Part One of this two-part blog posting reviewed the legal challenges of awarding real estate as a prize in a contest or sweepstakes. This Part Two highlights a few of the challenges confronting the winner of the real estate in such a promotion.
Initially, winning a property for an entry fee of approximately $150 might seem like a windfall. It is a windfall with a few potential downsides. If the promotion is well structured, the rules will signal many of those potential downsides.
Method of Transfer. Often, the owner transfers the property to the winner via quitclaim deed. With a quitclaim deed, the owner transfers any interest the owner has in the property; however, the owner does not warrant or guarantee the validity or existence of those property rights. Hence, if any title problems later emerge, the winner might need to resolve those problems without any assistance from the owner.
Liabilities and Taxes. Promotion rules often indicate that the winner takes the property “as is”. While the promotion rules hopefully indicate that there are no liens, back taxes or other liabilities on the property, the transfer documents might not include this statement or, if included, might not guarantee the accuracy of the statement. It might be advantageous for a winner to conduct a judgment and lien search on the property prior to accepting it. Otherwise, as the new proprietor, the winner might be responsible for payment of any back taxes and debts.
Outstanding Business Obligations. When the awarded property is a business property such as an inn or restaurant, the rules often require that the winner honor any advance reservations and outstanding gift certificates. Obviously, the resulting burden on the winner depends on the expense associated with honoring these pre-existing obligations as well as the winner’s intent to continue the business – which leads to the next point.
Property as a Going Concern. If the real estate is a business property that the winner plans to operate, a commitment by the owner to provide the winner with some consultation and/or training on running the business is an attractive promotion feature. The winner may need to obtain and pay for the permits and licenses legally required for operation of the business Existing government-issued permits and licenses do not necessarily automatically transfer along with the transfer of the property or the business. There might also be vendor relationships the winner needs to establish or continue as part of operating the business.
