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Central station questions Rider to Dealer Agreement  
November 28, 2020
Central station questions Rider to Dealer Agreement
            We are a wholesale central station.  Last week one of our dealers presented us with your boilerplate 'Rider' for the central station Dealer Agreement. Some of it is already covered by our Dealer Agreement, though the Rider does highlight and clarify the points. 
            But there is language that cancels out the term of the agreement because it permits the dealer to cancel without penalty on 60 day notice. That makes our financial institutions wary since it doesn’t lock our dealers to a specific term.
            Do you expect central stations to accept the Rider “as is” or is it up for discussion?
Name withheld

            The central station Dealer Agreement is created and drafted for the central station.  It naturally favors the central station.  The Rider is created and drafted for the dealer.  It naturally favors the dealer.  In the end, the Dealer Agreement, modified by the Rider, needs to be fair to both central station and dealer.  That doesn’t mean it is evenly balanced; it isn’t; it’s always going to favor the central station just as the end user agreement is always going to favor the alarm company dealer.  [yes, of course the tables turn based on bargaining power, but I speak in general and typical terms]. 
            The K&K Rider to the central station dealer agreement is really designed, and intended, to clarify certain issues and in some circumstances, change the terms of the Dealer Agreement to better reflect the actual deal between the central station and the dealer.  The Rider should not be considered “take it or leave it” – meaning find another central station, though some of the provisions in the Rider are so important to the dealer the dealer would be wise to move on to another central station more reasonable in its contract demands. 
            The provision you mention above is not, however, a deal breaker. The right to cancel on relatively short notice is also something that depends to a considerable degree to the actual deal between the central station and the dealer.  it’s also “all business”, not a legal issue.  So the dealer agreement will call for a term, somewhere between 3 and 5 years, with a liquidated damage provision in the event the dealer terminates early.  For example, a dealer who terminates early may be called upon to pay the average of the central station charges for the duration of the term, or a part of the term.  In some circumstances this penalty, or better described as “early termination fee” is appropriate; other times it’s not.  Why?
            Many central stations offer a new or renewing dealer an economic incentive.  That incentive could be an outright cash award or a forgivable loan; it could be a reduced monitoring charge; it could be a waiver of set-up charges to put accounts on line.  The incentive is worth something to the dealer and it costs the central station something.  Both central station and dealer have considered the incentive when deciding to do business together and looking at apple to apple between central stations competing for the dealer’s business.  The central station has operational costs and income expectations; it has established rates and fees it charges to its dealers and it needs a very good reason to depart from those standards.  So a central station may decide it can provide incentive, for example, by offering a reduced rate because the dealer has many accounts and agrees to stay with the central station for a minimum term.  The central station has determined that the relationship still makes economic sense over the long haul.  Obviously this plan of action is disrupted if the dealer terminates the relationship early.  Hence, in this situation the central station should insist on its long or longer term.
            But what about a central station that has offered no incentive.  The central station charges the dealer for set-up fees, $50 per subscriber; it charges full fare for monitoring; why shouldn’t this dealer be permitted to terminate on reasonable notice [90 days].  What about a dealer who has been a long time dealer of the central station.  This dealer pays for set-up; pays full rates for monitoring; been with the central station for long time; new Dealer Agreement is requested by the central station.  Why should this dealer be locked into a long fixed term?  This dealer could literally pick up and go to any central station, especially if the dealer was smart enough to have its own dedicated lines.
            There are many issues addressed by the Rider, some more important that others and only a few that I would consider a deal breaker.  The length of term for the Dealer Agreement is not a critical term, at least not between central station and dealer.  One issue raised by the central station is its relationship with its lender.  I suppose that like a landlord that continuously borrows against leases, so that the landlord tries to negotiate longer term leases which qualify for higher borrowing, a central station that borrows from a lender who looks at the term of a Dealer Agreement may be important.  That seems less important in my mind than the dealer’s right to terminate a Dealer Agreement where no incentive was offered or received and the dealer’s business judgment is that monitoring should be moved to another central station.  A dealer who borrows money from a lender may be able to borrow more if the monitoring charges are less. I don’t think a central station is going to be persuaded to lower rates based on that; I don’t think a dealer needs to be concerned with a central station’s borrowing practices and rates.  As an aside, I think both central station and dealer should be careful leveraging their operations by borrowing against their contracts.  It’s one thing to borrow for purposes of growth, an acquisition for example, but it’s another thing to borrow just to put more money in your pocket now and worry about paying it back later based on expectations that may not pan out.  But you didn’t hire me for my business acumen, so I’ll stick to the legal issues.
            Dealer, be sure to get the K&K Rider to the central station Dealer Agreement.  And, central stations, be sure to use the K&K Dealer Agreement
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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