing of fire alarm systems (not central station transmitters) installed in real property for building owners can have some very concerning complicated problems and pit falls.   
    First on the list is that none of the job for tax purposes can be considered a Capital Improvement because you are stating in the contract that it can be removed and is the personnel property of the alarm company.   Therefore the whole installation and lease has to be taxed and building owners do not want to pay for the installation.   By the way both the materials and labor has to be taxed not just the labor.   
    Second on the list, is if the job even can legally be leased since a building permit is required in the City of New York and other areas. Once it is issued it has been established by the City that the fire alarm system will now be part of the permanent structure just like electrical wiring and plumbing and cannot be removed without altering the building in some degree.   If in fact if you did attempt to remove the system there are many other ramifications since you would now have to file for a permit to make an alteration for the removal.   In addition both you and the building owner has to make an official notification to the Fire Department of your intentions way in advance.   
    Third you expose yourself to litigation if there is a fire and with a loss of life and property regardless of what your contract says if you did not get a permit to remove the system legally / officially and the Building and Fire Departments were not on board and permitted it (which is not very likely to happen).   
    Forth by removing the system you may now be exposed to lead and asbestos ramifications that you were not when the system was installed.   When filing for a permit to remove the systems there is a specific part of it that addresses asbestos and a new investigation may be required that has to be paid for.   If found in the area of removal a lead / asbestos abatement would be required.       If you failed to get a permit in the first place and just removed the system you will be liable if they are present in the area of removal to a contamination lawsuit that I am sure there are no current provision to exclude you from in your contract as well as exclusions in your insurance policy addressing this.   Old plaster, wire insulation, pipe covering and floor covering are just a few examples of what has asbestos and old paint has lead in it.   Walking in and ripping out the system will not fly under the radar officially.   
    Most people in this business think that they can just do what they like and the building owner has all the responsibility to do this but that is not the case in these circumstances.   Many people who presently lease fire alarm systems want to play out of sight, out of mind, when it comes to the real facts here.
Yours truly,
Right To the Point
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RESPONSE
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    "Right to the Point" is a fire alarm expert in the NYC metropolitan area, is not a lawyer, and prefers to remain anonymous.
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ANOTHER COMMENT
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Ken
    Let the buyer beware......Leases are great for the alarm company.
Yahoo
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RESPONSE
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    This contributor is not necessarily a Yahoo but prefers to use that name on this forum.  Thanks for contributing.  
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WHY LEASE AND HOW TO PRICE
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    Leasing security and fire systems are certainly an acceptable model for this industry.  In fact both the Commercial All in One, which is for security systems, and the Fire All in One, which is a commercial fire alarm agreement, as well as the Residential All in One, all come is a sale format and a lease format.  The real difference is that when leasing the alarm company always owns the equipment.  In both cases the agreement states that the equipment is remain personal property and not be deemed affixed to the realty.  Though that statement may defy reality, be contrary to sales tax laws and capital improvement treatment, and perhaps New York City [and other places] building codes, that's what the agreement provides.  It may be important when statutes prohibit certain disclaimers when dealing with real property improvements.
    Those considerations aside, the real motive alarm companies retain ownership through leasing, rather than sale, is to retain control over the installation and the location where the system is installed.  It's an effective business model; just look at AFA, a major player in the fire alarm market in the areas it operates.  Retaining subscribers for 50 years or more can't always be attributable to loyalty or great service.  Sometimes it's just too costly to switch.  [of course that's not to suggest that there isn't loyalty and great service, which happens to be the case with AFA].  
    How to price a lease.  Pretty much the same way you price a sale.  Instead of selling the equipment you're charging for the labor.  The RMR stays the same.  If you sell a system cheap, or lease and don't figure in the cost of equipment, then you have to recoup the lost profit on the sale in the RMR.  Since that's risky compared to getting your profit when the system's installed, and it's over time, you want to add that factor into your RMR calculations.  Anyway, that's the theory, you do the calculations.
    Why would a subscriber be convinced to install a leased system?  They could be convinced that the up front charges are cheaper, that the system will be worry free in the sense that the alarm company now has the responsibility to keep the system operational, the monthly RMR is fully deductible instead of amortizing the cost over - I think it's 7 years.  What most subscribers aren't thinking about is some future situation where it might want to get rid of the alarm company and replace the system.  Though, even in a sale, the Fire All in One sale agreement makes it clear that the programming remains the property of the alarm company and doesn't ever have to be revealed.  That can have a chilling effect on changing companies.  
    A great sales force has to learn how to sell the right security or fire system; that's a given.  What you need to understand is that the sales force needs to learn to sell the contract, by which I mean get it signed.  A great sales force can sell ice in the winter.  Develop a great sales force.
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