View the online version at http://us.practicallaw.com/5-575-9329 Real Estate Leasing: 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 leasing law for landlords and tenants in Vermont. This Q&A addresses state laws and customs that impact commercial leasing, including the execution and enforceability of leases, disclosures, transfer taxes, rents and security deposits, permitted assignments, financings and remedies. 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 Leasing: State Q&A Tool (us.practicallaw.com/1-517-4023)). EXECUTION AND ENFORCEABILITY 1. Describe any formal requirements for the execution of a lease. In particular specify if: Witnesses are required. Acknowledgments are necessary. Countersignatures are enforceable. There are any homestead law requirements. There are any other important requirements in your state. WITNESSES Witnesses are not required for the execution of a lease in Vermont. Witnesses are required, however, to record a memorandum of lease under Title 27, Section 341(c) of the Vermont Statutes Annotated. ACKNOWLEDGMENTS Acknowledgment by the grantor before one of the following is generally required for the execution of a lease in Vermont: Notary public. Town or county clerk. Master. Judge or register of probate. (Vt. Stat. Ann. tit. 27, 341.) An acknowledgment is valid, however, without a notary public's official seal (Vt. Stat. Ann. tit. 27, 341(a)). Unacknowledged leases are valid only as between the parties (Vt. Stat. Ann. tit. 27, 342). COUNTERSIGNATURES Countersignatures are not required for the execution of a lease in Vermont. HOMESTEAD LAWS Vermont has homestead laws, but they do not apply to commercial real estate leases. OTHER REQUIREMENTS There are no other requirements to execute a lease. 2. Must a memorandum of lease (or any other instrument) be recorded for a lease to be enforceable against third parties? If so, must an amendment to a recorded memorandum of lease be recorded if there is a further (material or non-material) amendment to the lease? In Vermont, a lease with a term longer than one year must be acknowledged and recorded to be enforceable against third parties (Vt. Stat. Ann. tit. 27, 342). An unrecorded lease may be enforceable, however, against a third party with actual or constructive notice of the lease. A memorandum of lease may be recorded instead of a lease when it has a term longer than one year and it is more common practice in Vermont to record a memorandum instead of the lease itself. A memorandum of lease must be executed, witnessed and acknowledged to be enforceable against third parties and must contain the following information: The parties to the lease. The rights of a party to extend or renew the lease.
The parties' addresses. The lease execution date. The term of the lease and its dates of commencement and termination. A description of the real property being leased. The rights of a party to purchase the real property or exercise a right of first refusal, if any. Any restrictions on assignment of the lease. The location of an original lease. (Vt. Stat. Ann. tit. 27, 341(c).) An amendment to a memorandum of lease should be recorded if any of the recorded lease terms change. 3. 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 form of individual acknowledgment is: [YEAR], [SIGNATORY NAME] personally appeared and acknowledged this instrument, by [HIM/HER] signed and sealed, to be [HIS/HER] free act and deed. CORPORATION form of corporate acknowledgment is: [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. LIMITED LIABILITY COMPANY form of limited liability company acknowledgment is: [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. LIMITED PARTNERSHIP form of limited partnership acknowledgment is: [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. TRUSTEE form of trustee acknowledgment is: [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. 2
DISCLOSURES, CERTIFICATIONS AND IMPLIED USES 4. Are there any statutory or legal disclosures required by the landlord or the tenant either at the beginning or end of the lease term? Are there any compliance certificates the tenant may request from the landlord? Certain leases in Vermont are considered a transfer of title to property under property tax laws and are subject to disclosure requirements. These leases include: Leases with a term of 50 years or longer, including renewal and extensions. Leases that contain a right to purchase and allow the tenant to construct a building or make major capital improvements to the property. (Vt. Stat. Ann. tit. 32, 9601(3)(B).) These leases require the filing of a tax return to record the lease or memorandum of lease (see Question 10). The tax return requires disclosure that the property may be subject to: Potable water and wastewater system regulations. Land use law. (Vt. Stat. Ann. tit. 32, 9606.) These leases also require the recording of an Act 250 Disclosure Statement under Title 10, Section 6007 of the Vermont Statutes Annotated, which requires that before the division or partition of land, the landlord or other person dividing the land must record the disclosure statement. The Disclosure Statement provides information about the number of tracts of land or lots that were subdivided (Vt. Stat. Ann. tit. 10, 6001(19)(A)). These leases also trigger disclosure obligations under the Vermont wastewater and potable water laws (Vt. Stat. Ann. tit. 10, 1972(9) and 1973(a)). If the real property has a potable water supply that is not served by a public water system, the landlord must provide the tenantwith informational materials from the Vermont Department of Health regarding potential health effects of the consumption of contaminated ground water (Vt. Stat. Ann. tit. 27, 616(a)). 5. Is a lease deemed to include an implied warranty of fitness for intended use? In commercial leases in Vermont, there is no implied warranty of fitness for intended use. All residential leases, however, include a non-waivable implied warranty of habitability that requires the availability of necessities to make the property safe, clean and fit for human habitation (Vt. Stat. Ann. tit. 9, 4457; Hilder v. St. Peter, 478 A.2d 202, 208 (Vt. 1984)). TERM, RENEWAL AND EARLY TERMINATION 6. Are there any legal restrictions which: Limit the maximum term of a lease (including any renewals)? Require the landlord to allow the tenant to renew its lease? Allow the tenant to terminate its lease before the express expiration date? LIMIT ON MAXIMUM TERM There is no limit on the maximum term of a lease, but leases with a term of 50 years or more, including renewal and extensions, are considered title to property and are subject to disclosure requirements (see Question 4; Vt. Stat. Ann. tit. 32, 9601(b)). TENANT RENEWAL A landlord is not required to offer a tenant a right to renew its lease. Vermont common law, however, recognizes holdover tenancies that convert to year-to-year tenancies in some circumstances. The courts examine the conduct of the landlord and the tenant. A tenancy-at-will can convert to a tenancy-by-implication when: A tenant for a fixed term of years or for a year under a formal written lease holds over after the term expires. The landlord acquiesces and accepts rent. (Maniatty v. Carroll Co., 41 A.2d 144, 145-46 (Vt. 1945).) EARLY TERMINATION Commercial tenants cannot terminate a lease before the express expiration date, unless the lease provides otherwise. When a lease expressly provides for notice of termination, the time, mode and manner of notice must conform to the requirements in the lease (Deschenes v. Congel, 547 A.2d 1344, 1347 (Vt. 1988)). Landlords may only terminate residential leases before their expiration dates for non-payment of rent, breach of the lease and certain other specific reasons (Vt. Stat. Ann. tit. 9, 4467). Residential tenants, however, may generally terminate a tenancy early by giving actual notice to the landlord at least one rental payment period before the termination date specified in the notice, unless inconsistent with a written rental agreement (Vt. Stat. Ann. tit. 9, 4456(d)). 7. Is the landlord required to provide the tenant with a notice before the effective date of a renewal when the lease term automatically renews? In Vermont, a landlord is not required to provide a tenant with notice before the effective date of an automatic lease renewal. In practice, landlords and tenants may agree to confirm the other's intent regarding renewal before the effective date of a renewal term. RENT AND SECURITY DEPOSITS 8. Are there any legal restrictions on: How much rent the landlord may charge? Whether certain operating expenses (or other additional rent) may be passed through to the tenant? MAXIMUM RENT There are no legal restrictions on the amount of rent a landlord may charge in Vermont. OPERATING EXPENSES There are no restrictions in Vermont on a landlord's ability to pass through operating expenses to its tenants. The computation and method for passing through operating expenses should be set forth in the lease. 3
4 9. For security deposits: Must the landlord maintain security deposits in a separate bank account for each tenant? Must a security deposit be in an interest bearing account? Must the landlord pay all interest earned to the tenant or can the landlord retain a percentage of the interest earned as an administrative fee? COMINGLING PERMITTED In Vermont, a commercial landlord is not required to maintain security deposits in a separate bank account for each tenant. INTEREST BEARING ACCOUNT Commercial landlords are not required to, and do not typically, place security deposits in an interest bearing account. ADMINISTRATIVE FEES Commercial landlords are not required to pay to tenants any interest earned on the security deposit. TRANSFER TAXES AND OTHER TAXES 10. Are any state or local transfer taxes triggered when a lease is signed or in the later assignment of a lease? If so, please specify the: Rate for the tax and how is it calculated. Returns required. Timing for filing the returns and paying the taxes. RATE AND CALCULATION Certain leases in Vermont are considered a transfer of title to property and are subject to state transfer taxes. These include leases that: Have a term of 50 years or longer, including renewals and extensions. Contain a right to purchase and allow the tenant to construct a building or make major capital improvements to the property. (Vt. Stat. Ann. tit. 32, 9601(3)(B).) The execution of a lease or transfer of either of the above leases by assignment or other writing evidencing a transfer of title to property is taxed at a rate of 1.25% of the value of the property leased, unless the property will be the tenant's principal residence, in which case the following lesser rates apply: For the first $100,000, 0.5%. For the remainder, 0.25%. (Vt. Stat. Ann. tit. 32, 9602.) Leases with a term of less than 50 years, including renewals and extensions, are exempt from the property transfer tax unless they contain a right to purchase and allow the tenant to construct a building or make major capital improvements (Vt. Stat. Ann. tit. 32, 9603(B)). The execution of, and transfer of, leases considered the transfer of title to property and subject to transfer taxes in Vermont are also subject to land gains taxes, if both: The landlord has held the property for less than six years. The leased property includes land. (Vt. Stat. Ann. tit. 32, 10004.) The rate of the land gains tax depends on: How long the landlord has held the land. The landlord's gain as a percentage of its tax basis in the property. (Vt. Stat. Ann. tit. 32, 10003.) Leases with a term of less than 50 years, including renewals and extensions, are exempt from the land gains tax unless they contain a right to purchase and allow the tenant to construct a building construction or make major capital improvements (Vt. Stat. Ann. tit. 32, 10004(a)). 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 because of an exemption (Vt. Stat. Ann. tit. 32, 9606). The tax return may be filed electronically, which the state prefers, or on a paper form. A "deed" includes a memorandum of lease (Vt. Stat. Ann. tit. 32, 9601(1)). Therefore, a property transfer tax return must be filed with a memorandum of lease evidencing a lease that is considered the transfer of title to property. If the lease is subject to the land gains tax, the tenant must withhold 10% of the total purchase price and submit it with a Vermont Land Gains Withholding Form, LG-1. The landlord must file a Vermont Land Gains Tax Return, Form LG-2, reporting the land gains tax and requesting a refund of any difference between the withholding and the tax liability. Both forms are available on the Department of Taxes website. The purchase price may be either: The total rent due under the lease for the term of the lease. Calculated on the fair market value of the land as determined by appraisal or by the assessor. A Commissioner's certificate may be requested before the transaction to determine the amount to be withheld. TIMING The property transfer tax is due to the state at the time of transfer (Vt. Stat. Ann. tit. 32, 9605). The transfer tax return, Form PT-172, is due on the date of recording, which is the same date when the memorandum of lease (or other writing evidencing a transfer of title to property) is recorded (Vt. Stat. Ann. tit. 32, 9606(a)). 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 (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). For more information on filing requirements and which party typically pays, see State Q&A, Real Estate Ownership: Vermont: Question 10 (us.practicallaw.com/3-575-7005). The tenant must file Vermont Land Gains Withholding, Form LG-1, immediately after a transfer that triggers the land gains tax (Vt. Stat. Ann. tit. 32, 10007(a)). The landlord must file Return, Form LG-2, within 30 days after the transfer (Vt. Stat. Ann. tit. 32, 10007(b)). 11. Are state or local transfer taxes triggered when the tenant undergoes a (direct or indirect) transfer of its ownership interests? In particular, please specify the: Percentage of ownership interest that triggers the taxes. Rate for the taxes and how they are calculated. Returns required. Timing for filing the returns and paying the taxes. PERCENTAGE OF INTERESTS In Vermont, indirect transfers are not subject to transfer tax. 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). In general, the transfer tax may be triggered by the acquisition of an equity interest in a tenant where: The tenant's interest in the lease is considered title to property. The leased property includes land. The acquisition of equity interest effectively allows the purchaser to use or occupancy of the land. (Vt. Stat. Ann. tit. 32, 10004.) For an explanation of the types of leases that are considered a transfer of title to property or under which the tenant's interest is considered title to property, see Question 10:. In general, the land gains tax may be triggered by the acquisition of an equity interest in a tenant where: The tenant's interest in the lease is considered title to property. The leased property includes land. The acquisition of equity interest effectively allows the purchaser to use or occupancy of the land. (Vt. Stat. Ann. tit. 32, 10004.) In determining whether the acquisition effectively allows the purchaser to use or occupancy of the land, the Vermont Department of Taxes makes a fact-intensive inquiry considering the entire context of the transaction. If the acquisition has tax-avoidance motives, taxes are due. For example, if the intent of the acquisition is to transfer the land, rather than the sale of an entire business, taxes will be due. (Vt. Dep't of Taxes Formal Ltr. 2005-01 (Aug. 1, 2005); Vt. Dep't of Taxes Formal Ruling 97-09 (Dec. 23, 1997).) The Department considers many factors, including whether: The purchased business will continue to operate on the property, unaffected by the stock purchase. Any of the parties are land holding companies. The selling entity will take an election under Section 338 of the Internal Revenue Code. The purchaser has a mortgage on the property. The buying entity will take steps to use or occupy the land. (Vt. Dep't of Taxes Formal Ruling 2005-01 (Aug. 1, 2005).) The Department ruled in one case that there was no indirect transfer of land, and therefore no land gains tax due, because the present title holder continued to hold title and run its business on the land (Vt. Dep't of Taxes Formal Ruling 2005-01 (Aug. 1, 2005)). The Department has not specified what percentage equity interest in the tenant must be transferred to trigger the land gains tax and has not made a bright line rule on the issue. RATE AND CALCULATION Property Tax If transfer tax is triggered, a tax rate of 1.25% is applied against the fair market value of the leased property transferred, with lesser rates available if the property will be the transferee's principal residence, in which case the following lesser rates apply: For the first $100,000, 0.5%. For the remainder, 0.25%. (Vt. Stat. Ann. tit. 32, 9602.) The fair market value of the leased property transferred may be calculated by multiplying the percentage equity interest transferred in the tenant by the fair market value of the leased property as a whole as determined by appraisal or by reference to the property's assessed value. A Commissioner's certificate may be requested before the conveyance to confirm any amount due. If the land gains tax is triggered, the rate of the land gains tax depends on: How long the transferor of the equity interest has held the land. The transferor's gain as a percentage of its tax basis in the property. (Vt. Stat. Ann. tit. 32, 10003.) RETURNS If transfer tax is triggered, 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 because of an exemption (Vt. Stat. Ann. tit. 32, 9606). 5
The tax return may be filed electronically, which the state prefers, or on a paper form. A deed includes a memorandum of lease (Vt. Stat. Ann. tit. 32, 9601(1)). When an equity interest in a tenant entity is transferred, typically, an assignment of interest is executed and recorded, which must have the formalities of a deed and be witnessed (Vt. Stat. Ann. tit. 27, 304). If the land gains tax is triggered, the transferee of the equity interest must withhold 10% of the total purchase price of the equity interest and submit it with the Vermont Land Gains Withholding Form LG-1. The transferor must file a Vermont Return, Form LG-2, reporting the land gains tax and requesting a refund of any difference between the withholding and the tax liability. Both forms are available on the Department of Taxes website. TIMING The property transfer tax is due to the state at the time of transfer (Vt. Stat. Ann. tit. 32, 9605). The transfer tax return, Form PT-172, is due on the date of recording, which is the same date when the deed (including a memorandum of lease or assignment) is recorded (Vt. Stat. Ann. tit. 32, 9606(a)). 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 (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). For more information on filing requirements and which party typically pays, see State Q&A, Real Estate Ownership: Vermont: Question 10 (www.practicallaw.com/3-575-7005). Land Gains The transferee of the equity interest must file Vermont Land Gains Withholding, Form LG-1, immediately after a sale of the equity interest in the tenant that triggers the land gains tax (Vt. Stat. Ann. tit. 32, 10007(a)). The transferor must file Return, Form LG-2, within 30 days after the sale of the equity interest in the tenant (Vt. Stat. Ann. tit. 32, 10007(b)). 12. Describe any state or local taxes (rental or other) that the landlord must collect from the tenant? In Vermont, there are no state or local taxes that a landlord is required by statute to collect from a tenant. ASSIGNMENT, FINANCING AND TRANSFERS 13. Describe any laws allowing the tenant to assign its lease, or sublease its premises, without the landlord's consent. Is a reasonableness standard implied when the lease is silent on whether the landlord's consent to an assignment or sublease may be reasonably or unreasonably withheld? There are no Vermont statutes regulating whether a tenant may assign or sublet its lease. Absent a restriction in the lease, a tenant may freely assign its lease (Dieter v. Scott, 9 A.2d 95, 98 (Vt. 1939); Rickard v. Dana, 52 A. 113, 114 (Vt. 1902)). A lease provision requiring landlord consent to an assignment may be waived by the landlord and the lack of consent may not be invoked by a third-party assignee to avoid liability under the lease (Dieter, 9 A.2d at 99). There is no general reasonableness standard implied when a lease is silent. If a lease requires landlord consent to an assignment and does not restrict the landlord's right to withhold consent: A reasonableness standard is not implied. Consent may be withheld for any reason. (B & R Oil Co. v. Ray's Mobile Homes, Inc., 422 A.2d 1267, 1267 (Vt. 1980).) Any assignment of a lease with a term of longer than one year must be recorded and comply with the requirements provided in Title 27, Section 304 of the Vermont Statutes Annotated (see Question 2). 14. If the lease does not expressly define the term "assignment" and there is no other express restriction in the lease to the contrary can the: Tenant's corporate ownership interests be freely transferred without the landlord's consent? Tenant freely place a lien on its leasehold interest, or pledge its corporate ownership interests, in connection with a financing without the landlord's consent? A lease is freely assignable in Vermont without an express provision restricting assignment (Rickard, 52 A. at 114). TRANSFER OF OWNERSHIP INTERESTS Unless restricted in the lease, the tenant's corporate ownership interests can be freely transferred without the landlord's consent. SECURITY LIEN OR PLEDGE OF OWNERSHIP INTERESTS Unless restricted in the lease, the tenant can place a lien on its leasehold interest or pledge its corporate ownership interests in connection with a financing without the landlord's consent. 15. When a lease requires a landlord's consent for an assignment and defines the term "assignment" to include a transfer of the tenant's corporate ownership interests, would an indirect transfer of the tenant's interests trigger the landlord's consent requirement? A lease is freely assignable in Vermont without an express provision restricting assignment (Rickard, 52 A. at 114). While this specific issue has not been addressed by the courts, unless the lease expressly requires the landlord's consent to the indirect transfer of a tenant's corporate interests, the landlord's consent to that transfer is not required. 16. Is the tenant/assignor deemed released from future liability under the lease when the lease is silent on whether the original tenant will be released in the event of an assignment? In Vermont, assignment of a lease by a tenant where the lease is silent on whether the tenant is released in the event of an assignment, does not release the tenant from future liability under the lease, unless either: The landlord enters into a direct leasing arrangement with the assignee. 6
The landlord and assignee materially vary the terms of the original lease such that a new tenancy is created. (Trustees of Net Realty Holding Trust v. AVCO Fin. Servs. of Barre, Inc., 476 A.2d 530, 534 (Vt. 1984).) 7 17. Describe any restrictions on the landlord's ability to transfer the real property subject to the lease. Does this transfer affect the tenant's rights or obligations? There are no statutory restrictions on the landlord's ability to transfer real property subject to the lease. If a landlord transfers its interest in the real property, the tenant's rights and obligations remain in full force and effect, absent contrary language in the lease. REMEDIES 18. If a tenant breaches the lease: Are there any implied remedies available to the landlord, such as the acceleration of rent? Is there a limitation on the landlord's ability to exercise self-help? Is there a common form of an eviction proceeding and, if so, what is the typical length of time for the proceeding? Are there specific mechanisms for expedited remedies, such as waiver of jury trial or arbitration? Is the landlord required to mitigate its damages without an express obligation to do so? IMPLIED REMEDIES In Vermont, there are no implied remedies for a tenant's breach in a commercial lease. Forfeiture of the lease is not automatic on a tenant's breach. The landlord must take distinct and positive action to claim a forfeiture. (Houghton v. Cook, 100 A. 115, 119 (Vt. 1917).) SELF-HELP In Vermont, whether a landlord may use self-help in the event of a breach of a commercial lease is not entirely clear. Because there are no statutes or cases prohibiting the use of selfhelp, a commercial landlord may generally use self-help in a peaceful manner, especially when a commercial lease contains express selfhelp language allowing a landlord to re-enter on default without formal demand, notice or court order (Vt. Stat. Ann. tit. 12, 4911). EVICTION PROCEEDING In Vermont, a landlord evicts a tenant by bringing an ejectment action in superior court (Vt. Stat. Ann. tit. 12, 4761 and 4851). EXPEDITED REMEDIES The mechanisms for expedited remedies include: A preliminary injunction, which in some cases can be triggered on the same day that an ejectment complaint is filed. A court may grant the landlord possession by preliminary injunction if it finds that the landlord is likely to prevail in the ejectment action. A preliminary injunction is a fundamental equitable remedy governed by Rule 65 of the Vermont Rules of Civil Procedure (see Soucy v. Soucy Motors, 471 A.2d 224, 227 (Vt. 1983)). Waiver of the right to a jury trial, to which landlords and tenants may freely agree. Rule 38 of the Vermont Rule of Civil Procedure provides for a demand for a jury trial and that failure to serve a demand constitutes a waiver of the right to a jury trial (see Hale v. Melendy, 421 A.2d 1296, 1297 (Vt. 1980)). Arbitration, to which landlords and tenants may freely agree under the Vermont Arbitration Act, Title 12, Sections 5651 to 5681 of Vermont Statutes Annotated. When the parties agree to waive a jury trial or send the dispute to arbitration, the lease provisions addressing waiver and arbitration are usually conspicuous and are often in bold type, with all letters capitalized or underlined, or both, similar to the arbitration agreement found in Title 12, Section 5652 of the Vermont Statutes Annotated. MITIGATION OF DAMAGES A commercial landlord must make reasonable efforts to mitigate its damages when a tenant abandons the leased property before the lease term ends, but the tenant remains liable for rent and other obligations under the lease (O'Brien v. Black, 648 A.2d 1374, 1374 (Vt. 1994)). A landlord has no duty to mitigate, however, when the tenant hinders or prevents mitigation by, for example, preventing the landlord from retaking possession and reletting (see, in the contract context, Sullivan v. Lochearn, Inc., 464 A.2d 745, 746 (Vt. 1983)). AUTOMATIC TERMINATION OF A LEASE IN A FORECLOSURE ACTION 19. When a landlord's lender forecloses on its lien recorded against the landlord's property, would the lease interest that is subordinated to the lender's lien automatically terminate? If so, how do the parties avoid automatic termination of subordinated lease interests? In Vermont, a lease subordinate to the lender's lien may be terminated in a foreclosure when the landlord's lender does not recognize the lease, if either: The lender's lien existed before the lease. The lease existed before the lender's lien, but by its terms is subordinate to a future lender's lien. (Vt. Stat. Ann. tit. 9A, 2A-311.) To avoid an automatic termination of the lease, parties typically execute a subordination, non-disturbance and attornment agreement (see Standard Document, Office Leasing: Subordination, Non-disturbance and Attornment Agreement (Pro-lender) (us.practicallaw.com/4-503-3456)). ABOUT PRACTICAL LAW Practical Law provides legal know-how that gives lawyers a better starting point. Our expert team of attorney editors creates and maintains thousands of up-to-date, practical resources across all major practice areas. We go beyond primary law and traditional legal research to give you the resources needed to practice more efficiently, improve client service and add more value. If you are not currently a subscriber, we invite you to take a trial of our online services at practicallaw.com. 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