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Why You Should Keep Your Future Account Purchase Options Open

Legal expert Ken Kirschenbaum outlines some viable term options for purchasing subscriber accounts.

Typically, when you’re ready to sell your subscriber accounts, it’s all of them, not a partial selection. When the deal is to sell only some of the subscriber accounts it’s usually a way for the seller to raise some capital and remain in business.

One demand that the buyer may make is that it wants the right to purchase more or all of your subscriber accounts when you are ready to sell. Another demand may be the right to require you to sell more or all accounts upon demand of the buyer or upon some criteria being met.

So a buyer may demand that once you have accumulated 100 or 500 or 1,000 accounts you are required to sell the accounts to the buyer. The flipside is that you could have the right to demand that the buyer purchase the subscriber accounts once the criteria are met.

In either situation it’s important to have a clear agreement on how, when and at what price the transaction is to be consummated. What is the appropriate way to handle an account buyer’s demand that it have an option to purchase some or all of your subscriber accounts in the future?

Options connected with a present transaction are not all that uncommon. Perhaps the most common option would be in the real estate lease, an option to extend the lease into a renewal term. Others include an option to purchase your leased vehicle.

When you think about it, even the alarm contract has an option, the renewal term, whether month to month or a longer period, unless the auto renewal is terminated by affirmative notice to the other contracting party. Generally, there should be some consideration for the option. It shouldn’t be something demanded for which nothing is offered in exchange.

That consideration may be additional money, but usually it’s just factored in when the overall purchase price is calculated. But not always. Unless your deal includes a purchase price above market, and you think it’s going to stay above market, you may want to resist the option.

Of course, you are gambling that the market for alarm RMR is not going to drop, though in that case the holder of the option is unlikely to exercise the option unless you agree to reduce the price to market. Agreeing to an option may alieve some anxiety and uncertainty because you have a built-in potential buyer.

A better idea, if you’re the seller, is to meet the demand for an option with your own demand for a “put.” That’s the opposite of the option. With the put you can require the buyer to purchase your additional alarm RMR. The put evens out the “option” since now either side can initiate the purchase of the additional accounts.

In order to really save time and actually have a genuine put or option make sure all the terms of the purchase are set forth in the agreement. If your agreement has any terms that come down to or close to “we will agree to mutual terms later,” then you essentially have no agreement at all.

An “agreement to agree” is generally not enforceable, anywhere. And if you’re going to rely on “good faith efforts,” don’t because that’s only a great way to end up in litigation.

If you have a lawyer including “agree to agree” language in any contract, run, don’t walk, to another lawyer. If it’s the other side to the contract demanding that kind of language let them know you weren’t born yesterday. Let them figure that out.

About the Author

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Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.

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