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Is leasing security or fire alarm systems an option
May 18,2022
Is leasing security or fire alarm systems an option
          I've never worked for a company that leases equipment, and I'm not sure what the typical arithmetic is, do you have any insight?
          Leasing is indeed a viable option and you should consider leasing your systems.  There is definitely a learning curve to leasing as opposed to selling, which is not to imply that one is easier or harder than the other.  Most likely your sales team has been trained and is astute at “selling” whatever services you predominately offer. So if your emphasis has not been leasing they will have to learn how to sell the leasing.
          Leasing has certain advantages to the customer.  Commercial customers will generally write off all lease payments as opposed to having to treat the alarm as a capital improvement that has to be depreciated.  Leasing usually comes with all of the after-install services, so it will include monitoring, repair service and inspection.  Customers may believe that an alarm company leasing a system will have greater connection to that account and provide better service; perhaps updated equipment if necessary.
          Alarm companies may find that leasing systems has advantages.  Often the alarm company is able to get an installation charge that is very close to what would be a sales charge.  Leased systems almost always have higher RMR for the after install services so the Contract is more valuable and adds more equity to the alarm business. 
          Leased systems also give the alarm company a greater likelihood of retaining the alarm customer or a successor occupant of the premises who wants to retain the alarm system.  This is particularly prevalent with commercial fire alarms, which arguable become more valuable as time goes on as long as the building owner isn’t going to renovate or rebuild the building.  Existing fire alarms are usually grandfathered unless a new fire alarm is required because a leased system is removed.
          Let’s get to some nuts and bolts; the athematic.  I suppose there are different ways to calculate leasing.  Initially let me remind you that I am not talking about you using a third party leasing company that is financing your sales or even your future RMR with an upfront payout.  I am talking about you retaining the lease in your company; you are theoretically financing the installation.  That of course would be an accurate way to describe that part of the transaction if in fact you were not getting an installation charge for the leased system.
          If you are installing a leased system at cost or below cost you could view it as financing the leased system.  But how is that different than you selling a system and installing it for cost or below cost?  In that case you are essentially financing the system too.  If the RMR is enough it is worth the investment in the installation, though you do have to have the where-with-all to subsidize the installation.  Clearly the better plan is to cover the installation and get enough RMR to make the job profitable, which is why you are in business. 
          A calculation of installation price added to the RMR for the term of the agreement is not enough.  This calculation is not going to account for attrition, which you are going to have no matter who you are.  Not all accounts make it to the end of the term.  Since each account should stand on its own you should always be in a position of being ahead of the customer, from installation, to mid-way through the contract to end of contract.  You should be able to figure this out and if you can’t, learn how to.  Engage a consultant from The Alarm Exchange.  You weren’t born an expert in alarm business so don’t resist getting professional help when you need it.  As a matter of fact, investing in professional guidance and getting assistance, from legal to accounting to operations will pay back many multiples. 
          The Standard Form Agreements come in lease or sale for residential, commercial security and commercial fire.

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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