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should you buy monitoring accounts with no contracts
April 28, 2018

should you buy monitoring accounts with no contracts
    I have been approached by a competitor (and supplier and friend) who is offering an attractive price to sell a few alarm accounts. He is stuck in an unfortunate situation. He operates an electronic service shop and had a prior partner who has since passed on.  It appears that the prior partner had ambitions towards the alarm business and sold a few dozen alarm systems without contracts to end user customers.  Now the shop owner is left with accounts that he is billing for monitoring but HE has no license and really does not have interest and would prefer to find a buyer.  
He Has.. 

  • No Contracts

  • No License 

  • No Alarm E&O Insurance.

    I do not mind paying the price he asks but should I do this and then pursue getting contracts signed? Or should I just say NO.   I sent an email to my insurance vendor and have not received an answer on it yet
This is in NJ.
JJ in Jersey

    Tough call; you don't indicate what the price is.  Though not ideal, there are plenty of deals where there are either no contract or "contracts" not worth the paper they are written on.  The familiar adage that "there's a buyer for everything" comes to mind.  I guess it depends on the price.  More importantly, it depends on what you intend to do with your "acquisition" once you own the accounts.
    Apparently, this "seller" has found a central station stupid enough to provide the monitoring service.  Hard to believe that any reputable central station would agree to monitor when there are no contracts.  But I can think of at least one central station [in NJ] who might be that stupid or greedy or both.
    New Jersey requires alarm companies to be licensed to sell and install alarm systems. Here the systems are already in place, so you can't be held responsible for the installation, from a license perspective.  But once you own them you are going to be responsible for the system, at least that's what the subscriber is going to think.  A contract that clearly states that you didn't install the system, that you aren't inheriting the system and won't be responsible for the system, doesn't exist here.  At the very least you'll need this if you take over these accounts.  
    I don't believe NJ requires a license to monitor alarm accounts, so at least you won't have to deal with that.  [if that's changed let me know]
    Asking your insurance company for advice is not going to get you an answer.  Your carrier isn't in the business of dispensing legal advice, and your broker should not be offering legal advice either.
    The accounts have limited value because you have a lot of work to do if you buy them and some added risk while you monitor them until you get a proper contract in place.  Stay with the idiot central station until you do get a 
proper contract signed, and that is going to be your first order of business the moment you close.  [you could also agree that you don't close until the accounts are signed on your contract, but that would entitle the seller to more money because the accounts will have more value once the subscribers sign a contract.]
    So buy the accounts on the cheap.  Maybe agree to pay 10 times RMR, but only as each subscriber signs your contract.  The day you close is the day you send a letter to the subscriber that you have acquired the account and that they have 10 days to sign your contract or monitoring will be terminated, without further notice on the 11th day.  Be sure to cancel monitoring as promised on the 11th day.  You can send another notice out that you have canceled the monitoring.  
    You will have exposure between the time you close and the time you terminate monitoring.  I'd make it very clear that you aren't providing the monitoring and that the system is being monitored by the central station - be sure to give the subscriber the name of that central station.  If there is a loss during the 10 days you can hope the subscriber looks to the central station for recovery.  Unless you are a regular dealer for this central station you haven't signed a 
Dealer Agreement with this central station [who knows if it even uses a Dealer Agreement], so you haven't agreed to indemnify this central station.  If you have agreed to indemnify this central station then you may want to give serious consideration if you are willing to take the risk of monitoring without a proper contract.  
    If you close and acquire these accounts you have to present each account with a 
Standard All in One in which you will make clear that you are monitoring an existing system for which you have no responsibility.  You also need to get a Disclaimer Notice signed.  The updated Disclaimer Notice has provisions dealing with "take-over" accounts.  The Disclaimer Notice provides that the subscriber has declined to have you inspect the system and or make necessary repairs and upgrades as necessary to provide proper service.
    The best case scenario is that you get brand new 
Standard Form Agreements signed.  Move the accounts to a reputable central station, one that requires proper contract protecting you and the central station, which the Standard Form Agreement does.  [All in One residential, commercial or commercial fire].  Now you have a subscriber contract worth at least 35 times RMR that you paid 10 times RMR or less.  Be sure to inspect each account, test every device and be sure the central station can identify every signal that the panel is programmed to send, and that Call Lists are current and accurate.
    Worst case scenario is that a subscriber suffers a loss right after closing; you don't have a contract to rely on; the subscriber sues you for more than your insurance coverage or your carrier disclaims and your idiot central station doesn't have enough or any insurance to cover the claim either.  If the claim is enough, you'll be out of business.  Only saving grace I can think of is that it will take a long time for the lawsuit to progress so you'll be able to stay in business a while, long enough to make yourself sick over the case.  Keep this article handy so you can read it again on your sleepless nights.
Bottom line.  You cannot provide any security or fire alarm services without a proper contract in place.  No exceptions.  Wondering if you have a proper contract?  Get updated contracts here and stop wondering.


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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
516 747 6700