The typical RV park purchase is one in which the buyer buys the RV park asset from the seller, using a survey and property schedules to delineate what comes with the price tag. However, some sellers will try to convince you instead simply to buy the stock in their LLC, Inc. of LP – whatever the entity formation – as a method to attain the same goal. Sadly, this is not the case. And, in general, you should never buy the stock in an RV park instead of the basic asset.
An asset purchase absolves you of all prior actions by the seller – within certain guidelines
When you buy an RV park – the land, the improvements, the structures and park-owned homes (if any) – you are starting fresh with those assets and nothing matters from the past starting on the day of closing legally. Even if the prior owner had made 100 errors of judgement in the final weeks of ownership, the new owner is not bound by those obligations (except for any lease agreements entered into or other finite items). Because of this, the buyer can leave the title company on closing day with no worries except getting off on the right foot with their purchase.
A purchase of the entity means that you inherit whatever liabilities the seller has without limitation
But if you purchase the entity that owns the RV park – rather than strictly the assets – you have a lot to worry about in the first minutes after closing. Let’s assume that the prior owner, for example, had fired the manager a month ago in violation of state labor law. Even though the new owner was not there and never even met the manager, they will now have to deal with it – both in legal cost and potential penalties – since the lawsuit against the RV park owner’s entity is now their entity. And imagine if there had been other such cases; the legal fees alone could bankrupt the RV park.
Horror stories that are rarely discussed, which is a shame
Such stories abound but don’t get much discussion as the buyer is embarrassed that they had such bad judgement as to buy the entity rather than the asset and never tell anyone. I know of one case in which a prior owner had been sexually harassing a number of staff members and the new owner – which had bought the entity and not the asset – ended up locked in all of these cases, which not only cost them financially but also from a public relations standpoint as the business was in the newspaper over and over. The bottom line is that the risk of buying an entity is one that virtually no buyer should ever undertake – it’s a pandora’s box in which nothing good will come out of it.
When there might be exceptions to this rule
There are limited moments when buying the entity might be a sensible move, such as:
- When the state/county/city has a stipulation that the RV park loses it’s special-use permit (or similar construction) if the RV park changes hands. Normally these issues have a loophole in that it does not cover if the entity is sold rather than the asset.
- When the seller allows the buyer to buy the entity with virtually nothing down and all debt is non-recourse, so the buyer can literally give the RV park back to the seller if things don’t work out.
In these cases – and there may be others – the risk in buying the entity is well-acknowledged by the buyer and the risk is determined to be worthy of the risk in light of the reward of a successful purchase.
When in doubt, you’ve GOT to get the opinion of an attorney
While you can buy an RV park asset in the absence of an attorney if you fully understand the contract and all components of the deal (sometimes the title company attorney can be used as a resource) you simply cannot buy an entity without the tacit support of a licensed attorney who has the judgement necessary to identify and mitigate risk to the highest level allowed. This is not something that a non-attorney can tackle effectively.
When buying an RV park, stick with a traditional asset purchase and NOT the purchase of the entity that owns the RV park. The risks far outweigh the reward in almost all cases. Let the prior behavior and obligations of the former owner stay on their shoulders after the closing.