But Court also rules that firepit defects, bridge issues and other problems didn’t require seller disclosure
GALENA, S.D. – A real estate agent who represented both the buyer and seller of a West River campground was obligated under state law to provide the buyers with a disclosure statement of residential defects, the South Dakota Supreme Court ruled Thursday.
But the same agent was not required to provide a disclosure statement related to other aspects of the property, which included two bridges, 98 campsites and 84 firepits.
The decision reverses a lower court ruling that the agent was not obligated to provide a disclosure agreement for the residence. The lower court ruled that a disclosure statement was not required because the residence on the campground was a commercial property. But the Supreme Court also upheld the circuit court, agreeing that the rest of the property was commercial and did not require a disclosure.
The case involved Duane and Melody Remington. The couple was nearing retirement and decided it would be fun to own a campground, having stayed in them before.
After seeing a for-sale listing for the Wild Bill Campground near Galena, the couple visited the 12.74-acre property in 2017. Besides the camping sites, the property included two bridges and a main building with a residence, bar and restaurant and attached deck.
They spoke with the owner, Keith Grimm, who said he made $235,000 in the last camping season. Grimm had listed the campground for sale since 2008, but he would remove the listing during the summer months when business was good.
The couple toured the property two more times. The residence included a main-floor bedroom, kitchen and full bathroom, and there were three additional bedrooms in the basement.
The couple met with Bryan Iverson, a real estate agent who listed the property on behalf of Grimm and had been a friend of Grimm’s brother, according to the opinion. They agreed to purchase the campground for $899,000. In the purchase agreement, the couple agreed to buy the property “as is,” and they failed to have the property inspected.
After taking possession, the Remingtons started noticing problems. There were water penetration issues in the basement, and mold in the drywall that Grimm installed forced them to close the bar and restaurant.
They then learned that Grimm had received a notification the year before from the Department of Transportation notifying him that the deck off the restaurant encroached in its right-of-way by 1.5 feet. The department had given Grimm a deadline of Oct. 1, 2017 to remove the offending portion of deck, but he had not told the Remingtons.
Next, the couple received a letter from the local fire marshal informing them that the fire pits did not conform to code. Grimm had also been aware of this defect, but again, had not disclosed it.
The sales listing had indicated that the two bridges on the property were recently rebuilt, but the couple learned that they had in fact been rebuilt seven and nine years before the sale. They learned this after two motorhomes fell through the bridges.
The Remingtons only operated the campground for one season before suing Grimm and Iverson. The couple alleged that Grimm and Iverson should have provided a disclosure statement of structural defects on the residence and surrounding property, as well as misconduct and fraudulent concealment and misrepresentation.
The circuit court ruled that South Dakota law does not require a disclosure form for commercial properties. The couple resolved their claims against Grimm, who reacquired the campground, but appealed the circuit court ruling on Iverson to the Supreme Court.
The Court ruled that the law requiring a disclosure form for residential transactions includes dwellings that exist on a commercial property.
“Surely,” wrote Justice Mark Salter, “a purchaser of a family dwelling unit that is included within commercial property is no less worthy of receiving the benefit of a seller’s disclosure statement than a purchaser of exclusively residential property.”
However, the Court also ruled that the disclosure only related to the residence, which applied to the water penetration and mold problems. No disclosure was required for the defects that existed for the commercial purposes.
Salter noted that the residential disclosure requirement protects buyers and sellers. When sellers truthfully complete a disclosure, they can’t be sued by buyers after the sale.
“Therefore,” he wrote, “we determine that requiring a property disclosure statement to residential aspects of real property is consistent with both our statutes and decisional law.”
The unanimous 5-0 decision kicks the issue back to the circuit court for a potential trial. Left unresolved is whether Iverson knew of the residential defects, should have counseled the couple on a disclosure statement and whether he breached his fiduciary duty.
