Q&A - real property lease v alarm lease comparison
Question:
Ken,
On your chat line you should compare an alarm lease (equipment and
service) as opposed to a property lease (not an equipment lease such
as a copy machine). Why is a property lease renewable without
charges/improvements etc. and can run with no concerns for the value
of the service being provided but an alarm system lease has certain
restrictions in order to hold the same values as when it is
originally signed?
Mr. Gilbert
___________________________
Answer:
There is really very little in common between an alarm lease, or
equipment lease, and lease to real property. The law of real
property has been developing for far longer than equipment leases.
Laws pertaining to real property exist in most jurisdiction and there
is a wide body of case law dealing with real property leases.
There are few if any laws that restrict the term of alarm leases,
or the renewal terms. There are however cases where judges impose
their own sense of justice and refuse to enforce certain terms for
various reasons. The legal basis for these rulings usually involve
defenses that the contract term or the contract itself is
unconscionable.
There is an inherent difference in the philosophy of the
investment as well. The owner of the real property assumes that
property value will increase and rent should increase yearly; the
landlord doesn't want to give out long term leases. Alarm leases
however involve equipment that is depreciating and becoming obsolete.
Alarm leases also differ from most other equipment leases because
most equipment leases are really finance arrangements, often referred
to as "hell or high water" leases. This term is used because the
lease payments must be made no matter what the condition of the
equipment is or the service provided by the original lessor. Alarm
leases are generally held by the alarm company who is also providing
service in connection with the lease.
* * * * * * * * * * * * * * * * *
Question:
Ken,
Now that you clarified the difference between a property lease and
equipment lease can you for legal purposes define the difference between
rent and lease as it applies to an alarm system? Are they interchangeable
or does a specific term have to be used?
Secondly as indicated in your response equipment depreciates over years and
the lease/rental is really a finance agreement. Would it make sense in
percentage terms in the agreement to specify what percentage is for the
equipment lease and what percentage is for the monitoring/repair service so
that increases over the years can be attributed to the repair service/
monitoring increases and not related to the depreciating of the equipment?
Thirdly on the renewal of an agreement after the expiration date can the
new agreement be based strictly on the repair service/monitoring since the
equipment would now be fully paid for and deprecated?
Fourthly would it make the best sense to replace a major piece of equipment
such as the control when entering into the subsequent agreement so that the
true valve of the lease begins all over again as now commonly done with
cell phones? Thank you for your answer in advance.
Mr. Gilbert
------------------------
Answer:
For our purposes the term rent or lease are interchangeable. Except
for real property, I think the connotation of lease is more appropriate for
a longer term relationship. You rent a car for the weekend, you lease it
for several years. The universally accepted term in the alarm industry is
lease, not rent.
The standard alarm contracts generally do not break down the recurring
charge for lease of the equipment, monitoring or service. That analysis is
sometimes done in the context of a lawsuit where the alarm company is asked
to justify the charges or explain its damages for the subscriber's
default. The agreement will provide for increases, either automatic or
discretionary.
The official position is that the equipment does not depreciate or
become obsolete. It does not lose its value. In the event of subscriber
default my contracts call for the subscriber to pay 80% of the stated value
of the equipment, and that does not change during the course of the lease.
So if the contract provides for agreed equipment value of $2000, it doesn't
matter if the breach by the subscriber comes in the 8th month or the 48th
month, we still sue for $1600 equipment value.
There is no breakdown of the charge on renewal. The same principles
apply as during the initial term of the contract. If you are going to let
the contract go into renewal, or if you have the subscriber sign a new
contract, it will always be helpful to provide some new consideration,
whether survey or upgrade of the system.
Question:
Ken,On your chat line you should compare an alarm lease (equipment and service) as opposed to a property lease (not an equipment lease suchas a copy machine). Why is a property lease renewable withoutcharges/improvements etc. and can run with no concerns for the valueof the service being provided but an alarm system lease has certainrestrictions in order to hold the same values as when it isoriginally signed?
Mr. Gilbert
___________________________
Answer:
There is really very little in common between an alarm lease, orequipment lease, and lease to real property. The law of realproperty has been developing for far longer than equipment leases.Laws pertaining to real property exist in most jurisdiction and thereis a wide body of case law dealing with real property leases.There are few if any laws that restrict the term of alarm leases,or the renewal terms. There are however cases where judges imposetheir own sense of justice and refuse to enforce certain terms forvarious reasons. The legal basis for these rulings usually involvedefenses that the contract term or the contract itself isunconscionable.There is an inherent difference in the philosophy of theinvestment as well. The owner of the real property assumes thatproperty value will increase and rent should increase yearly; thelandlord doesn't want to give out long term leases. Alarm leaseshowever involve equipment that is depreciating and becoming obsolete.Alarm leases also differ from most other equipment leases becausemost equipment leases are really finance arrangements, often referredto as "hell or high water" leases. This term is used because thelease payments must be made no matter what the condition of theequipment is or the service provided by the original lessor. Alarmleases are generally held by the alarm company who is also providingservice in connection with the lease.
* * * * * * * * * * * * * * * * *
Question:
Ken,
Now that you clarified the difference between a property lease andequipment lease can you for legal purposes define the difference betweenrent and lease as it applies to an alarm system? Are they interchangeableor does a specific term have to be used?
Secondly as indicated in your response equipment depreciates over years andthe lease/rental is really a finance agreement. Would it make sense inpercentage terms in the agreement to specify what percentage is for theequipment lease and what percentage is for the monitoring/repair service sothat increases over the years can be attributed to the repair service/monitoring increases and not related to the depreciating of the equipment?
Thirdly on the renewal of an agreement after the expiration date can thenew agreement be based strictly on the repair service/monitoring since theequipment would now be fully paid for and deprecated?Fourthly would it make the best sense to replace a major piece of equipmentsuch as the control when entering into the subsequent agreement so that thetrue valve of the lease begins all over again as now commonly done withcell phones? Thank you for your answer in advance.
Mr. Gilbert
------------------------
Answer:
For our purposes the term rent or lease are interchangeable. Exceptfor real property, I think the connotation of lease is more appropriate fora longer term relationship. You rent a car for the weekend, you lease itfor several years. The universally accepted term in the alarm industry islease, not rent. The standard alarm contracts generally do not break down the recurringcharge for lease of the equipment, monitoring or service. That analysis issometimes done in the context of a lawsuit where the alarm company is askedto justify the charges or explain its damages for the subscriber'sdefault. The agreement will provide for increases, either automatic ordiscretionary. The official position is that the equipment does not depreciate orbecome obsolete. It does not lose its value. In the event of subscriberdefault my contracts call for the subscriber to pay 80% of the stated valueof the equipment, and that does not change during the course of the lease.So if the contract provides for agreed equipment value of $2000, it doesn'tmatter if the breach by the subscriber comes in the 8th month or the 48thmonth, we still sue for $1600 equipment value. There is no breakdown of the charge on renewal. The same principlesapply as during the initial term of the contract. If you are going to letthe contract go into renewal, or if you have the subscriber sign a newcontract, it will always be helpful to provide some new consideration,whether survey or upgrade of the system.
