November 14, 2011
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Question
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Ken:
If i want to exit the alarm business and all of my subscribers are under your contracts, when I sell or transfer the accounts to another local dealer what documentation should I have to release me from liability moving forward with the client and the new dealer? Canceled contract? Hold harmless for client/new alarm dealer? Etc. Please advise. I want to make sure i have no worries moving forward.
Thank you
Ron R
Illinois
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Answer
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As a selling alarm company there are lots of things to think about. Starting off with an attorney experienced in the alarm industry with a good track record of closing transactions [instead of making a mess of them] is a great start. But for today, let's limit the issues and focus on continued liability after the sale.
You're under contract to provide a service. It's the contract that you're selling. At the sale you obviously will not be getting the consent from all of your subscribers to the sale, unless of course if you already have consent, which you do if you have them under contract with one of my Standard Form Contracts.
Here's the legal issue. When you sell your accounts the most popular way to do that is with an Asset Purchase Agreement, pursuant to which you sell, transfer and assign your subscriber contracts to your Purchaser. When you assign your contracts, you are an Assignor. The Purchaser is the Assignee.
An Assignor can assign a contract but does not get relieved of liability for performance unless the other party to the contract consents to that assignment and agrees to excuse the Assignor from liability. That provision is found in the Standard Form Contracts. If it's not in your contract then you remain liable for performing the contract that you have assigned.
Your Assignee, the Purchaser, should agree to perform your obligations under the subscriber contracts, and agree to indemnify you in the event of any claim arising after the sale. The indemnity is however only as good as the indemnitor. An indemnity from someone with "no pockets" is not worth very much, whereas an indemnity by someone with "deep pockets" or insurance protection, has protection value.
As a seller you will want to continue your E&O insurance unless you can be named as an additional insured under your Purchaser's E&O policy, and even under that circumstance you may want to continue your insurance with a "tail", which means that even though you stop business your policy continues to cover you for all work done prior to your ceasing operations. Talk to your insurance broker about this.
Thinking of selling or buying - call Jennifer Kirschenbaum at 516 747 6700 x 302. For free advice - email me.