RV Park Mastery: Episode 14

All About Contracts

We hope that all sellers abide by “my word is my bond” but we all know that’s rarely the case. Instead, we have to write lengthy legal contracts to ensure that things go as planned. And one key component to any RV park purchase contract is the “specific performance” provision. In this RV Park Mastery podcast we’re going to discuss this rarely-mentioned contract item, and why it’s an essential piece to any legal document. As you’ll see, it’s little things like “specific performance” that can make a contract truly binding or not.

Episode 14: All About Contracts Transcript

You've seen the old movies where the guy says, "My word is my bond." Well, that worked maybe in Hollywood, maybe half a century ago, but today it's all about written contracts. This is Frank Rolfe of the RV Park Mastery podcast. We're going to be talking about a little section of a contract that is so very important, and that is called specific performance.

Now, what is specific performance in an RV Park contract? Well, it's just that. It says that based on certain conditions, you must do something, not if you want to, not maybe, but that you must. Now on the seller's portion specific performance is essential because it states that the seller must, if you meet the conditions of the contract, if you show up at closing with the money, if you sign the documents, they must turn the property over to you.

Without specific performance here's what happens. You tie the property up under contract, you do the diligence, you go out and find a lender, get the financing altogether. You get the title work done and the survey, all your third party reports, get the appraisal, everything's done. You show up at the title company and the seller doesn't show up. He says, "Naw, I changed my mind. It was a good idea at the time. But in retrospect, I don't really want to sell my RV Park after all." And there you are left with all your third-party reports and all your attorney's fees, and you have nothing to show for it. That's absolutely unacceptable, right? That's why every contract you sign must have what's called seller specific performance. Without that nothing works. I've known people who've tried to buy RV parks and put them under contract and then the seller insisted they removed the provision called specific performance.

They'll say that they don't like it, or their attorney advised them against it, but not to worry everything will be fine. They'll show up as required. Almost every time someone does that what do you suppose happens? At the very end of the movie they either say, "Well, I changed my mind I don't want to sell," or they say, "I might still sell it but I need an extra $100,000 or an extra $50,000." Because see, now they have you over a barrel because they know you've done all your work and all your third party report fees and that's just not fair. So you must never ever sign an RV park contract that does not have seller specific performance. You would be a fool to do that. I don't care what the seller says. I don't care what the seller's attorney says.

Without that provision, it's not going to happen. It's not a deal. You're going to do it. So you have to have that language clearly in the contract. But at the same time, don't let them flip it back on you and say, "Well, I'll sign specific performance, but you must also sign specific performance as the buyer." That is never the correct thing to do. Remember that the contract has something that you do which the seller does not and that's called earnest money. You have to write a check along with the contract to the title company for earnest money. It's not a huge amount. Typically, in RV Park deals, it's about 1% of the purchase price. So if you're going to buy that RV Park for $500,000 then the earnest money would typically be about $5,000. And what the earnest money is there for is that's the liquidated damages if you don't show up at closing.

So if you don't show up at closing, the seller really hasn't come with any out-of-pocket costs. You've paid for everything. You've done the survey and you've done everything. And so now when you don't show up, they get to keep the earnest money and so it's not all terrible. That'll definitely, take them on vacation or do a little home renovation with the money, whatever they want to do, but that's your skin and the name is the earnest money. You don't need to have earnest money and buyer-specific performance. It makes no sense because you're the one, you're the party at risk in the whole deal. You're the one doing the due diligence, having to obtain the loan, having to jump through all these hoops. So you're doing all the work and at the same time, you didn't know the property that well, when you put it under contract, you didn't know all of the skeletons in the closet.

So as a result, you need to have the ability to get out. You can't have it that you have to buy it. Now it's definitely true that for you to trigger buyer-specific performance, you have to do some really stupid stuff. Because your RV Park contract should also have a due diligence provision, allowing you to cancel and a financing provision, again, allowing you to cancel. You really would only hit buyer-specific performance if you forgot to cancel during both terms. So if you never canceled during due diligence and never canceled during financing, but yet you didn't ever get the loan and yet you had buyer-specific performance well he could say, "Okay, you got to close after all." Even if you don't want to, even if you don't have the money or the financing, you still have close. And they could even then sue you to force you to close on the deal.

Now, if you're so forgetful, you can't remember the dates of when you're supposed to cancel. Then maybe you shouldn't put the deal under contract to begin with. But let's just assume something came up in your life, you had an emergency of some type. So you tied the thing up under contract and you had a heart attack. You had a car accident. So your life was disrupted. You didn't know when those deadlines were, or you were incapacitated. Under a buyer-specific performance contract, you'd have to close anyway. You couldn't say, "Well, now wait a minute now I had that heart attack and they gave me open-heart surgery. I was in the hospital for 30 days and I couldn't have possibly met my conditions of the contract." Seller would say, "Well, that's tough. You signed that and that specific performance, you got to buy it anyway." So you can never be in that position. So you have to have seller specific performance always.

You have to have never buyer-specific performance ever. That's what you have to have in the contract. Now, that being said, you also have to understand your state's laws, because what if you don't talk about either in the contract itself? I've seen contracts that don't. They don't address seller specific performance, nor do they address buyer-specific performance. Don't even mention it. In some states, if you don't mention it, you still have it. In other states if you don't mention it you don't have it. So it's very, very important that you understand in your state, with your contract, what the ramifications are if you don't mention it. And that means that when you're talking to an attorney to draft your agreement if you choose to do that, you have to make sure they understand the laws of your state.

You can't just use someone generically out of Texas to look at a contract in Iowa. Number one, they're not licensed to do with legal work in that state anyway, but number two, they don't have a clue what the state law is. And the problem is, you can see, it can be pretty significant if you thought you didn't have buyer-specific performance, and yet you did. Or that you did have seller specific performance and yet you didn't. So the bottom line is be sensible on contracts. Read every provision before you ever, ever submit a contract to somebody. Know your state laws like the back of your hand regarding such issues as buyer and seller specific performance. And never, ever sign an agreement that has either seller specific performance missing or the inclusion of buyer-specific performance. It's really not a negotiable item.

There are some things in contracts that you can say, "Well, I can bend the rules a bit on that. I should be okay." This is not one of those occasions. This is not like someone's shortening your due diligence provision from 30 days to 20. It's not like someone putting in some other condition that the pickup truck that comes with the RV Park, actually the old mom 'n pop gets to retain it. Yeah, you can work around those things. You can still get a successful deal from that. But you can't mess up specific performance. The downside is far, far too vast.

You never want to get into a contract something you cannot live by and you can't abide by. And that's where you'll be if you violate these rules on specific performance. This is Frank Rothley RV Park Mastery podcast. Hope you enjoyed this. Hope you abide by these rules. Talk to you again soon.