Non-Disclosure Agreements are a common part of buying RV Parks, but they have to be properly analyzed to protect your interests. In this RV Park Mastery podcast we’re going to explore the concept of NDA’s, what the risks are, and how to mitigate them.
Episode 125: All About NDA's Transcript
A non-disclosure agreement, also known as an NDA, is defined as an agreement in which a person agrees to keep information such as a trade secret confidential. But in buying RV parks, that agreement can cause some concern. This is Frank Rolfe with the RV Park Mastery Podcast. We're going to talk all about non-disclosure agreements, or NDAs. Now, the first time I was exposed to an NDA, I was a little taken aback. Someone wanted me to sign this document, which I knew would have penalties if I broke it. But I thought, you know what? I want to look at this RV park, so I'll go ahead and do it, even though I really wasn't that comfortable with the idea. And then after I'd done a few over time, I started to think, well, okay, I guess I can sign it, and I got a little less concerned. And then I heard stories of people who had signed them and ended up in litigation or had other problems. So today I look at NDAs a little differently than I did, and I wanted to educate you on what some of the concerns can be about signing non-disclosure agreements.
Now, what does a non-disclosure agreement cover? It basically covers just about everything. If you really read the way the document is worded, it's not just the financials themselves. It can cover everything, the status of the permit, really even the size or purchase price of the property. And that's a lot of territory to cover, because what's always concerning to me is some of that information is publicly available. You can go on any Google Earth map, and you can look at that RV park, and you can probably count up or approximate how many sites it has. Or maybe you could hear through the grapevine of what the price would be. Maybe the current owner has divulged that to one of his friends and they gossiped it around the town. So the first concerning part of the non-disclosure agreement is, is that really information that you can even control, and therefore can you be falsely accused of that? The next problem is, what's the penalty? Well, if you broke the non-disclosure agreement and the seller said, well, look, because the guy broke that agreement, now I can't sell my property or I can't sell it for as much as I thought I could. Or it's ruined the market because they let out that the permit has problems to it.
So there is some degree of risk in those non-disclosure agreements. And sometimes the seller, as you know, if you've talked to any sellers at this point, are a little eccentric. They can be a little nuts, a little crazy. And they might just litigate because for no other reason, they just hate you or hate life, whatever the case may be. So that's the problem with those things, is that they are broad. They do have large penalties. And you're not oftentimes dealing with someone who's on the up and up. We're not talking some very buttoned-down corporation here. There are some sellers out there who are very hard to handle, very unpredictable. So if that's the case, well then, how do you navigate the non-disclosure agreement? Well, the first thing I would do with a non-disclosure agreement is I would make sure that you understand under your state laws how it all works. For example, I once had a property that I had an NDA, and I went to the city to check on the permit, and it turned out the property was completely illegal. Mom and pop, when they said that they had a right to be there, they didn't have any right.
They never had a permit. They just kind of slid it in there under the radar, and it was a large city, and no one had ever noticed it was there. But when I called the seller to say, hey, I can't buy your property, you don't have an active permit, he then threatened me and said, you didn't tell that to the city, did you? I'll sue you for ruining my property. I then called my attorney, and he said, oh, you know what, they can't do that, because there's nothing in the NDA in this instance which would preclude a crime that's being committed from being revealed. So he was confident nothing would come of it, and nothing did. But before you start dabbling in NDAs, it would probably be worth your while to go on Google or on AI and find out what is truly covered in that state under an NDA and that which is not. Because you want to have at least, before you sign any document, a good idea of what the law says regarding that document and its enforcement.
Also, you would never want to sign an NDA on a property that you don't truly think you want to buy. If you're just trying to go through little practices of tying things up, well, that's fine if you're trying to learn the art of negotiation, perhaps. But I wouldn't go around signing a ton of NDAs on things that you really wouldn't want to buy at any price. So let's be a little more selective there on what we are going to pull the pen out and sign and not sign. You also need to make sure that you feel confident in the seller not being crazy. So if you talk to the seller and the seller in your first conversation is a little off-putting, kind of rambling, kind of wacky, and I've had many calls like that, that might give you some second thoughts on whether you really want to do an NDA on that property or not. Also, don't forget you don't always have to have an NDA to put things under contract. Sometimes mom and pop want the NDA if you want to look at their numbers independently of being under contract. If you're under contract, then they're fine with it. But they often want to make sure you're not just a tire kicker trying to get their numbers.
Maybe you're another RV park owner trying to get it. So if NDA is concerning you, I would see if there's a way you can get around it entirely and just go straight to the contract because mom and pop may not want an NDA unless you are not a definite buyer of the property. And then once you've signed that NDA, just make sure that you fully understand what's covered in it and that you take every precaution to do exactly what you're supposed to do and not tell anybody. Don't tell your friends, oh yes, I'm looking to buy this RV park. Don't go to some RV park event and announce, oh yeah, I'm looking at getting in the business. I'm looking at buying this thing over here and here's how much I'm paying because that's the behavior that will get you in trouble with an NDA. It's one thing to be falsely accused, but it's another to be guilty of sin. So make sure that you do exactly what it says to do.
Now, if there's a broker involved in the deal, that often makes your decision much easier. Brokers are definitely better at handling wild sellers and keeping them in line. And I've never really heard of an NDA gone bad when there's a broker involved. The NDA horror stories I have heard have involved people who signed NDAs that were written by the attorney for a seller who has no broker to keep them in the correct zone and then later found that what they signed was a real problem for them and for a seller who is in fact out of their mind. Now, one other thing you can do to mitigate NDAs if you really just can't stand the risk of them yet acknowledge that you will have to sign them in order to often get the financials to buy the RV park is to use an LLC as the entity that always signs the NDA. You could form an LLC basically as a buying entity, but your contract would be that LLC and/or assigns because you're not going to want to buy that property ever in that LLC's name. That LLC would have too much risk from signing lots of NDAs and contracts over the years. But rather than put your personal name on the line on an NDA, you might look into the possibility of instead forming an entity strictly for that purpose. That might give you a little better peace of mind and might be based on your state law a really good way to mitigate that issue.
The bottom line is that you can't ever buy an RV park if you don't actually put things under contract, if you don't actually look at deals, make lots of offers. And there's many very, very reasonable sellers and brokers in which signing an NDA would be no problem at all. But watch out for situations when the individual wanting you to sign the NDA makes you uncomfortable by their erratic behavior or you read the NDA and you believe it to be overly broad and impossible for you to comply with. And you understand the state laws regarding NDAs and what the penalties can be. And when you don't feel comfortable, it's probably your best course of action not to get involved in that transaction, but to simply keep looking at others. Remember that volume is the key to RV park purchases and you always want to make decisions based on your positive gut feeling. This is Frank Rolfe with the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.