KEN KIRSCHENBAUM, ESQ ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and whitelist ken@kirschenbaumesq.com ****************************** Thorney issues in the buy sell transactions May 1 2025 ******************* Thorney issues in the buy sell transactions ******************* There are several issues that appear in just about every alarm buy sell transaction that cause, or should cause, issues that need to be addressed and negotiated. While I think some of these issues are essentially self evident or obvious, other attorneys who think they know alarm deals have other opinions, informed or otherwise. I am going to address some of these issues in this and upcoming articles. You are familiar with the concept of seller guaranteeing the alarm account RMR for a period of time, which period is negotiable, but most often one year when the multiple is around 30 or more times the RMR. As I have explained the guarantee is collateralized by the "holdback". When an account is canceled during the guarantee period the buyer deducts the RMR calculation for that account from the purchase price. Therefore the buyer does not pay for that account. The issue that arises is, what happens to that account? The options seem to boil down to: 1. The account is canceled and forgotten. 2. Buyer agrees to pursue the account in collection and pay the recovery to seller 3. Buyer agrees to transfer the account back to seller and seller then has the option to a. pursue collection b. continue to provide services to the account if salvaged c. bundle the canceled accounts and sell the accounts to another buyer Let's explore the options. Option 1 seems to reward the subscriber who defaults in the contract. The account, the contract, is simply tossed. The buyer doesn't care about this option because the buyer has not paid for this account. The seller loses the purchase price for this account. The reason for the default could be a simple indefensible breach of contract, so why would the seller want to let the defaulting subscriber off the hook on the contract? Option 2 requires buyer to pursue collection, but what real incentive does the buyer have for this option? Buyer is not paying for this account and doesn't get to keep the recover. It seems like a poor choice. Option 3 requires the buyer to transfer the subscriber contract back to the seller. This seems easy enough to understand, yet recently an experienced transactional alarm lawyer could not understand how a contract that has defaulted could be transferred by buyer back to seller. Can you understand? Well, it works like this: The contract is assigned by buyer to seller. Is that hard to understand? But it's in default and terminated by either the subscriber or the buyer already, so how does it get assigned by buyer to seller? Well, is there some legal theory that prohibits a canceled contract from being assigned? Would the contract and all rights to or accruing through the contract be assignable and enforceable? Even if the buyer had terminated the contract [which obviously it should not do because it is kicking it back to the seller under the guarantee - so it should be assigned without the termination] that terminated contract could be assigned, assigning whatever rights remained in that contract; sort of assigning "as is". The issues that should be discussed for option 3 is not whether it's appropriate or possible, but whether seller should be restricted from exercising one or more of its options. As a practical matter some sellers won't have all options because they may no longer be able to continue service, or they may not be able to find a buyer for the returned accounts or the accounts may have terminated for cause or expired so that no collection lawsuit could be pursued, in which case they would have no value to seller. This is one of the issues that come up in the alarm deal. 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Click here: https://www.kirschenbaumesq.com/page/what-is-my-alarm-company-worth *********************** THE ALARM EXCHANGE - the alarm industries leading classified and business exchange - updated daily ************************* PODCASTS: https://podcasts.apple.com/us/podcast/ken-kirschenbaum-presents/id1794851477 ************************* Getting on our email list / Articles archived: Many of you are forwarding these emails to friends or asking that others be added to the list. Sign up for our daily newsletter here: Sign Up. ************************** Ken Kirschenbaum,Esq Kirschenbaum & Kirschenbaum PC Attorneys at Law 200 Garden City Plaza Garden City, NY 11530 516 747 6700 x 301 ken@kirschenbaumesq.com www.KirschenbaumEsq.com
