THE VERMONT APARTMENT OWNERS NEWSLETTER

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1 THE VERMONT APARTMENT OWNERS NEWSLETTER Educating Vermont Landlords since 1974 OCT/NOV 2014 PAY AS YOU THROW ACT 148 In 2012, the Vermont Legislature passed Act 148, which is a universal recycling and composting law. The Act, along with creating a universal set of symbols to identify trash, recycling and composting also implements a series of disposal bans beginning in Starting on July 1, 2015, landfills will ban mandatory recyclables from being placed in the landfill. Meaning that mandatory recyclables will need to be sorted out of the regular household trash. For those of you living and renting properties in Chittenden County, this ban is already in effect. There is also a phase-in of separating out compostable food scraps. Since July 1 of this year, businesses that generate over 104 tons of food scraps per year are required to send the scraps to a donation program, a farmer for livestock feed, or to a composting facility. In July 2015, this requirement applies to businesses who generate more that 52 tons of scraps per year and in July 2020, all food scraps (from both businesses and residences) will be banned from the landfill. What does this mean for landlords? Solid waste districts and municipalities are currently in the planning phases for determining how these changes will be implemented. The Department of Health is also reviewing the Rental Housing Health Code to determine if any changes should be made to account for these new requirements. BUSINESS MANAGER CORNER Website Update anyone who has tried to use the VAOA website recently can attest that our most recent website update did not go according to plan. We are working to fix the login and account issues. Given the lack of support from our current provider, we are having a brand-new website built for us by a new company. To ensure that the new website is fully functional at the time it is launched, we are looking at an early 2015 launch date. We hope that the new website will be easier to use, more user friendly and actually function the way it was intended (as a resource for our members). We appreciate your patience while we wait for the new launch date. As a part of this update, we will be switching over our main URL to vtlandlord.com. You may have noticed that our addresses have already been switched over. Newsletter Articles you might have noticed that we have articles in the Newsletter from local businesses. We are trying to find useful information for landlords from a variety of sources (see this month s articles on carpet care, water damage, taxes, and insurance). If you know someone who has a unique service or product that landlords would be interested in and can provide informational articles for the newsletter, please have them contact the Business Office. INSIDE THIS ISSUE: PERSPECTIVE 2 WATER DAMAGE 3 CAPITAL GAINS 4 CARPET CARE 5 DISCRIMINATION 5 WATER AND INSURANCE 6 MHP SECTION 6

2 PAGE 2 Vermont Apartment Owners Newsletter Published by: Vermont Apartment Owners Association, LLC P.O. Box Shelburne Road Shelburne, VT (802) LOW-RENT (802) fax info@vaoa.com Visit our Website Please send any comments, advertisements or change of address to the above address. Angela N. Zaikowski Director and Editor angela@vtlandlord.com Stuart M. Bennett VAOA Founder The Vermont Apartment Owners Newsletter is copyright protected. It is against the law to duplicate any portion of this newsletter for any purpose without the express consent of Vermont Apartment Owners Association, LLC PERSPECTIVE By Angela N. Zaikowski FAIR HOUSING A few weeks ago, I was able to attend a Fair Housing training in Montpelier that was being taught by Robert Schwemm, probably the nation s Fair Housing legal expert. It was an interesting seminar, particularly since Professor Schwemm is a Fair Housing advocate and has only pursued Fair Housing complaints (not defended Fair Housing complaints). The target audience was clearly, advocates and the Human Rights Commission. Sitting through a training that is targeted towards the people who assist others in bringing complaints against landlords was both very educational and frustrating, at times. Here are a few take-away points from the seminar that I wanted to pass along: Treat everyone the same Although there is an exception from Vermont Fair Housing rules for owner-occupied buildings with three (3) units or less, the 1866 Federal Civil Rights Act still prohibits discrimination (without exception) for race, national origin, and religion. The U.S. Supreme Court recently granted certiorari (i.e. the Supreme Court has agreed to hear the case) in a Texas case based on the impact theory of discrimination (Inclusive Communities Project v. Texas Dept. of Housing and Community Affairs, 747 F.3d 275 (5th Cir. 2014), petition for cert. filed, S.Ct. No May 14, 2014). Why is this interesting/important? All of the circuit courts are in agreement that complaining parties can use the impact theory of discrimination (See page 5 for article on impact theory) when making a claim. Generally, when the Supreme Court takes up a case where there is not a dispute between circuit courts it is because the Supreme Court doesn t approve of how the Circuit courts are deciding a particular type of case. It is very possible that the Supreme Court will strike down the impact theory in discrimination. Stay tuned on this issue as we will be following this particular case. Landlords and Property Management Companies are paying a lot of money in other places resolving Fair Housing complaints. Reported Settlements ranged from $100,000 to $240,000,000. The $240 million settlement was against the State of New Jersey and was for misallocation of HUD s Sandy disaster recovery funds.

3 PAGE 3 PAGE 3 WATER DAMAGE Article and information provided by Brian Lalime of G.W. Savage Corp. Brian can be reached at (802) and blalime@gwsavage.com. Given that the annual cost to insurance companies from water damage and mold in the U.S. is $2.5 billion, it is probably only a matter of time before you have some sort of water damage claim. The average water damage insurance claim is $6,965.00, but can range from $3,642 for a internal water heater leak to $26,285 for a flooded house with 18 inches of water. When looking at your current appliances, keep in mind that the average age of a failed washing machine supply hose is 8.7 years and 75% of water heaters fail before they are 12 years old. Provided are some Do s and Don ts when dealing with flooded space. Most are common sense, but all are good reminders. Water Damage Do s (from clean water) Shut off the source of water (if possible) or call a licensed plumber to stop the water flow. Turn off circuit breakers for wet areas of the building Remove as much excess water as possible by mopping and blotting Wipe excess water from wood furniture after removing lamps and tabletop items Place aluminum foil or wood blocks between furniture legs and wet carpeting Remove to a safe dry place any paintings, art objects, computers, documents and other valuable or sensitive materials. Water Damage Don ts (from clean water) Don t enter rooms with standing water where electrical hazards may exist Don t enter affected areas if electrical outlets, switches, circuit breakers or electrical equipment are exposed to water Don t leave books, newspapers, magazines or other colored items on wet carpets or floors to cause staining Don t leave oriental rugs or other colored rugs on wet wall-to-wall carpets to cause staining Don t use your household vacuum cleaner to remove water Don t use TVs or other appliances while standing on wet carpets or floors, especially not on wet concrete floors Turn on ceiling fixtures if ceiling is wet, or enter rooms where ceilings are sagging from retained water. Water Damage Do s (from contaminated water) Avoid all contact with sewage and items contaminated by sewage Wash your hands thoroughly after contact with contaminated items Water Damage Don ts (from contaminated water) Don t spread contaminated water by walking unnecessarily on damaged or wet areas Don t turn on HVAC system if damaged by water which could spread contaminated air Don t use household fans to dry the structure and spread contaminants Don t use household products for personal hygiene and cleanliness if exposed to the contaminated area 98% of basements in the U.S. will experience some type of water damage during their life spans

4 PAGE 4 THE 40% VERMONT CAPITAL GAIN EXCLUSION As landlords we know that operating rental properties can be a difficult prospect. So when it comes time to sell our investment it s probably safe to say the last thing we want to do is give more of our profit to Vermont Department of Taxes than is required by statute. Recently I hired a contractor to do some work. When he learned I was a tax accountant he told me he had sold a rental property last year and paid a huge tax to Vermont. I suggested he make sure his accountant had taken the the 40% Vermont capital gain exclusion and offered to review his return. He accepted my offer and I quickly determined his accountant had in fact missed the the 40% VT capital gain exclusion and taken the standard exclusion of only $5,000. Using the 40% exclusion would have lowered his taxable Vermont gain by nearly $24,000. As a result of my review he amended his Vermont tax return was able to recover over $3,600 of tax he had overpaid to Vermont. In this case it did pay to complain about taxes because if he had not, he never would have known he had overpaid by several thousand dollars! Investment real estate is one of the assets that qualifies for the 40% Vermont capital gains exclusions. Here s an example: Selling price of rental property: 300,000 Original purchase price of property: 200,000 Depreciation taken : 75,000 Adjusted tax basis 125,000 Total gain on sale 175,000 Gain attributable to depreciation 75,000 Gain qualifying for 40% exclusion 100,000 Vermont statute allows a 40% exclusion from income of the gain on this sale, exclusive of the gain realized from depreciation. In this example the VT capital gain exclusion is $40,000 ($175,000-75,000 x 40%). This exclusion lowers the seller s Vermont taxable income by $40,000, saving about $2,400 in state income tax. If you sold a rental property recently you may want to review the Subtractions section on the lefthand side of your Vermont Form IN-111. If the Capital Gains Exclusion amount is $5,000 or less you may be in the same situation as my contractor and able to recover tax you paid but did not owe to Vermont. Please note this additional caution about the 40% VT exclusion. Vermont Department of Taxes has been sending letters and bills to taxpayers who have claimed the exclusion advising them they did not qualify for the exclusion. In my practice three of my clients received these letters, all of which were incorrect. The reality of this situation is Vermont does not have the detail from your federal return to determine if the exclusion claimed is correct. Unfortunately, instead of requesting more information to make a correct determination, the Tax Department is assuming the taxpayer incorrectly claimed the exclusion and sending a bill. If you receive one of these letters, do not pay any associated tax bill until you determine it is accurate. But be sure to respond within the time allowed on the notice or the bill will become final whether you owe additional tax or not! Article provided by Robert Rich, EA who is a landlord and federally licensed tax professional with offices in Williston. He can be reached at or by at robert@robertrichtax.com

5 PAGE 5 PAGE 5 Information and article provided by David Penzo of Blue Star Carpet Care and Cleaning. David can be reached directly at (802) or bluestarcarpetcarevt@gmail.com. There is benefit to having your carpets cleaned on a regular basis. Tenant turn-over is a great time to have carpets cleaned, but there are advantages to having carpets cleaned on a more regular basis. Here are some facts you may not know about carpet cleaning: The carpets in your house or your rental are the buildings largest air filter. Cleaning them regularly can help improve air quality. Cleaning your carpet regularly is cheaper than replacing it. Vacuuming only removes about 80% of the dirt in your carpet. The remaining 20% of sand, dirt, pollen and dust gets trapped in your carpet. When this sand, dirt, pollen and dust mixes with greasy indoor air, the result is to create a glue-like mixture that acts like sandpaper on your carpet, wearing and cutting at the threads of your carpet. That is why there are noticeable track marks where foot traffic is the heaviest. CARPET CARE TIPS While vacuuming is important to minimize the dirt, sand, pollen and dust a routine carpet clean (recommended every 6-12 months) will cut the grease and lengthen the life of your carpet. Cleaner carpets mean a longer carpet life, better indoor air quality for your tenants and potentially less money spend on carpet replacement. Angela s Comments/Suggestions: You may also be able to add in regular carpet cleaning as something that the tenant is responsible for. Your lease could provide that a tenant must have the carpets professional cleaned once a year and upon move-out. Of course, this can always be a service you provide your tenants as encouragement to stay longer-term. DISCRIMINATION IMPACT THEORY The impact theory of discrimination, which has been approved through HUD rulemaking, allows a claim for discrimination on a rule or requirement that on its face is neutral. The discrimination claim is made on the basis that the rule or regulation has a disparate impact on a particular protected class. What this means is that a claim for discrimination can be made without having to prove the other party intended to discriminate. Some examples of disparate impact claims include: Property limits occupancy to 2 people, this requirement has a disparate impact on people with children and is considered discriminatory. Landlord charges rent based on the number of people who will occupy the unit. This has a disparate impact on people with children and is considered discriminatory. Landlord requires certain income requirements, but only considers wages. This requirement has a disparate impact on people who receive public benefits and is considered discriminatory. The general outcome in a disparate impact case, is that the policy is changed to alleviate the impact. In the examples provided, the landlord s occupancy limit and/or policy of charging rent based on number of people would be revised or removed. For the landlord s income requirement, the requirement would prevail, however the landlord would have to consider all sources of income (not just wages). If a landlord has a legitimate business reason for the policy and no other policy could achieve the same goal with a less discriminatory effect, the policy may be allowed to continue. The difficulty and the argument will center around the legitimate business reason and potential changes to the landlord s policy.

6 PAGE 6 STEP, STEP, SQUISH! Article and information provided by Michael Hughart of Winooski Insurance, Michaelh@winooskiinsurance.com, Imagine your tenant walking into their apartment, unlocking the door and proceeding to take a few steps into the building only to hear that dreaded squish of wet carpet. At the very least water damage can be inconvenient, having a professional restoration company clean up the aftermath can help to alleviate the distress you feel. Though the more pressing question is, do you have insurance coverage for the water damage and clean-up? There always seems to be a misconception about what types of water damage claims are covered. With so many claims being denied, Landlords are left with questions when it comes to water damage to their building. Most policies do not cover damages due to ground water (i.e. flood waters), but they do cover other kinds of water damage when caused by a peril that your policy is insured against. It all comes down to what caused the water damage! You do need to understand your policy and don t be afraid to get answers to your questions about your policy. A reputable agent should be asking you the proper questions pertaining to your property to underwrite your risk with the insurance carrier. They should also be helping you further mitigate your chance of loss by proposing better coverages. There are many endorsements you can add to your policy which help to broaden the scope of the coverage. Sewer backups or drain backups or sump overflows, for example, can be added on by endorsements and in most cases for coverages for up to $25,000. Flood water claims are excluded from coverage, however, owners can obtain coverage by purchasing a separate flood insurance policy from their agent. There are other instances where a tenant may have been negligent and caused the damage. In these instances the best course of action would be to require all of your tenants to carry renters insurance and make sure to be listed as an additional interest on their policy. When this is done properly you will get notification if the policy cancels leaving your tenant and often times yourself without coverage. Feel free to drop me a note if you have any questions. MOBILE HOME PARK SECTION DEDICATED TO TOPICS CONCERNING MOBILE HOME PARKS For Mobile Home Park Owners, the Warranty of Habitability covers your parks. Specifically, you are obligated to provide potable water, sewage disposal, and safe electrical service to the mobile home. These are the big requirements for Park Owners. The Department of Housing and Community Affairs (DHCA) has issued regulations describing what each of these requirements means. But did you know the Warranty of Habitability also includes a requirement that park roads, common areas, and facilities are safe and fit for the purpose for which they were intended. WARRANTY OF HABITABILITY DHCA, through regulation, has also put some restrictions on residents. Park residents are not allowed to plant any trees or vegetation without prior written approval from the Park Owner. Residents are not to construct or alter the landscaping on a lot without the prior written approval of the Park Owner. The complete set of DHCA regulations for Habitability are available through the Business Office. Please call or us and we will send them to you.

7 PAGE 7 PAID ADVERTISMENTS Green Mountain Lead Safety Services Providing essential maintenance Inspections and services to Vermont Landlords. Fred R. Messer 317 Meadow Road, Waitsfield, VT fmesser@madriver.com Phone: (802) Discounts for VAOA Members * Call or for Details LANDLORD S INSURANCE ADVISOR We represent the premier habitational carrier in New England Choice of Industry leading Loss Settlement Options Guaranteed Replacement Cost & Functional Replacement Cost valuation available Student Housing can be accommodated Loss of Income Actual Loss sustained up to 18 months Competitive high Liability Limits available to qualified client Gary Edie, CIC Cool Insuring Agency, Inc. P.O. Box 2153, Glens Falls, NY Phone , Ext gjedie@coolins.com

8 PAID ADVERTISMENTS Leon Beliveau The Landlord s Realtor Century 21 Jack Associates Are you thinking about selling or buying an investment property? Do you want a Real Estate Professional with over 25 years experience as a local Realtor and Landlord? How about someone knowledgeable with all phases of apartment purchases, sales, management, 1031 exchanges and problem solving? Call Leon Beliveau at today to discuss your real estate needs. LeonBeliveau@c21jack.com VERMONT APARTMENT OWNERS ASSOCIATION, LLC P.O. Box 701 Shelburne, Vermont PRSRT STD U.S. Postage PAID Burlington, VT Permit No. 253