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MORE ON LEASING FIRE ALARM SYSTEMS FROM FEBRUARY 8, 2016 ARTICLE
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Ken,
I read the responses to our joint submission and just had to respond to the lengthy, authoritative response of the anonymous "fire alarm expert", Right To The Point. One thing struck me before you even pointed it out: he obviously isn't a lawyer.
`For starters, let me point out once again that the alarm system "lease" is really not a lease at all. It is a term of art we all use to identify the situation where the alarm company retains ownership of its system in the subscribers premises. In reality, the alarm company is providing a service only and to do that where the subscriber does not already have or want to buy its own system, the alarm company installs its own system to enable it to provide that service.
Now, let me go through his points, one by one. First, he correctly points out that these "leased" systems are not capital improvements meaning all subscriber payments are immediately taxable as expenses. What he fails to consider is that 1) maybe the subscriber wants that immediate tax deduction, and/or 2) invariably, the upfront cost to the subscriber is less than if the system is purchased outright. There are situations where a building needs the service but does not have the funding for an outright purchase. The "lease option" is the solution to that problem. (Ken, you also pointed this out in your response to him)
Second, the non-attorney questions the legality of "leased systems" in New York City. Suffice it to say thousands exist. Moreover, many such systems are "voluntary", meaning they are not required by the City. Regardless, the concern about removability is baseless. The alarm company in these situations has its relationship with the subscriber, not the municipality. If there is an issue with the municipality, it will be with the subscriber building owner. In fact, this underscores the actual advantage the alarm company has when "leasing". (once again Ken, your response pointed this out)
Third, as far as exposing itself to litigation for removing its own property? From who?? Since when can't you remove your own property if the contract underlying the parties' relationship explicitly provides that you can do so? Sure, anyone can sue anyone else for anything. However that doesn't mean that it has any merit. The only litigation I am aware of even remotely connected with these relationships is like the one that led to Ken' original article about this---where the alarm company is prevented from removing its property. And those who know us know how those always end, right Ken?
Fourth, asbestos and lead poisoning ramifications? I must confess, this is a new one for me. But needing a permit to remove your own property? Never needed one before and don't expect will need one in the future. Once again, the non-lawyer is making some pretty bold assertions that I have not seen supported in any of my 35+ years of alarm litigation experience or practice.
As for his final paragraph, obviously I disagree.
How's that for being "right to the point"? And not anonymous,
Robert Kleinman, Chairman and Chief Counsel
AFA Protective Systems Inc
Syosset, NY
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RESPONSE
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I have to disagree with some of your positions. Before I get started, the Fire All in One is the premier commercial fire alarm agreement, covering sale [or lease if you get the lease form], monitoring, repair service and inspection.
Some alarm companies, perhaps AFA according to your statement, take the position that the alarm company is installing its equipment on subscriber premises in order to perform its security or fire services. You describe it as "term of art we all use to identify the situation where the alarm company retains ownership of its system in the subscribers premises". You can call an apple an orange if you want to, but I don't think that installing an alarm system in premises can equate with a gardener coming to your house and leaving his shovel and rake on the job. No one would suggest that the gardener is leasing or renting the shovel and rake to you while he does his job. These are tools of trade and belong to the tradesman, and should those tools be left on the job by mistake, ownership will remain with the tradesman. If the tradesman tells you that he'd like to leave you with a shovel in case you need it, then you own it. The alarm system is quite different; it's an installed system, not tools of trade. So the alarm company has to 1) sell it, 2) lease it, 3) rent it, which is the same as leasing it, 4) license its use, which will also end up having the characteristics, in fact and legally, of leasing the equipment. I think, for simplicity, you should look at there being but two options, sale or lease.
You correctly identify the tax consequences or benefits, depending on how you look at it, of leasing. Immediate business deduction instead of depreciating a capital improvement.
The economics of leasing versus selling is a matter of sales skill because the alarm company may very well get the same amount for the installation on a lease as the alarm company selling the system gets on a sale. Why? Because alarm companies often sell and install at cost or at a loss in order to get the work and generate the RMR items [monitoring, inspection, service].
NYC does not prohibit the lease of the fire alarm system, though I am not sure the building department or fire department has given it much thought. And you are correct that if and when that equipment is removed from the building it will be the subscriber's [or building owner's problem]. Your comment about "voluntary" fire alarm systems in NYC is curious. In NYC commercial buildings and three family home structures, require an approved fire alarm. Existing buildings may not have fire alarms and won't be bothered by the FD until a building permit is requested for some work at the building, in which event a fire alarm will likely be required. Not all premises require a fire alarm but the subscriber wants one. Perhaps an older premises is doing some renovation that doesn't require a building permit and the owner wants to add a fire alarm. I suppose you'd call that a "voluntary" system. Problem is that NYC FD does not recognize a "voluntary" system. Every fire alarm system in NYC [excepting residential system - and even that is questionable] ,must comply with FD regulations and receive a "terminal number". You can comply with a leased system.
Before you remove a fire alarm system you will no doubt terminate monitoring, cease to provide repair service and perform inspections, all of which can result in FD and Building Dept violations, fines and potentially closing the building. While you may think that the fire alarm system and services are a matter solely between AFA and the subscriber, I think you're in error. No alarm company should terminate fire alarm monitoring without notifying the AHJ, in NYC's case, the fire department. Even if not required by contract, code, law or regulation, it's a good idea. For one thing, it may get the subscriber to request that you continue your service; save the customer. But my real concern is that there are cases that have given third parties the right to pursue claims against alarm companies for fire loss starting in the subscriber's premises. While we know that "no third party beneficiary" should mean just that, sometimes what looks like an orange really is an apple. Surrounding property owners may claim some cause of action against an alarm company that fails to perform or performs negligently with a result that a fire spreads from the alarmed premises to adjoining premises. I would of course prefer to be on the alarm company's side in that case, but there are cases out there that raise problems for the industry. Be safe, not sorry, notify the AHJ that you are terminating monitoring or that you haven't been allowed to repair or inspect a fire alarm system that your company name is associated with.
Finally, the asbestos and hazardous material comment was interesting and important enough to cause an upgrade in the Standard Alarm Forms.
By the way, if anyone wants a great history lesson of the alarm industry in NYC check out AFA's website at http://www.afap.com/our-company/history/
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ANOTHER COMMENT
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Ken
It is quite interesting to see how other people interpret things in the way that they want others to see them and then try to convince them that they are right (just listen to Trump) and everyone else is wrong.
Now to get into the body of the statements made about my comments.
First, no claims were ever made that I am a lawyer and speak as such. Why was that stated several times? Was it an attempt to get some sort of point across and accomplish something and if so what? What is the significance of that statement or even a concern to make it? Right from the beginning Ken stated it but it had to be repeated why?
Second on the subject of “Lease”, call it whatever you want to but on my contract and all that I have seen it says “Lease”. If a copying machine is placed in an office to use there is a “Leasing” agreement executed and supplies may or may not be included. The same applies here, it’s a lease. What about cases that the customer owns the fire alarm system outright, can you not “Lease” the program that you wrote and support or is it called something else like maybe a license? I am aware that many companies do this. Your definition of your term of providing services is just semantics. Call it whatever you want to, they are the same as it applies here.
Third, as far as the tax issue that you were expanding upon, I was just defining on how a Capital Improvement does not apply to a lease and not any other options so why read into that? Are you a CPA with an extensive knowledge on property taxes too?
Fourth, the reference to a “voluntary system” you of all people as a “Lawyer” should know as Ken stated that if you want to put in a fire alarm system in NYC regardless of what you call it you must meet all the code requirements. That requires that you file it except the exceptions noted regardless of what may had been done in the past. The NYC FAIU as you should know are citing all systems out there both required and voluntary that must have a Letter of Approval. There is a document in place to legalize all those that do not have one and that includes your “voluntary” ones. See Technology Management bulletin #03/2012 (revise 03/09/2015) on how to do this for a fire alarm system and FAIU bulleting # 03/15/15 as it applies to fire sprinkler monitoring. I am sure that you have gotten notices from your customer from violations they received making such requests for a Letter of Approval.
Fifth, the comment about “The alarm company in these situations has its relationship with the subscriber, not the municipality.” That does not hold water either. If that is so why does the licensed fire alarm company have to completed the A-433 B section that reference the S-97 holders information, in most cases requests the inspection with the B-45 form and perform the inspection. If the subscriber has all responsibility with regard to the municipality why do you have a FDNY type R01 Approved Expeditors License that the intention for it is to allow you access to the FDNY regarding your subscriber jobs, forms, applications are request for an inspection. If you do not have a relationship with the municipality as stated, why would you act on behalf of your subscriber as to the required forms and inspection as opposed to just placing the burden on him to get completed?
Sixth, try looking at a PW-1 Plan / Work Application Building Department Form that all fire alarm systems required whether sold or leased and tell us that you can just remove the fire alarm system without requiring a permit when you needed one to put it in. You need a permit to do demolition but I am sure that you will not define the removal as such, it is just reclaiming your own property that happens to consists of building materials and is attach to the building structure (pipe, electrical boxes and wire etc.). When removing “you own property” causes conditions that disturb lead paint and yes asbestos on older jobs that your employees are exposed to, is that also the responsibility of your subscriber/building owner too that your employees are creating the condition by the removal? O’ yes I forgot that is your subscribers problem, right and states so in the initial agreement and renewal agreements from your firm! Seventh, look specifically at Section 22 in the PW-1 From that address Asbestos Abatement Compliance that was a new one on you. Eight, and lastly, please tell me how your company reuses/reinstalls old pipe and wiring (aka trash) that was removed. Like I said to begin with, many in this industry believe that can do whatever they want with no ramifications.
Finally, the comment on “Authoritative Fire Expert” as termed by others and not me, I will take as a complement from you and yes I am still
“Right To the Point,
Anonymous and lengthy”, case closed.
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