You’re selling your pride and joy, your campground, people should be paying you for the opportunity to even present you with an offer, your campground, after all, is a true gem – well, except for that one leech field over there. Never mind the electric pedestals that got caught in the last flood. Do I really have to tell them? They have a due diligence period — can’t they just figure it out themselves?
As with everything that is ever asked of us — it is once again situationally dependent and state-dependent! The safest plan of action tends to be that if you know, then they have to know.
Generally, the purchase and sale agreement can “get you in trouble” regarding disclosures. Review closely the representations and warranties provisions, as well as the due diligence. These two sections will help delineate what is on the buyer to figure out, and what is on you to disclose, even if otherwise your state law might not require disclosure. If the representations and warranties in the contract have you signing that everything is great and it isn’t — you can be sued for, among other things, committing fraud or breach of contact.
Do not warrant or represent to the buyer something that is not true. Tell your attorney upfront about any issues so the contract can be drafted to protect you.
For example, many contracts have the seller represent that the campground is operated in accordance with all laws, including the Americans with Disabilities Act, but seldom is a campground completely in compliance. If you sign off on such in the contract, even if it should have been readily apparent to the buyer, you could end up with a nasty lawsuit on your hands.
What about environmental issues? What about municipal issues? What if they are beyond my scope of apprehension? Could you have found them out by searching with your state department of environmental protection? Then you probably should have disclosed. Does your town have a list of violations for you that you would have known if you called them? Then yes, you would have had to disclose that usually pursuant again to that contract even if not covered by your state law.
You generally should not hide any issues with any real estate, commercial or residential. You know you have an asbestos problem? Disclose. You know that the roof needs repaired? Disclose.
But what if it’s something you don’t know? You’re an absentee owner and you haven’t seen the inside of the recreation hall in two years. If you had, you would’ve seen the major leak inside the walls that is causing mold growth. If anyone had been going in and out of that building over the last two years, they would have known it was an issue. But since you personally never saw it — do you have to disclose? Yes. The general rule of thumb does not include only ACTUAL knowledge. It also includes things that a reasonable owner/operator should have known — like a leak in the wall. You aren’t allowed to bury your head in the sand and plead ignorance to avoid having to disclose things.
What does that mean? You should be looking your park over for obvious deficiencies — so that you can appropriately disclose them to the buyer. If you don’t know about certain things and have no way to find out what you have because you are the tenth owner of a property that was built in 1964, predates building codes and has no blueprints, consider having as-is language written into your contract. Also, explain to your broker in the beginning that this will be necessary and why. Brokers can help overcome a multitude of issues if you are transparent with them from the beginning and can bring particular buyers to the property based on this information.
At the very least, disclosing any known issues up front with your broker increases the probability that a purchase and sale agreement will actually successfully close.
Why is that? The buyer will feel like you have been upfront with them and will trust your other representations. A broker would rather know of a problem and have potential solutions ready to present to a buyer than not know. A buyer being surprised by a significant due diligence discovery is not a good situation. Hiding anything will make both your broker and the potential buyer wonder what else you haven’t disclosed. Very likely it will result in the buyer walking away from the deal. Yes, disclosing a significant property issue might end up limiting the number of potential buyers who will be interested in your property. However, it isn’t the number of showings that matters. What matters is finding the buyer who wants to purchase your property in its current condition.
If all the above wasn’t enough, things get a little muddier when there is a personal residence on the property. This is due to the nature that things are always a bit stricter when residences are involved. Recent case decisions have found that both the realtor and the seller were required in certain states to disclose damages regarding the residential part of the property even in absence of the contract reflecting the same. Again, this is because there are more protections when buying a “home” than there are for buying a “business.” Specifically, a seller might be required to fill out the residential disclosure form as to the home located on the commercial property even if the form doesn’t generally cover commercial businesses.
Let’s compare some of these forms.
In South Dakota, the Seller’s Property Condition and Disclosure Statement should typically apply only to the sale of residential property. However, a recent court case found that this form should apply to the home located on the campground property. By failing to disclose any defects to the seller’s knowledge on this form, there are legal repercussions from monetary damages to rescission of a transaction. You should note that even this form states that it is not a substitute for inspections or warranties, which means that the sales contract can offer more protections and disclosures from the seller.
Compare this to New York, and you’ll find a very similar practice, although this form is specifically for residential property, it once again could be implicated regarding the residence on a campground. You should note that this form asks for “actual knowledge” and states that it does not act as a warranty of any kind by the seller.
Are there states that require commercial disclosures? Yes. A small handful of states require certain disclosures when selling commercial real estate specifically. This includes specifically: California, Maine, Michigan, Minnesota, New Hampshire, Tennessee, Texas and Washington. Common required disclosures are often environmental and include things like the presence of potentially hazardous conditions on the property or information about any underground storage tanks. You should note that often these types of disclosures appear in commercial sales contracts in states not included in the list.
Are there even more required disclosures? There can be. In California, for example, sellers of commercial property must disclose certain environmental conditions of the property, like whether it is located in an earthquake fault zone. In Arizona, things get interesting. Sellers have a duty to disclose facts that would materially affect the value of the property. This includes new information that is discovered in the course of the transaction if it makes the previous disclosure misleading. Interestingly, sellers have an additional duty to disclose known latent defects, meaning defects that are not discoverable by a buyer’s reasonable inspection of the property. This places a burden on the seller to disclose a bunch of things even if not in the purchase and sale contract.
Lastly, you cannot rely on other people to disclose things to you. You should keep this in mind whether you are the seller or the buyer. Neither the real estate broker or agent who handles the transaction, nor the attorney who helps with the paperwork, are always required to disclose regarding the commercial side of the property.
Municipality passing a town code that makes it harder to operate? Still not the duty of the attorney or the real estate agent to find that out and tell you in most states. It’s on you as the buyer.
However, if your agent or broker is operating in one of the states that require additional disclosures, the agent or broker might be held liable in some cases for failing to make required disclosures if they know the information as well.
This sounds like a lot — and it is! It can change transaction per transaction if the contract has different information embedded in it than required by law — so buying or selling what can you do? Make sure you have the team and support to help you disclose what you are legally obligated to disclose and walk you through the contract in such a way that you understand what you are signing. As with anything, having the right people in your corner can help things go more smoothly.
Christine Taylor, Esq. is a partner in the Retail and Hospitality group at Goldberg Segalla, a national law firm, who focuses her practice on outdoor hospitality clients, from acquisition to ownership to selling. She additionally co-owns a campground with her mother, Broker Cathy Reinard, in Upstate New York. She can be reached at ctaylor@goldbergsegalla.com.
Cathy Reinard is an Associate Broker at Danielle Windus-Cook Properties and excels in Independent and KOA resales, park franchise conversions and has a rich background in RV park operation and industry consulting. She additionally co-owns a campground with her daughter, Attorney Christine Taylor, in Upstate New York. She can be reached at cathy@dwcproperties.com.
