You’ve just purchased a new vacation property, and you hope to list it throughout the years as a vacation rental. Maybe you haven’t had time to meet with an attorney yet or maybe you intend to set up an LLC yourself when you have some time. You’ll get around to it at some point. What could go wrong?
Good question, and it’s a question that the Cheatwoods recently faced.
The Cheatwoods are a couple from Louisiana who owned a vacation condo in Gulf Shores, Alabama and rented the condo through a vacation rental service. In 2016, the service rented the condo to a group of people that included 21-year old Samuel Steib. According to court records, Mr. Steib had been drinking for several hours, and at approximately 1:20 AM, he left the condo with his friends, walked to the nearby Little Lagoon, and dove head-first into the water. Unfortunately, Little Lagoon was extremely shallow, and Mr. Steib suffered a devastating spinal injury.
According to court records and news reports, Mr. Steib filed a lawsuit against the Cheatwoods alleging that the condo owners knew Little Lagoon was unsafe for vacation renters and failed to provide safety warnings. Ultimately, the jury sided with Mr. Steib and awarded him $11.6 million against the Cheatwoods.
If they did not own and operate their rental through an LLC, then almost all of their personal assets will be exposed and available to satisfy the judgment. The vacation condo unit along with their associated business cash accounts, their personal bank accounts, savings accounts, financial investments, non-asset protected inheritances, paychecks, and other real estate are now available to Mr. Steib to satisfy this judgment.
In contrast, if they owned and operated through a properly formed and managed LLC, then their liability exposure would be limited to the assets of the LLC (which would likely be the condo unit and the contents of their associated business cash accounts). The LLC could have saved the Cheatwoods millions of dollars.
In short, the Cheatwoods incurred an $11.6 million judgment for an injury that occurred to a presumably drunken tourist on property they didn’t even own. If that can happen to them, what could happen to you?
Do not wait to form your LLC. Meet with an attorney to discuss your options and start your business on the right foot.