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Real Estate Ownership: Vermont R. PRESCOTT JAUNICH AND KANE H. SMART, DOWNS RACHLIN MARTIN PLLC, WITH PRACTICAL LAW REAL ESTATE

A Q&A guide to commercial real estate laws for owners and purchasers in Vermont. This Q&A addresses state laws and customs that impact the ownership and the purchase and sale of commercial real estate, including real property taxes, transfer taxes, instruments for transferring fee title, execution and recording requirements, necessary disclosures, title insurance matters, and risk of loss. Federal, local or municipal law may impose additional or different requirements. Answers to questions can be compared across a number of jurisdictions (see Real Estate Ownership: State Q&A Tool (us.practicallaw.com/3-517-4022)). TYPES OF ESTATES AND TAXABLE REAL PROPERTY 1. When an estate in real property is conveyed, granted or

demised, is it deemed to be transferred as an absolute fee simple estate? In Vermont, the use of a deed to convey property passes fee simple title unless the language in the deed indicates that the parties intend to convey some other real property interest. 2. Is there specific language which must appear in a deed to

convey an absolute fee simple estate? In Vermont, there are no specific words of conveyance required or statutory form of deed. Most conveyances, however, are made by general warranty deed and all of the covenants pertinent to the grant of conveyance must appear in the deed itself. A general warranty deed typically conveys an indefeasible estate in fee simple.

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The covenants commonly found in a general warranty deed include: „„The covenant of seisin. „„The covenant of title. „„The covenant against encumbrances. „„The covenant to defend.

The elements of a general warranty deed typically are: „„The preamble, where the parties are named. „„The granting language, typically "Give, Grant, Sell, Convey and

Confirm." „„The property description. „„The habendum, typically "To Have and to Hold." „„Warranties. „„The execution block.

A grantor may pass fee simple title by using words that indicate an intent to pass fee simple title and not a lesser interest. 3. What other freehold estates are permitted? Briefly describe each.

In Vermont, in addition to a fee simple absolute, the following freehold estates are permitted: „„Fee for years. This is no longer commonly used. Leases are now

more common. „„Fee determinable. This is a grant that only continues until the

occurrence of a specifically named event. „„Fee on a condition subsequent. This is a fee title that ends and

creates a right of re-entry when the condition that defines the fee occurs. „„Life estate. This type of estate is measured by the life or lives of

one or more persons. The fee tail has been abolished in Vermont (Vt. Stat. Ann. tit. 27, § 1).

Real Estate Ownership: Vermont

REAL PROPERTY TAXES 4. In relation to real property taxes, please describe: „„The kind of property that is taxable as real property. „„Any kind of real property that is exempt from real property taxes. „„The current rate and nature of the taxes (for example, assessed

value or school tax). „„The payment and collection procedures.

PROPERTY TREATED AS REAL PROPERTY

Property subject to taxation as real property in Vermont includes: „„Land. „„Mines.

Real property is listed to the April 1 owner of record (Vt. Stat. Ann. tit. 32, § 3651). Both the education and municipal property taxes are billed and collected by the town or city where the real estate is located. Property is assessed at the municipal local level in Vermont, and adjusted annually based on the local method of appraisal. Villages and fire districts may also collect taxes (Vt. Stat. Ann. tit. 32, §§ 3651 and 3691). PAYMENT AND COLLECTION

Property taxes are assessed annually by municipalities but are commonly due and payable in quarterly or other periodic installments. Unpaid property taxes remain a lien on the property with first priority until paid in full (Vt. Stat. Ann. tit. 32, § 5061(a)).

„„Quarries.

Interest charged on or a late payment is determined by municipalities and charged from the due date of taxes, but may not exceed:

„„Standing timber.

„„1% per month for the first three months.

„„Improvements, including:

„„1.5% per month after the first three months.

„„buildings; „„structures;

and

„„fixtures.

(Vt. Stat. Ann. tit. 32, §§ 3602 to 3620.) EXEMPTIONS

Types of real property that are exempt from property taxes in Vermont include properties: „„Belonging to the state or federal government. „„Owned by any post of a veterans' organization chartered by an act

of Congress. „„Nonprofit organizations chartered by an act of Congress, however

the property must also be used for the purpose of the organization's work as a nonprofit in order to be exempt from property taxes. „„Granted, sequestered or used by religious organizations. „„Held by and for the benefit of college societies, however this ex-

emption does not apply to property held for investment purposes. (Vt. Stat. Ann. tit. 32, § 3802.)

(Vt. Stat. Ann. tit. 32, § 5136.) Municipalities may: „„Recover the costs of collection from delinquent taxpayers. „„Levy a tax sale of the property of delinquent taxpayers.

(Vt. Stat. Ann. tit. 32, §§ 5142(a) and 5252.)

INSTRUMENT AND EXECUTION REQUIREMENTS 5. What deeds (or other instruments) are used to convey fee

title and which is most commonly used? Briefly describe each. In Vermont, the most commonly used deeds that convey fee title are: „„General warranty deeds. The most commonly used deed in

Vermont, a general warranty deed usually uses the phrase "give, grant, sell, convey and confirm" in the granting language. A general warranty deed provides the grantee with covenants and warranties from the grantor, including: „„that

the grantor has clear fee title subject only to any noted encumbrances;

RATE AND NATURE OF TAXES

„„that

In Vermont, real estate taxes have two components:

„„that

„„School property tax. „„Municipal property tax.

For the purposes of the state-wide school property tax, real property is classified as either: „„Homestead, in which case the rate is $1.10 multiplied by the district

spending adjustment of the municipality where the property is located, per $100, of the most recent equalized education property value, which is determined annually. The homestead education tax rate depends upon the local per pupil spending and is determined on or before June 30 each year. „„Non-residential, including commercial, in which case the rate is

$1.59 per $100. (Vt. Stat. Ann. tit. 32, §§ 5401(7), 5401(10), 5402(a) and 5405(a).) 2

the grantor actually owns the real property;

the grantor has the undisputed right to convey the real property; and

„„a

covenant to defend against title claims by third parties.

„„Limited or special warranty deeds. A limited or special warranty

deed provides the grantee with limited covenants and warranties from the grantor, including: „„a

warranty that the grantor has clear fee title subject only to any noted encumbrances; and

„„a

covenant to defend against title claims arising from the grantor's ownership interest.

„„Quitclaim deeds. A quitclaim deed transfers the grantor's interest

in real property, whatever that may be, to the grantee without any covenants or warranties from the grantor. A deed with the words "remise, release and forever quit claim" is typically construed to represent a quitclaim deed. © 2014 Thomson Reuters. All rights reserved.

Real Estate Ownership: Vermont

General warranty deeds provide the greatest amount of protection for the grantee and are customary for most transactions. Special warranty deeds provide the grantee with greater protection than a quitclaim deed, but less protection than a general warranty deed and are commonly used by lenders after foreclosure. Property may also be conveyed by recorded divorce judgments and probate decrees. 6. Are there any specific state or local recording requirements

necessary to record a deed? In particular, please specify if: „„Specific officers must sign for a corporation or other entity. „„Specific language is required to evidence the authority of a

signatory for a corporation or other entity. „„A certificate of authority to do business in your state is required

if the grantee on the deed is a foreign company. „„The corporation's seal is required on the signature page. „„There are specific margins or headings required for the deed. „„A cover page is required for recording. „„There are any other requirements.

OFFICERS

There is no requirement that a specific officer sign a deed on behalf of a corporation in Vermont. The use of a Secretary's certificate commonly establishes that: „„The conveyance is authorized. „„The designated officer has the authority to execute the instrument

in question. LANGUAGE FOR SIGNATURE BLOCK

There is no specific language that must be included in the signature block in Vermont. It is best practice, however, for the signature block to identify the: „„Person signing. „„Capacity in which the person signs.

AUTHORIZATION TO DO BUSINESS

There is no requirement that a copy of a state registration be appended to the deed in Vermont. CORPORATE SEAL

There is no requirement that a corporate seal be affixed to a deed in Vermont. MARGINS OR HEADINGS

There are no requirements for margins or headings in instruments to be recorded.

7. Provide the statutory form of acknowledgment for: „„An individual. „„A corporation. „„A limited liability company. „„A limited partnership. „„A trustee.

Vermont has no statutory form of acknowledgment. The Vermont Secretary of State provides a customary form of acknowledgment, however, set forth below. These acknowledgment forms can be used for instruments to be recorded in Vermont whether they are signed inside or outside Vermont, so long as an out-of-state acknowledgment is certified agreeable to the laws of the state in which the acknowledgment is taken (Vt. Stat. Ann. tit. 27, § 379). INDIVIDUAL

Vermont has no statutory form of acknowledgment. A customary form of individual acknowledgment is:

STATE OF [STATE] COUNTY OF [COUNTY], ss. At [LOCATION] in said County and State this [DATE] day of [MONTH], [YEAR], [SIGNATORY NAME] personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed.

Before me, [NOTARY SIGNATURE] Notary Public My commission expires: [MONTH]/[DAY]/[YEAR] CORPORATION

Vermont has no statutory form of acknowledgment. A customary form of corporate acknowledgment is:

STATE OF [STATE] COUNTY OF [COUNTY], ss. At [LOCATION] in said County and State this [DATE] day of [MONTH], [YEAR], [SIGNATORY NAME] and being the [SIGNATORY TITLE] and duly authorized [OFFICER/AGENT] of [CORPORATION NAME] personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed and the free act and deed of [CORPORATION NAME], Inc.

Before me, [NOTARY SIGNATURE] Notary Public My commission expires: [MONTH]/[DAY]/[YEAR]

COVER PAGE

There is no requirement for a cover page in instruments to be recorded and in practice they seldom are used, to reduce unnecessary recording fees.

© 2014 Thomson Reuters. All rights reserved.

LIMITED LIABILITY COMPANY

Vermont has no statutory form of acknowledgment. A customary form of limited liability company acknowledgment is: 3

Real Estate Ownership: Vermont

STATE OF [STATE] COUNTY OF [COUNTY], ss. At [LOCATION] in said County and State this [DATE] day of [MONTH], [YEAR], [SIGNATORY NAME], its Member and duly authorized agent of [COMPANY NAME], LLC, personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed, and the free act and deed of [COMPANY NAME], LLC.

Before me, [NOTARY SIGNATURE] Notary Public My commission expires: [MONTH]/[DAY]/[YEAR] LIMITED PARTNERSHIP

Vermont has no statutory form of acknowledgment. A customary form of limited partnership acknowledgment is:

STATE OF [STATE] COUNTY OF [COUNTY], ss. At [LOCATION] in said County and State this [DATE] day of [MONTH], [YEAR], [SIGNATORY NAME] personally appeared, being the general [PARTNER/PARTNERS] of [NAME OF LIMITED PARTNERSHIP], a [STATE OF FORMATION] limited partnership, and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed.

Before me, [NOTARY SIGNATURE] Notary Public My commission expires: [MONTH]/[DAY]/[YEAR] TRUSTEE

Vermont has no statutory form of acknowledgment. A customary form of trustee acknowledgment is:

STATE OF [STATE] COUNTY OF [COUNTY], ss. At [LOCATION] in said County and State this [DATE] day of [MONTH], [YEAR], [SIGNATORY NAME], as Trustee of the [NAME OF TRUST] Trust, personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed.

Before me, [NOTARY SIGNATURE] Notary Public My commission expires: [MONTH]/[DAY]/[YEAR] DISCLOSURES, NECESSARY FILINGS AND TRANSFER TAXES 8. Must the ultimate (whether direct or indirect) beneficial

owner of an entity that owns real property be publicly disclosed? Briefly describe what is required and in what circumstances. In Vermont, there is no requirement to disclose the beneficial owner of an entity that owns real property. However, land records, including the deed and the property transfer tax return, are public records, so the direct title owner is disclosed. 4

9. When a corporation is the fee title owner of real property,

must it record any documents to evidence a merger, conversion or name change? Corporations do not need to record evidence of a merger, conversion or name change in a municipality where it holds property. It is common practice, however, to provide evidence of the merger, conversion or name change in a deed, Secretary's certificate or other similar written notice, to maintain a well-documented chain of title in the land records. Anyone who takes a controlling interest in a corporation by transfer of stock must report the fair market value to the tax commissioner, within 30 days after the acquisition, if the fair market value of the corporation's real property in Vermont exceeds $500,000. A controlling interest is 50% or more of the total combined voting power of all classes of stock of the corporation. (Vt. Stat. Ann. tit. 32, § 9618.) 10. In connection with state and local transfer, stamp or

similar taxes and direct transfers of real property: „„Describe any taxes which apply when fee title ownership is

directly transferred. „„What transfer tax returns (or other documents) must be filed for

direct transfers of real property? „„What is the timing for filing the returns and paying the transfer

taxes on direct transfers? „„Are transfer taxes customarily paid by the purchaser or the

seller in a direct transfer of real property? APPLICABLE TAXES FOR DIRECT TRANSFERS

In Vermont, a transfer tax of 1.25% of the value of the property applies to all real property other than property to be used as a purchaser's principal residence (Vt. Stat. Ann. tit. 32, § 9602). The tax rate for real property to be used as the purchaser's principal residence is 0.5% of the first $100,000 of value and 1.25% of the value above $100,000 (Vt. Stat. Ann. tit. 32, § 9602(1)). "Value" is typically the same as purchase price in a good faith, arm's length transaction. Exemptions to the transfer tax apply to transfers: „„To the state or federal government or any of their

instrumentalities. „„Directly to an obligee to secure a debt. „„That are corrective, without any additional consideration. „„Without consideration between husband and wife or among family

members. „„From a subsidiary to a parent corporation for no consideration

other than cancellation or surrender of subsidiary stock. „„To a corporation at the time of its formation where no gain or loss

is recognized under Section 351 of the Internal Revenue Code, but only if the corporation has no capital. (Vt. Stat. Ann. tit. 32, § 9603.) Even if a transfer is exempt from the transfer tax, a transfer tax return must be filed (see Returns). © 2014 Thomson Reuters. All rights reserved.

Real Estate Ownership: Vermont

RETURNS

Vermont property transfer tax return Form PT-172, available on the Department of Taxes website, must be filed in order to record a deed for a transfer of title to property, even if no tax is due (Vt. Stat. Ann. tit. 32, § 9606). The tax return may be filed electronically, which the state prefers, or on a paper form provided by the tax department. An electronic filing is called an ePTTR. The property transfer tax is due at the time of transfer and is paid to the Vermont Department of Taxes (Vt. Stat. Ann. tit. 32, § 9605(a)). When the ePTTR process is used, the return is filed with the municipality electronically and when the deed is recorded the return is sent electronically by the town to the state. A payment voucher, Form PT-173, is provided for payment to the state. If using paper copies, the original and one copy of the return are provided to the town clerk with the deed for recording, and the clerk will forward a paper copy of the acknowledged return to the Department of Taxes after the deed is recorded. FILING AND PAYMENT DEADLINES

The property transfer tax is considered a personal debt to the state and the Attorney General may commence a civil action to recover the tax, interest and penalties, provided the action is brought within six years after the taxes are due. The six-year statute of limitations does not apply to fraudulent filings or when a party required to file a return fails to file, however. (Vt. Stat. Ann. tit. 32, § 9614.) A tax sale may be levied on the taxpayer's real and personal property for failure to pay the transfer tax (Vt. Stat. Ann. tit. 32, § 9615). Anyone who willfully falsifies a property transfer tax return is subject to a fine of up to $1,000 (Vt. Stat. Ann. tit. 32, § 9609). CUSTOM

The transferee customarily pays the transfer tax unless the parties agree otherwise (Vt. Stat. Ann. tit. 32, § 9604). In Vermont, the seller rarely assumes liability for the transfer tax. 11. In connection with state and local transfer, stamp or similar

taxes and indirect transfers of ownership interests in real property: „„Does an indirect transfer of real property ownership interests

trigger transfer taxes? For example, would the transfer of corporate or membership interests of an owner of real property trigger transfer taxes? „„What transfer tax returns (or other documents) must be filed for

indirect transfers of real property ownership interests? „„What is the timing for filing the returns and paying the transfer

taxes on indirect transfers? „„Are transfer taxes customarily paid by the purchaser or the

seller in an indirect transfer of real property ownership interests? APPLICABLE TAXES FOR INDIRECT TRANSFERS

In Vermont, indirect transfers are not subject to transfer tax. © 2014 Thomson Reuters. All rights reserved.

However, if the fair market value of the corporation's real property in Vermont exceeds $500,000, then anyone who acquires a controlling interest in a corporation by transfer of stock must report the fair market value of all real property held in Vermont at the time of the acquisition of the controlling interest to the tax commissioner within 30 days after they acquire the controlling interest. A controlling interest is 50% or more of the total combined voting power of all classes of stock of the corporation. (Vt. Stat. Ann. tit. 32, § 9618.) For exemptions to the transfer tax, see Question 10: Applicable Taxes for Direct Transfers. RETURNS

Indirect transfers are not subject to transfer tax, so no return must be filed. FILING AND PAYMENT DEADLINES

Indirect transfers are not subject to transfer tax, so no return must be filed. CUSTOMS

Indirect transfers are not subject to transfer tax, so no return must be filed.

RECORDING INTERESTS AND TITLE INSURANCE 12. Where are ownership interests recorded and how are they indexed?

In Vermont, ownership interests are recorded and indexed by the clerk of the municipality where the real property is located (Vt. Const. Ch. 2, § 62; Vt. Stat. Ann. tit. 24, § 1154). Indexing varies by municipality. The index may list names from various records (for example, deeds, wills and judgments) in a singled merged list or the individual types of records may be listed separately. Grantors may be merged with grantees or listed separately. The general index is required by law (Vt. Stat. Ann. tit. 24, § 1161). The index forms commonly used in Vermont are: „„General index volume. „„Card file. „„Computerized index.

13. Do title insurance companies or attorneys typically conduct title searches?

In Vermont, attorneys, often using qualified paralegals, typically conduct title searches and provide abstracts or opinions of title. Vermont real estate attorneys commonly serve as title agents and issue title insurance policies. Attorneys not serving as agents may act as an approved attorney for a title company operating in Vermont. In this case, the title company issues a policy directly based on the approved attorney's opinion or title abstract. Both owner's and lender's policies are routinely used in Vermont real estate practice. 5

Real Estate Ownership: Vermont

14. What form of title assurance is available to a purchaser?

For example, is an abstract of title, a title insurance policy or a title opinion more common? The following are commonly used forms of title assurance in Vermont:

REAL PROPERTY INVESTMENT VEHICLES 18. What are the most common forms of investment vehicle for real property and what are the most common entities used?

„„Abstracts of title.

There is no predominant structure for acquiring real estate in Vermont. Limited liability companies (LLCs) are widely used, however, because:

„„Opinions of title.

„„They are pass-through entities for income tax purposes.

„„Title insurance policies.

Customarily, Vermont purchasers and lenders obtain opinions of title and title insurance policies. Abstracts of title are seldom used. 15. Are title insurance premiums or service charges for owners'

title insurance policies regulated? Is the cost of title insurance negotiable within a specified range of rates? Are there any discounts available for reissued policies? In Vermont, title insurance charges are based on rates insurers file with the state. Title insurance rates are generally not negotiable, but policies on properties valued above $1 million are commonly negotiated. Title companies may offer discounts for reissued policies. A title insurance rate calculator is available on the Vermont Attorneys Title Corporation website. 16. List the title endorsements available for an owner's title

insurance policy for non-residential property. Each underwriter has a list of American Land Title Association (ALTA) endorsements it offers. The most commonly issued endorsements in Vermont are: „„ALTA 3 (Zoning). „„ALTA 8 (Environmental Protection Lien). „„ALTA 9 (Restrictions, Encroachments, Minerals, Unimproved Land,

Improved Land). „„ALTA 13 (Leasehold).

„„Like partnerships, they provide flexibility in allocating profits and

losses. „„Unlike limited partnerships, there is no need to have one or more

general partner(s) who are personally liable for the debts of the entity. All members of an LLC enjoy protection from the liabilities of the LLC. 19. Are real estate investment trusts (REITs) or similar entities

currently permitted? If so, are they common? Although REITs are permitted in Vermont, they are not commonly used.

REGULATIONS AND TAXATION 20. Is there significant regulation and taxation of real property locally? Is there significant variation in the regulation and taxation?

There is significant local regulation of real property in Vermont, including: „„Town plans. „„Zoning. „„Subdivision.

Real property taxes vary significantly by municipality. Property taxes in Vermont are generally high compared to other states.

„„ALTA 14 (Future Advance). „„ALTA 17 (Access). „„ALTA 18 (Tax Parcel). „„ALTA 19 (Contiguity). „„ALTA 25 (Survey). „„ALTA 26 (Subdivision).

RISK OF LOSS 17. Is the risk of loss during the contract period typically on the

seller or on the purchaser if the contract is silent? In Vermont, the risk of loss during the contract period is typically on the seller if the contract is silent. The party bearing risk of loss may be negotiated, but typically, the contract provides that the seller bears the risk of loss.

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