If you are thinking about purchasing a neighborhood veterinary practice, it is important to do your homework first. This involves much more than crunching a few numbers for the hospital. It involves due diligence on the land, too.
Due diligence is the process of identifying potential problems before you legally commit yourself to the transaction. If any issues emerge during due diligence, then you have the option of trying to negotiate an acceptable resolution or, if that fails, walking away from the deal.
As the adage “buyer beware” suggests, the burden is on you to discover any pitfalls. The seller will be more than happy to take your money, even if you are making a bad deal for yourself.
One aspect of due diligence that the buyer often overlooks is whether an abutter may claim to own some of the selling practice’s land under the theory of “adverse possession.” Commonly known as “squatters’ rights,” adverse possession typically occurs after an abutter has openly used the true owner’s land without challenge for a long period of time.
This situation arose recently in Iowa, resulting in protracted litigation in the state courts. The lawsuit, captioned Summit Veterinary Services LLC v. Tindle, illustrates how a buyer can lose property to an abutter if appropriate due diligence is not carried out prior to the close of the sale.
In Summit, Summit Veterinary Services LLC purchased a veterinary practice, inclusive of the building and surrounding parcel of land, in Winterset, Iowa. The land abutted property owned by Marilyn and Toni Tindle.
At the time of the purchase, a fence gave the impression of separating Summit Veterinary’s property from the Tindles’ property. The land on the Tindle side of the fence included an asphalt driveway, a carport where the Tindles kept their truck and snowplow, and a second carport that the Tindles built for a used-car business that they operated. The Tindles displayed the used cars for sale by parking them in a concrete lot that they installed adjacent to the asphalt driveway.
After the closing, however, Summit Veterinary learned that the fence did not accurately delineate the border been its property and the Tindles’ property. In this regard, a land survey showed that Summit’s property extended not only beyond the fence but also under the asphalt driveway, two carports, and concrete lot used by the Tindles. None of this mattered to the Tindles, though. They took the position that the land was theirs, regardless of what any land documents showed.
Seeking to resolve the controversy, Summit Veterinary filed a petition in the Iowa District Court to quiet title to the disputed real estate in its favor. The Tindles counterclaimed, alleging that they had acquired title to the property by adverse possession, i.e., squatters’ rights, long before Summit arrived on the scene.
To prevail on their claim to squatters’ rights under Iowa law, the Tindles needed to show that they had maintained “open, exclusive, and continuous possession of the property” for at least 10 years, and that they had intended to occupy the property regardless of whether they had a legal right to do so. They also needed to prove these points by “clear and convincing evidence.”
Could the Tindles really have a case, even though the disputed land, at least on paper, was included in the parcel that Summit Veterinary acquired when it purchased the practice?
Costly lessons learned
After a trial on the merits, the district court ruled in the Tindles’ favor. The practice lodged an appeal, but the Iowa Court of Appeals affirmed the ruling. Thus, the Tindles, not Summit Veterinary, now unequivocally hold legal title to the disputed land.
In explaining its decision, the appeals court stated, “The act of paving the driveway with asphalt and constructing two carports and a concrete lot upon it clearly establishes the Tindles used the disputed property as if they owned it and did so adversely to the true owners’ rights.” Moreover, the court noted, it was undisputed that the Tindles had begun making these improvements more than 10 years before trial without objection by the veterinary practice.
Based on evidence that some of the Tindles’ improvements were made within the last 10 years, the practice urged the court to rule, at a minimum, that the land on which these more recent improvements were made legally belonged to Summit. The court rejected this argument, finding that the Tindles “held, maintained, and cared for” all of the disputed property for many decades, and as a result their more recent improvements merely “continued” their longstanding possession.
The Tindles’ victory was a costly lesson for Summit Veterinary. In this regard, if Summit had known prior to closing that the Tindles claimed to own a portion of the selling practice’s land through adverse possession, then Summit may have negotiated a reduced purchase price and avoided litigation altogether.
Know your boundaries
So how might you, as a buyer, avoid this kind of situation? As a title search would not disclose whether abutters may have squatters’ rights to any of the land, is there anything you could do to protect yourself?
The answer is to take your due diligence up a notch. Based on the property description and any other available land documents, visit the site and walk the property. If the boundaries are unclear, hire a surveyor or other professional to delineate them for you.
Hopefully this will help you confirm that there are no squatters to worry about. But if any portion of the land is being used by an abutter for any purpose, then you will know that adverse possession, or squatters’ rights, may be an issue that needs to be addressed and resolved prior to the closing.
Some buyers choose not to pursue such due diligence in order to avoid costs. However, as the Summit case illustrates, the costs of dealing with a latent problem that emerges after the closing can far exceed the costs that were avoided by cutting your due diligence short.
Plus, where no problems are found, going the extra mile will give you peace of mind that you are making a good deal. And the value of that cannot
Todd A. Newman, a Cornell Law School alum, works closely with veterinary practices. He is president and owner of a Salisbury, Mass., law firm (toddnewmanlaw.com) that focuses on business, employment, labor, and litigation matters.