Nolo's Encyclopedia Of Everyday Law

Nolo's Encyclopedia Of Everyday Law
Nolo’s Encyclopedia
of Everyday Law
Answers to Your Most Frequently
Asked Legal Questions
edited by Attorneys Shae Irving,
Kathleen Michon and Beth McKenna
4th edition
ix
Table of Contents
About This Book
1
ef
Houses
1.2 Buying a House
1.9 Selling Your House
1.15 Deeds
2
ef
Neighbors
2.2 Boundaries
2.3 Fences
2.4 Trees
2.6 Views
2.8 Noise
3
ef
Landlords and
Tenants
3.2 Leases and Rental
Agreements
3.4 Tenant Selection
3.4 Housing
Discrimination
3.6 Rent and Security
Deposits
3.8 Tenants’ Privacy Rights
3.9 Repairs and Maintenance
3.12 Landlord Liability for
Criminal Acts and
Activities
3.14 Landlord Liability for
Lead Poisoning
3.15 Landlord’s Liability for
Exposure to Asbestos
and Mold
3.16 Insurance
3.17 Resolving Disputes
4
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Workplace Rights
4.2 Fair Pay and Time Off
4.9 Workplace Health
and Safety
4.12 Workers’ Compensation
4.17 Age Discrimination
4.21 Sexual Harassment
4.25 Disability
Discrimination
4.29 Losing or Leaving
Your Job
5
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Small Businesses
5.2 Before You Start
5.8 Legal Structures
for Small Businesses
5.15 Nonprofit Corporations
5.18 Small Business Taxes
x
5.24 Home-Based Businesses
5.29 Employers’ Rights &
Responsibilities
6
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Patents
6.2 Qualifying for a Patent
6.7 Obtaining a Patent
6.9 Enforcing a Patent
6.12 Putting a Patent
to Work
6.14 How Patents Differ From
Copyrights and
Trademarks
7
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Copyrights
7.2 Copyright Basics
7.4 Copyright Ownership
7.6 Copyright Protection
7.10 Copyright Registration
and Enforcement
8
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Trademarks
8.2 Types of Trademarks
8.5 Trademark Protection
8.8 Using and Enforcing a
Trademark
8.11 Conducting a
Trademark Search
8.14 Registering a
Trademark
8.18 How Trademarks
Differ
From Patents and
Copyrights
9
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Your Money
9.2 Purchasing Goods and
Services
9.7 Using Credit and
Charge Cards
9.11 Using an ATM or Debit
Card
9.11 Strategies for Repaying
Debts
9.18 Dealing With the IRS
9.22 Debt Collections
9.25 Bankruptcy
9.28 Rebuilding Credit
10
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Cars and Driving
10.2 Buying a New Car
10.7 Leasing a Car
10.10 Buying a Used Car
10.12 Financing a Vehicle
Purchase
10.13 Insuring Your Car
10.16 Your Driver’s License
xi
10.19 If You’re Stopped by the
Police
10.21 Drunk Driving
10.23 Traffic Accidents
11
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Travel
11.2 Airlines
11.11 Rental Cars
11.16 Hotels and Other
Accommodations
11.21 Travel Agents
11.25 Travel Scams
12
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Wills and Estate
Planning
12.2 Wills
12.8 Probate
12.9 Executors
12.13 Avoiding Probate
12.15 Living Trusts
12.18 Estate and Gift Taxes
12.22 Funeral Planning and
Other Final Arrangements
12.25 Body and Organ
Donations
13
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Healthcare
Directives and
Powers of Attorney
13.2 Healthcare Directives
13.7 Durable Powers of
Attorney for Finances
13.11 Conservatorships
14
ef
Older Americans
14.2 Social Security
14.8 Medicare
14.12 Pensions
14.19 Retirement Plans
15
ef
Spouses and
Partners
15.2 Living Together—Gay
& Straight
15.6 Premarital Agreements
15.8 Marriage
15.16 Divorce
15.26 Domestic Violence
15.29 Changing Your Name
xii
16
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Parents and
Children
16.2 Adopting a Child
16.12 Stepparent Adoptions
16.14 Adoption Rights:
Birthparents,
Grandparents and
Children
16.18 Child Custody and
Visitation
16.25 Child Support
16.31 Guardianship of
Children
17
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Courts and
Mediation
17.2 Representing Yourself
in Court
17.13 Small Claims Court
17.21 Mediation
17.27 Dealing With Your
Lawyer
18
ef
Criminal Law
and Procedure
18.2 Criminal Law and
Procedure: An Overview
18.8 If You Are Questioned
by the Police
18.10 Searches and Seizures
18.14 Arrests and
Interrogations
18.17 Bail
18.20 Getting a Lawyer
Appendix:
Legal Research
Glossary
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1
Houses
1.2 Buying a House
1.9 Selling Your House
1.15 Deeds
Home is heaven for beginners.
—CHARLES H. PARKHURST
Buying or selling a house is a major undertaking. To do it
right, you need to understand how houses are priced, financed
and inspected; how to find and work with a real estate agent; how
to protect your interests when negotiating a contract; and how
legal transfer of ownership takes place. This chapter covers many
of the basic issues that buyers, sellers and owners need to know.
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Buying
a House
Before you look for a house, its essen-
tial to determine how much you can
afford to pay and what your financing
options are. Youll also need to decide
whether you want to work with a real
estate agent or broker, and finally,
even if you think youve found your
dream home, youll need to master the
ins and outs of house inspections. This
section will help you find your way
through the house-buying mazeand
to your new front door.
Im a first-time home buyer.
Is there any easy way to
determine how much house
I can afford?
As a broad generalization, most
people can afford to purchase a house
worth about three times their total
(gross) annual income, assuming a
20% down payment and a moderate
amount of other long-term debts,
such as car or student loan payments.
With no other debts, you can prob-
ably afford a house worth up to four
or even five times your annual in-
come.
The most accurate way to deter-
mine whether you can afford a par-
ticular house is to total up the esti-
mated monthly principal and interest
payments plus one-twelfth of the
yearly bill for property and home-
owners insurance. Now compare that
to your gross monthly income.
Lenders normally want you to make
all monthly housing payments with
28%-38% of your monthly income
the percentage depends on the amount
of your down payment, the interest
rate on the type of mortgage you
want, your credit history, the level of
your long-term debts and other fac-
tors. A bank or other lender can help
you determine how much house you
can afford.
Or you can run the numbers your-
self, using an online mortgage calcu-
lator such as those on the websites
listed at the end of this chapter.
Once youve done the basic calcula-
tions, you can ask a lender or loan
broker for a prequalification letter
saying that loan approval for a speci-
fied amount is likely based on your
income and credit history. Prequali-
fying lets you determine exactly how
much youll be able to borrow and
how much youll need for a down pay-
ment and closing costs.
Unless youre in a very slow mar-
ket, with lots more sellers than buy-
ers, you will want to do more than
prequalify for a loanyou will want
to be guaranteed for a specific loan
amount. This means that the lender
actually evaluates your financial situa-
tion, runs a credit check and preap-
proves you for a loanrather than
giving a general prequalification
based on your own statement about
your income and debts. Having lender
preapproval for a loan makes you more
attractive financially to sellers than
simple loan prequalification and is
crucial in competitive markets. With-
out it, you stand very little chance of
your offer being accepted.
H O U S E S
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How important is my credit
history in getting loan approval?
Your credit history has an important
effect on the type and amount of loan
lenders offer you. When reviewing
loan applications and making financ-
ing decisions, lenders typically re-
quest your credit risk score from the
credit bureaus. This score is a statisti-
cal summary of the information in
your credit report and includes:
your history of paying bills on time
the level of your outstanding debts
how long youve had credit
your credit limit
the number of inquiries for your
credit report (too many can lower
your score), and
the types of credit you have.
The higher your credit score, the
easier it will be to get a loan. If you
routinely pay your bills late, you can
expect a lower score, in which case a
lender may either reject your loan
application altogether or insist on a
very large down payment or high
interest rate to lower the lenders risk.
To avoid problems, always check
your credit report and clean up your
file if necessarybefore, not after, you
apply for a mortgage. For information
on how to order your credit report,
what to do if you find mistakes in
your report and how to rebuild good
credit, see Rebuilding Credit in Chapter
9, Your Money.
How can I find the best home
loan or mortgage?
Many entities, including banks, credit
unions, savings and loans, insurance
companies and mortgage bankers
make home loans. Lenders and terms
change frequently as new companies
appear, old ones merge and market
conditions fluctuate. To get the best
deal, compare loans and fees with at
least a half-dozen lenders. Fortu-
nately, mortgage rates and fees are
usually published in the real estate
sections of metropolitan newspapers
and are widely available on the
Internet.
Because many types of home loans
are standardized to comply with rules
established by the Federal National
Mortgage Association (Fannie Mae)
and other quasi-governmental corpo-
rations that purchase loans from lend-
ers, comparison shopping is not diffi-
cult, especially if you go online.
Mortgage rate websites come in
two basic flavors: those sites that
dont offer loans (called no-loan
sites) and those that do. No-loan sites
dont broker or lend mortgage money,
but are a great place to examine mort-
gage programs, learn mortgage lingo,
understand underwriting, get ques-
tions answered about the loan qualifi-
cation process, crunch numbers with
online mortgage calculators and check
your credit.
Many online mortgage sites also
offer direct access to loans from one or
more lenders. With multi-lender
shopping sites, you simply enter the
loan amount, property details and
other information and youll get cur-
rent rates, APR, points, even settle-
ment costs for each loan from dozens
of lenders. If you choose to complete
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an application, mortgage shopping
sites review your application, process
the required documentation and ship
your loan to the lender for further
review and underwriting.
See the list of recommended
websites at the end of this chapter for
more information on mortgage
websites.
If you dont want to shop for mort-
gages on your own, you can also work
with a loan broker, someone who spe-
cializes in matching house buyers
with an appropriate mortgage lender.
Loan brokers usually collect their fee
from the lender.
What are my other options for
home loans?
You may also be eligible for a gov-
ernment-guaranteed loan, offered by:
the Federal Housing Administration
(FHA), an agency of the Depart-
ment of Housing and Urban Devel-
opment (HUD) (see http://
www.hud.gov/mortprog.html)
the U.S. Department of Veterans
Affairs (see http://www.homeloans.
va.gov), or
a state or local housing agency.
Government loans usually have low
down payment requirements and
sometimes offer better-than-market
interest rates as well.
Also, ask banks and other private
lenders about any first-time buyer
programs that offer low down pay-
ment plans and flexible qualifying
guidelines to low and moderate in-
come buyers with good credit.
Finally, dont forget private sources
of mortgage moneyparents, other
relatives, friends or even the seller of
the house you want to buy. Borrowing
money privately is usually the most
cost-efficient mortgage of all.
Whats the difference between
a fixed and an adjustable rate
mortgage?
With a fixed rate mortgage, the inter-
est rate and the amount you pay each
month remain the same over the en-
tire mortgage term, traditionally 15,
20 or 30 years. A number of variables
are available, including five- and
seven-year fixed rate loans with bal-
loon payments at the end.
With an adjustable rate mortgage
(ARM), the interest rate fluctuates as
the interest rates in the economy fluc-
tuate. Initial interest rates of ARMs
are usually offered at a discounted
(teaser) rate which is lower than
those for fixed rate mortgages. Over
time, however, initial discounts are
filtered out and ARM rates fluctuate
as general interest rates go up or
down. To avoid constant and drastic
changes, ARMs typically regulate
(cap) how much and how often the
interest rate and/or payments can
change in a year and over the life of
the loan. A number of variations are
available for adjustable rate mort-
gages, including hybrids that change
from a fixed to an adjustable rate after
a period of years.
A good loan officer or loan broker
will walk you through all mortgage
options and tradeoffs such as higher
fees (or points) for a lower interest rate.
H O U S E S
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How do I decide whether to
choose a fixed or an adjustable
rate mortgage?
Because interest rates and mortgage
options change often, your choice of a
fixed or an adjustable rate mortgage
should depend on the interest rates
and mortgage options available when
youre buying, how much you can
afford in the short term, your view of
the future (generally, high inflation
will mean that ARM rates will go up
and lower inflation means that they
will fall), and how willing you are to
take a risk. Very risk-averse people
usually prefer the certainty of a fixed
rate mortgage, rather than take a
chance that an ARM might be cheaper
in the long run. However, some
people cant afford the relatively
higher interest rates at which fixed
rate mortgages usually begin.
Keep in mind that lenders not only
lend money to purchase homes; they
also lend money to refinance homes. If
you take out a loan now, and several
years from now interest rates have
dropped, refinancing may be an option.
Whats the best way to find and
work with a real estate agent or
broker?
Get recommendations from people
who have purchased a house in the
past few years and whose judgment
you trust. Dont work with an agent
you meet at an open house or find in
the Yellow Pages or on the Internet
unless and until you call references
and thoroughly check the person out.
The agent or broker you choose should
be in the full-time business of selling
real estate and should have the follow-
ing five traits: integrity, business so-
phistication, experience with the type
of services you need, knowledge of the
area where you want to live and sensi-
tivity to your tastes and needs.
All states regulate and license real
estate agents and brokers. You may
have different options as to the type of
legal relationship you have with an
agent or broker; typically, the seller
pays the commission of the real estate
salesperson who helps the buyer locate
the sellers house. The commission is a
percentage (usually 5% to 7%) of the
sales price of the house. What this
means is that your agent or broker has
a built-in conflict of interest: Unless
youve agreed to pay her separately,
she wont get paid until you buy a
home, and the more you pay for a
house, the bigger her cut.
In short, when you evaluate the
suitability of a house, its not wise to
rely principally on the advice of a per-
son with a significant financial stake in
your buying it. You need to be knowl-
edgeable about the house-buying pro-
cess, your ideal affordable house and
neighborhood, your financing needs
and options, your legal rights and how
to evaluate comparable prices.
Whats the best way to get
information on homes for sale
and details about the
neighborhood?
Thanks to the Internet, you no longer
have to rely solely on a real estate
agent for information about homes for
sale. You can scan online listings to
see which homes are worth a visit,
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how much they cost and what ameni-
ties they offer. Virtual visits to new
homes often include floor plans and
photographs.
Once you identify a house you like,
you can email the address or identifi-
cation number to your agent, the list-
ing agent or the owner (if its a listing
by a FSBOFor Sale By Owner) to
obtain additional information or to set
up an appointment to see the home in
person.
The list of websites at the end of
this chapter has some of the major
national real estate listing sites. Your
state or regional realty association or
multiple listing service (MLS) may
also have a website listing homes for
sale. Major real estate companies, in-
cluding ERA, RE/MAX, Coldwell
Banker, Prudential and others often
offer lists on their websites.
Finally, virtually all online editions
of newspapers offer a homes-for-sale
classifieds section that works much
like an online listing site. On most
newspaper sites, you can browse all
the listings, or customize your search
by typing in your criteria, such as
price range, location and number of
bedrooms and baths. Some of the best
sites also include useful information
on mortgage rates, schools and other
community resources, financial calcu-
lators, links to sales data on compa-
rable houses, home inspection ser-
vices, real estate agents and other in-
formation of interest to local buyers.
Check the Newspaper Association of
America (http://www.naa.org) for a
link to your newspaper. (Click on
Newspaper Links.)
Advice on relocation decisions and
details about your new community
and its services are also readily avail-
able online. For valuable information
about cities, communities and neigh-
borhoods, including schools, housing
costs, demographics, crime rates and
jobs, see the websites listed at the end
of this chapter. Finally, keep in mind
that the Internet is no substitute for
your own legwork. Ask your friends
and colleagues, walk and drive around
neighborhoods, talk to local residents,
read local newspapers, visit the local
library and planning department and
do whatever it takes to help you get a
better sense of a neighborhood or city.
My spouse and I want to buy a
$350,000 house. We have
good incomes and can make
high monthly payments, but we
dont have $70,000 to make a
20% down payment. Are there
other options?
Assuming you can afford (and qualify
for) high monthly mortgage payments
and have an excellent credit history,
you should be able to find a low (10%
to 15%) down payment loan for a
$350,000 house. However, you may
have to pay a higher interest rate and
loan fees (points) than someone mak-
ing a higher down payment. In addi-
tion, a buyer who puts less than 20%
down should be prepared to purchase
private mortgage insurance (PMI),
which is designed to reimburse a mort-
gage lender up to a certain amount if a
buyer defaults and the foreclosure sale
price is less than the amount owed the
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lender (the mortgage plus the costs of
the foreclosure sale).
PMI premiums are usually paid
monthly and typically cost less than
one-half of one percent of the mort-
gage loan. With the exception of
some government and older loans, you
can drop PMI once your equity in the
house reaches 22% and youve made
timely mortgage payments.
I want to buy a newly built
house. Is there anything special
I need to know?
The most important factor in buying
a newly built house is not what you
buy (that is, the particular model),
but rather from whom you buy. New
is not always better, especially if the
house is slapped together in a hurry.
Shop for an excellent buildersome-
one who builds quality houses, deliv-
ers on time and stands behind his or
her work. To check out a particular
builder, talk to existing owners in the
development youre considering, or ask
an experienced contractor to look at
other houses the developer is building.
Many developers of new housing
will help you arrange financing; some
will also pay a portion of your monthly
mortgage or subsidize your interest
payments for a short period of time
(called a buydown of the mortgage).
As with any loan, be sure you com-
parison shop before arranging financ-
ing through a builder.
Also, be sure to negotiate the prices
of any add-ons and upgrades, such as a
spa or higher quality carpet. These
can add substantially to the cost of a
new home.
Is there anything else I need to
know before buying a home in
a development run by a
homeowners association?
When you buy a home in a new sub-
division or planned unit development,
chances are good that you also auto-
matically become a member of an
exclusive clubthe homeowners
association, whose members are the
people who own homes in the same
development. The homeowners asso-
ciation will probably exercise a lot of
control over how you use and what
you do to your property.
Deeds to houses in new develop-
ments almost always include restric-
tionsfrom the colors you can paint
your house to the type of front yard
landscaping you can do to where (and
what types of vehicles) you can park
in your driveway. Usually, these re-
strictions, called covenants, conditions
and restrictions (CC&Rs), put deci-
sion-making rights in the hands of a
homeowners association. Before buy-
ing, study the CC&Rs carefully to see
if theyre compatible with your
lifestyle. If you dont understand
something, ask for more information
and seek legal advice if necessary.
Usually, getting relief from overly
restrictive CC&Rs after you move in
isnt easy. Youll likely have to submit
an application (with fee) for a vari-
ance, get your neighbors permission
and possibly go through a formal
hearing. And if you want to make a
structural change, such as building a
fence or adding a room, youll prob-
ably need formal permission from the
association in addition to complying
with city zoning rules.
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How can I make sure that the
house Im buying is in good
shape?
In some states, you may have the ad-
vantage of a law that requires sellers
to disclose considerable information
about the condition of the house. (See
Selling Your House, below.) Regardless
of whether the seller provides disclo-
sures, however, you should have the
property inspected for defects or mal-
functions in the buildings structure.
Start by conducting your own in-
spection. There are several useful do-
it-yourself inspection books available
to help you learn what to look for.
Ideally, you should inspect a house
before you make a formal written offer
to buy it so that you can save yourself
the trouble should you find serious
problems.
If a house passes your inspection,
hire a general contractor to check all
major house systems from top to bot-
tom, including the roof, plumbing,
electrical and heating systems and
drainage. This will take two or three
hours and cost you anywhere from
$200 to $500 depending on the loca-
tion, size, age and type of home. You
should accompany the inspector dur-
ing the examination so that you can
learn more about the maintenance and
preservation of the house and get an-
swers to any questions you may have,
including which problems are impor-
tant and which are relatively minor.
Depending on the property, you may
want to arrange specialized inspections
for pest damage, hazards from floods,
earthquakes and other natural disasters
and environmental health hazards such
as asbestos, mold and lead.
Professional inspections should be
done after your written purchase offer
has been accepted by the seller. (Your
offer should be contingent upon the
house passing one or more inspec-
tions.) To avoid confusion and dis-
putes, be sure you get a written report
of each inspection.
If the house is in good shape, you
can proceed, knowing that youre get-
ting what you paid for. If an inspector
discovers problemssuch as an anti-
quated plumbing system or a major
termite infestationyou can negotiate
with the seller to have him pay for
necessary repairs and provide a home
warranty (see Selling Your House, be-
low). Finally, you can back out of the
deal if an inspection turns up prob-
lems, assuming your contract is prop-
erly written to allow you to do so
.
Im making an offer to buy a
house, but I dont want to lock
myself into a deal that might not
work out. How can I protect
myself?
Real estate offers almost always contain
contingenciesevents that must hap-
pen within a certain amount of time
(such as 30 days) in order to finalize
the deal. For example, you may want to
make your offer contingent on your
ability to qualify for financing, the
house passing certain physical inspec-
tions or even your ability to sell your
existing house first. Be aware, however,
that the more contingencies you place
in an offer, the less likely the seller is
to accept it. See Selling Your House,
below, for more on real estate offers.
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Strategies for Buying
an Affordable House
To find a good house at a comparatively
reasonable price, you must learn about
the housing market and what you can
afford, make some sensible compromises
as to size and amenities and, above all,
be patient. Here are some proven
strategies to meet these goals:
1
Buy a fixer-upper cheap.
2
Buy a small house (with remodeling
potential) and add on later.
3
Buy a house at an estate or probate sale.
4
Buy a house subject to foreclosure (when
a homeowner defaults on his mortgage).
5
Buy a shared-equity house, pooling
resources with someone other than a
spouse or partner.
6
Rent out a room or two in the house.
7
Buy a duplex, triplex or house with an
in-law unit.
8
Lease a house you cant afford now with
an option to buy later.
9
Buy a limited-equity house built by a
nonprofit organization.
bk
Buy a house at an auction.
ef
More Information
About Buying a Home
100 Questions Every First-Time Home
Buyer Should Ask
, by Ilyce R. Glink
(Times Books), is a substantial book
designed to help first-time buyers through
the maze of buying a house.
Your New House: The Alert Consumers
Guide to Buying and Building a Quality
Home
, by Alan & Denise Fields (Windsor
Peak Press), offers valuable advice for
those who want to buy or build a new
home.
Inspecting a House
, by Rex Cauldwell
(Taunton Press), shows how to inspect a
house in order to discover major prob-
lems such as a bad foundation, leaky
roof or malfunctioning fireplace.
How to Buy a House in California
, by
Ralph Warner, Ira Serkes and George
Devine (Nolo), explains all the details of
the California house-buying process and
contains tear-out contracts and disclosure
forms.
Selling
Your House
If youre selling a home, you need to
time the sale properly, price the home
accurately and understand the laws,
such as disclosure requirements, that
cover house transactions. These ques-
tions and answers will get you started.
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I m trying to decide whether to
put my house on the market or
wait a while. What are the best
and worst times to sell?
Too many people rush to sell their
houses and lose money because of it.
Ideally, you should put your house on
the market when theres a large pool
of buyerscausing prices to go up.
This may occur in the following situa-
tions:
Your area is considered especially
attractivefor example, because of
the schools, low crime rate, employ-
ment opportunities, weather or
proximity to a major city.
Mortgage interest rates are low.
The economic climate of your
region is healthy and people feel
confident about the future.
Theres a jump in house buying
activity, as often occurs in spring.
Of course, if you have to sell imme-
diatelybecause of financial reasons,
a divorce, a job move or an imperative
health concernand you dont have
any of the advantages listed above,
you may have to settle for a lower
price, or help the buyer with financ-
ing, in order to make a quick sale.
I want to save on the real estate
commission. Can I sell my house
myself without a real estate
broker or agent?
Usually, yes. This is called a FSBO
(pronounced fizzbo)For Sale By
Owner. You must be aware, however,
of the legal rules that govern real
estate transfers in your state, such as
who must sign the papers, who can
conduct the actual transaction and
what to do if and when any problems
arise that slow down the transfer of
ownership. You also need to be aware
of any state-mandated disclosures as
to the physical condition of your
house. (See the discussion below.)
If you want to go it alone, be sure
you have the time, energy and ability
to handle all the detailsfrom setting
a realistic price to negotiating offers
and closing the deal. Also, be aware
that FSBOs are usually more feasible
in hot or sellers markets where theres
more competition for homes, or when
youre not in a hurry to sell. For more
advice on FSBOs, including the in-
volvement of attorneys and other pro-
fessionals in the house transaction,
contact your state department of real
estate. Also, check online at http://
www.owners.com for useful advice on
selling a home without an agent.
If youre in California, check out
For Sale by Owner by George Devine
(Nolo). This book provides step-by-
step advice on handling your own sale
in California, from putting the house
on the market to negotiating offers to
transferring title.
Is there some middle ground
where I can use a broker on a
more limited (and less
expensive) basis?
You might consider doing most of the
work yourselfsuch as showing the
houseand using a real estate brokers
help with such crucial tasks as:
setting the price of your house
advertising your home in the local
multiple listing service (MLS) of
H O U S E S
1. 11
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homes for sale in the area, published
by local boards of realtors, and
handling some of the more compli-
cated paperwork when the sale closes.
If you work with a broker in a lim-
ited way, you may be able to negoti-
ate a reduction of the typical 5%-7%
brokers commission, or you may be
able to find a real estate agent who
charges by the hour for specified ser-
vices such as reviewing the sales con-
tract.
How much should I ask for my
house?
The key is to determine how much
your property is actually worth on the
marketcalled appraising a houses
value. The most important factors
used to determine a houses value are
recent sales prices of similar properties
in the neighborhood (called comps).
Real estate agents have access to
sales data for the area (comp books)
and can give you a good estimate of
what your house should sell for. Many
real estate agents will offer this service
free, hoping that you will list your
house with them. You can also hire a
professional real estate appraiser to
give you a documented opinion as to
your houses value. Public record of-
fices, such as the county clerk or
recorders office, may also have infor-
mation on recent house sales. A few
private companies offer detailed com-
parable sales prices online for many
areas of the country, based on infor-
mation from County Recorders Of-
fices and property assessors. See the
list of recommended websites at the
end of this chapter.
Finally, asking prices of houses still
on the market can also provide guid-
ance (adjusting for the fact that ask-
ing prices are typically 10% or more
above the usual sales price). To find
out asking prices, go to open houses
and check newspaper real estate classi-
fied ads and online listings of homes
for sale.
Preparing Your House
for Sale
Making your house look as attractive as
possible may put several thousand dollars
in your pocket. Sweep the sidewalk; mow
the lawn; put some pots of blooming
flowers by the front door; clean the
windows; fix chipped or flaking paint.
Clean and tidy up all rooms; be sure the
house smells goodhide the kitty litter
box and bake some cookies. Check for
loose steps, slick areas or unsafe fixtures,
and deal with everything that might cause
injury to a prospective buyer. Take care
of real eyesores, such as a cracked
window or overgrown front yard. Dont
overlook small but obvious problems,
such as a leaking faucet or loose door-
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knob. Find ways to improve the look of
your house without spending much
moneya new shower curtain and towels
might really spruce up your bathroom.
Do I need to take the first offer
that comes in?
Offers, even very attractive ones, are
rarely accepted as written. More typi-
cally, you will respond with a written
counteroffer accepting some, maybe
even most, of the offer terms, but
proposing certain changes. Most
counteroffers correspond to these pro-
visions of an offer:
priceyou want more money
financingyou want a larger down
payment
occupancyyou need more time to
move out
buyers sale of current houseyou
dont want to wait for this to occur
inspectionsyou want the buyer to
schedule them more quickly.
A contract is formed when either
you or the buyer accept all of the terms
of the others offer or counteroffer in
writing within the time allowed.
What are my obligations to
disclose problems about my
house, such as a basement that
floods in heavy rains?
In most states, it is illegal to fraudu-
lently conceal major physical defects
in your property, such as your
troublesome basement. And states are
increasingly requiring sellers to take a
pro-active role by making written
disclosures on the condition of the
property. California, for example, has
stringent disclosure requirements.
California sellers must give buyers a
mandatory disclosure form listing
such defects as a leaky roof, faulty
plumbing, deaths that occurred
within the last three years on the
property, even the presence of neigh-
borhood nuisances, such as a dog that
barks every night. In addition, Cali-
fornia sellers must disclose potential
hazards from floods, earthquakes,
fires, environmental hazards and other
problems in a Natural Hazard Disclo-
sure Statement. California sellers must
also alert buyers to the availability of
a database maintained by law enforce-
ment authorities on the location of
registered sex offenders.
Generally, you are responsible for
disclosing only information within
your personal knowledge. While its
not usually required, many sellers hire
a general contractor to inspect the
property. The information will help
you determine which items need re-
pair or replacement and will assist you
in preparing any required disclosures.
An inspection report is also useful in
pricing your house and negotiating
with prospective buyers.
Full disclosure of any property de-
fects will also help protect you from
legal problems from a buyer who
seeks to rescind the sale or sues you
for damages suffered because you care-
lessly or intentionally withheld im-
portant information about your prop-
erty.
Check with your real estate broker
or attorney, or your state department
of real estate, for disclosures required
in your state and any special forms
you must use. Also, be aware that real
H O U S E S
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estate brokers are increasingly requir-
ing that sellers complete disclosure
forms, regardless of whether its
legally required.
Sellers Must Disclose
Lead-Based Paint and
Hazards
If you are selling a house built before
1978, you must comply with the federal
Residential Lead-Based Paint Hazard
Reduction Act of 1992 (42 U.S.Code §
4852d), also known as Title X (Ten). You
must:
disclose all known lead-based paint
and hazards in the house
give buyers a pamphlet prepared by
the U.S. Environmental Protection
Agency (EPA) called
Protect Your
Family From Lead in Your Home
include certain warning language in
the contract, as well as signed
statements from all parties verifying
that all disclosures (including giving
the pamphlet) were made
keep signed acknowledgments for three
years as proof of compliance, and
give buyers a ten-day opportunity to
test the housing for lead.
If you fail to comply with Title X, the
buyer can sue you for triple the amount
of damages sufferedfor example, three
times the cost of repainting a house previ-
ously painted with lead-based paint.
For more information, contact the
National Lead Information Center, 800-
424-LEAD (phone) or http://
www.epa.gov/lead/nlic.htm.
What are home warranties, and
should I buy one?
Home warranties are service contracts
that cover major housing systems
electrical wiring, built-in appliances,
heating, plumbing and the likefor
one year from the date the house is
sold. Most warranties cost $300-$500
and are renewable. If something goes
wrong with any of the covered sys-
tems after escrow closes, the repairs
are paid for (minus a modest service
fee)and the new buyer saves money.
Many sellers find that home warran-
ties make their house more attractive
and easier to sell.
Before buying a home warranty, be
sure you dont duplicate coverage.
You dont need a warranty for the
heating system, for example, if your
furnace is just six months old and still
covered by the manufacturers three-
year warranty.
Your real estate agent or broker can
provide more information on home
warranties.
What is the house closing?
The house closing is the final transfer
of the ownership of the house from
the seller to the buyer. It occurs after
both you and the buyer have met all
the terms of the contract and the deed
is recorded. (See Deeds, below). Clos-
ing also refers to the time when the
transfer will occur, such as The clos-
ing on my house will happen on Janu-
ary 27 at 10:00 a.m.
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Do I need an attorney for the
house closing?
This varies depending on state law and
local custom. In some states, attorneys
are not typically involved in residen-
tial property sales, and an escrow or
title company handles the entire clos-
ing process. In many other states, par-
ticularly in the eastern part of the
country, attorneys (for both buyer and
seller) have a more active role in all
parts of the house transaction; they
handle all the details of offer contracts
and house closings. Check with your
state department of real estate or your
real estate broker for advice.
Im selling my house and buying
another. What are some of the
most important tax
considerations?
The 1997 Taxpayer Relief Act con-
tained a big break for homeowners. If
you sell your home, you may exclude
up to $250,000 of your profit (capital
gain) from tax. For married couples
filing jointly, the exclusion is
$500,000.
The law applies to sales after May
6, 1997. To claim the whole exclu-
sion, you must have owned and lived
in your residence an aggregate of at
least two of five years before the sale.
You can claim the exclusion once
every two years.
Even if you havent lived in your
home a total of two years out of the
last five, you are still eligible for a
partial exclusion of capital gains if
you sold because of a change in em-
ployment, health or unforeseen cir-
cumstances. You get a portion of the
exclusion, based on the percentage of
the two-year period you lived in the
house. To calculate it, take the num-
ber of months you lived there before
the sale and divide it by 24.
For example, if youre an unmarried
taxpayer whos lived in your home for
12 months, and you sell it for a
$100,000 profit, the entire amount
would be excluded from capital gains.
Because you lived in the house for half
of the two-year period, you could
claim half the exclusion, or $125,000.
(12/24 x $250,000 = $125,000.)
Thats enough to exclude your entire
$100,000 gain.
For more information on current
tax laws involving real estate transac-
tions, contact the IRS at 800-829-
1040 or check their website at http://
www.irs.gov. Ask for Publication
523, Selling Your Home, and the gen-
eral instructions for Form 2119, Sale
of Your Home. If youre claiming the
exclusion, you must file Form 2119
with your tax return.
H O U S E S
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Deeds
Castles in the air are the only
property you can own without
the intervention of lawyers. Un-
fortunately, there are no title
deeds to them.
—J. FEIDOR REES
Remember playing Monopoly as a
kid, where amassing deeds to prop-
ertythose little color-coded cards
was all-important? Real-life deeds
arent nearly so colorful, but theyre
still very, very important. Here are
some questions commonly asked
about deeds.
What is a deed?
A deed is the document that transfers
ownership of real estate. It contains
the names of the old and new owners
and a legal description of the prop-
erty, and is signed by the person
transferring the property.
Do I need a deed to transfer
property?
Almost always. You cant transfer real
estate without having something in
writing. In some situations, a docu-
ment other than a deed is usedfor
example, in a divorce, a court order
may transfer real estate from the
couple to just one of them.
Im confused by all the different
kinds of deedsquitclaim deed,
grant deed, warranty deed.
Does it matter which kind of
deed I use?
Probably not. Usually, whats most
important is the substance of the
deed: the description of the property
being transferred and the names of the
old and new owners. Heres a brief
rundown of the most common types
of deeds:
A quitclaim deed transfers whatever
ownership interest you have in the
property. It makes no guarantees
about the extent of your interest.
Quitclaim deeds are commonly used
by divorcing couples; one spouse signs
over all his rights in the couples real
estate to the other. This can be espe-
cially useful if it isnt clear how much
of an interest, if any, one spouse has in
property thats held in another
spouses name.
A grant deed transfers your owner-
ship and implies certain promises
that the title hasnt already been
transferred to someone else or been
encumbered, except as set out in the
deed. This is the most commonly used
kind of deed, in most states.
A warranty deed transfers your own-
ership and explicitly promises the
buyer that you have good title to the
property. It may make other promises
as well, to address particular problems
with the transaction.
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Does a deed have to be
notarized?
Yes. The person who signs the deed
(the person who is transferring the
property) should take the deed to a
notary public, who will sign and
stamp it. The notarization means that
a notary public has verified that the
signature on the deed is genuine. The
signature must be notarized before the
deed will be accepted for recording
(see the next question).
After a deed is signed and
notarized, do I have to put it on
file anywhere?
Yes. You should record (file) the
deed in the land records office in the
county where the property is located.
This office goes by different names in
different states; its usually called the
County Recorders Office, Land Reg-
istry Office or Register of Deeds. In
most counties, youll find it in the
courthouse.
Recording a deed is simple. Just
take the signed, original deed to the
land records office. The clerk will take
the deed, stamp it with the date and
some numbers, make a copy and give
the original back to you. The numbers
are usually book and page numbers,
which show where the deed will be
found in the countys filing system.
There will be a small fee, probably
about $5 a page, for recording.
Whats a trust deed?
A trust deed (also called a deed of
trust) isnt like the other types of
deeds; its not used to transfer prop-
erty. Its really just a version of a mort-
gage, commonly used in some states.
A trust deed transfers title to land
to a trustee, usually a trust or title
company, which holds the land as
security for a loan. When the loan is
paid off, title is transferred to the bor-
rower. The trustee has no powers un-
less the borrower defaults on the loan;
then the trustee can sell the property
and pay the lender back from the pro-
ceeds, without first going to court.
More
Information
About Deeds
Deeds for California Real Estate
,
by Mary Randolph (Nolo),
contains tear-out deed forms and
instructions for transferring
California real estate.
For information about deeds
in other states, check your
local law library.
H O U S E S
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p
http://www.nolo.com
Nolo offers self-help information on a wide
variety of legal topics, including real estate
matters. The website also has several real
estate calculators, including a Home
Affordability calculator.
http://www.homefair.com/
home
Homefair offers lots of information and
calculators that will help you move and
make relocation decisions. Its especially
useful if youre deciding where to live
based on home prices, schools, crime, sala-
ries and other factors.
http://www.homeadvisor.com
Microsofts Home Advisor helps with all
aspects of buying or selling a homefrom
listings and financing to home improve-
ments.
http://www.ashi.com
The American Society of Home Inspectors
offers information on buying a home in
good shape, including referrals to local
home inspectors.
http://www.inman.com
Real estate columnist Brad Inman provides
the latest real estate news. Also, see http://
deadlinenews.com by real estate writer
Brouderick Perkins.
http://www.realtylocator.com
Realty Locator provides over 100,000 real
estate links nationwide, including property
listings, agents, lenders, neighborhood
data, real estate news and resources on
everything from home improvement to mort-
gage calculators.
http://www.homepath.com
Fannie Mae, the nations largest source of
home mortgage loans, offers several useful
home affordability mortgage calculators. It
also provides a wide range of consumer
information.
http://www.iOwn.com
iOwn allows you to compare rates from
various lenders, prequalify and apply for a
home loan. It includes detailed advice on
choosing the best type of mortgage, deter-
mining how much house you can afford,
selecting a real estate broker and evaluat-
ing the value of a house. Similar online
mortgage sites are available at http://
www.e-loan.com and http://www.
homeadvisor.com.
http://www.hsh.com
HSH Associates publishes detailed infor-
mation on mortgage loans available from
lenders across the U.S.
http://www.realtor.com
The official website of the National Asso-
ciation of Realtors lists over one and a half
million homes for sale throughout the
United States and provides links to real
estate broker websites and a host of related
realty services.
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http://www.homebuilder.com
The National Association of
Homebuilders website lists new homes and
developments in major metropolitan areas.
http://www.owners.com
This site lists homes sold without a broker,
also known as FSBOs (for sale by owner).
It also provides useful information for
anyone considering selling their home
without a real estate agent.
http://www.homegain.com
HomeGain is geared toward home sellers.
It provides an Agent Evaluator service to
help you find a real estate agent, a Home
Valuation tool to help price your home,
calculators for a wide variety of tasks and
other resources.
http://www.dataquick.com/
consumer
For a modest fee, Dataquick.com (click on
the Neighborhood Report Center) pro-
vides details on housesincluding pur-
chase price, sales date, address, number of
bedrooms and baths, square footage and
property tax information.
i
i
abb
2
Neighbors
2.2 Boundaries
2.3 Fences
2.4 Trees
2.6 Views
2.8 Noise
People have discovered that they can fool
the devil, but they can’t fool the neighbors.
EDGAR WATSON HOWE
Years ago, problems between neighbors were resolved infor-
mally, perhaps with the help of a third person respected by both
sides. These days, neighborswho may not know each other well,
if at allare quicker to head for court. Usually, of course, law-
suits only exacerbate bad feelings and cost everyone money, and
the courthouse should be the place of last, not first, resort. But
knowing the legal ground rules is important; you may prevent
small disputes from turning into big ones.
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Boundaries
Most of us dont know, or care, ex-
actly where our property boundaries
are located. But if you or your neigh-
bor wants to fence the property, build
a structure or cut down a tree close to
the line, you need to know where it
actually runs.
How can I find the exact
boundaries of my property?
You can hire a licensed land surveyor
to survey the property and place offi-
cial markers on the boundary lines. A
simple survey usually costs about
$500; if no survey has been done for a
long time, or if the maps are unreli-
able and conflicting, be prepared to
spend up to $1,000.
My neighbor and I dont want
to pay a surveyor. Cant we just
make an agreement about
where we want the boundary to
be?
You and the neighbor can decide
where you want the line to be, and
then make it so by signing deeds that
describe the boundary. If you have a
mortgage on the property, consult an
attorney for help in drawing up the
deeds. You may need to get the per-
mission of the mortgage holder before
you give your neighbor even a tiny
piece of the land.
Once you have signed a deed, you
should record (file) it at the county
land records office, usually called the
County Recorders Office, Land Reg-
istry Office or something similar.
Deeds are discussed in more detail in
Chapter 1.
What can I do if a neighbor
starts using my property?
If a neighbor starts to build on what
you think is your property, do some-
thing immediately. If the encroach-
ment is minorfor instance, a small
fence in the wrong placeyou may
think you shouldnt worry. But youre
wrong. When you try to sell your
house, a title company might refuse to
issue insurance because the neighbor
is on your land.
Also, if you dont act promptly,
you could lose part of your property.
When one person uses anothers land
for a long enough time, he can gain a
legal right to continue to do so and,
in some circumstances, gain owner-
ship of the property.
Talk to your neighbor right away.
Most likely, a mistake has been made
because of a conflicting description in
the neighbors deed or just a mistaken
assumption about the boundary line.
If your neighbor is hostile and insists
on proceeding, state that you will sue
if necessary. Then send a firm letter
or have a lawyer send one on his or her
letterhead. If the building doesnt
stop, waste no time in having a lawyer
get a judges order to temporarily stop
the neighbor until you can bring a
civil lawsuit for trespass before the
judge.
N E I G H B O R S
2.3
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A Little Common Sense
If you are having no trouble with your
property and your neighbors, yet you feel
inclined to rush out to determine your
exact boundaries just to know where they
are, please ask yourself a question. Have
you been satisfied with the amount of
space that you occupy? If the answer is
yes, then consider the time, money and
hostility that might be involved if you
pursue the subject.
If a problem exists on your border,
keep the lines of communication open
with the neighbor, if possible. Learn the
law and try to work out an agreement.
Boundary lines simply dont matter that
much to us most of the time; relationships
with our neighbors matter a great deal.
Fences
Local fence ordinances are usually
strict and detailed. Most regulate
height and location, and some control
the material used and even appear-
ance. Residents of planned unit devel-
opments and subdivisions are often
subject to even pickier rules. On top
of all this, many cities require you to
obtain a building permit before you
begin construction.
Fence regulations apply to any
structure used as an enclosure or a
partition. Usually, they include
hedges and trees.
How high can I build a fence on
my property?
In residential areas, local rules com-
monly restrict artificial (constructed)
backyard fences to a height of six feet.
In front yards, the limit is often four
feet.
Height restrictions may also apply
to natural fencesfences of bushes or
treesif they meet the ordinances
general definition of fences. Trees that
are planted in a row and grow to-
gether to form a barrier are usually
considered a fence. When natural
fences are specifically mentioned in
the laws, the height restrictions com-
monly range from five to eight feet.
If, however, you have a good reason
(for example, you need to screen your
house from a noisy or unsightly neigh-
boring use, such as a gas station), you
can ask the city for a one-time excep-
tion to the fence law, called a variance.
Talk to the neighbors before you make
your request, to explain your problem
and get them on your side.
My neighbor is building a fence
that violates the local fence law,
but nothings happening. How
can I get the law enforced?
Cities are not in the business of send-
ing around fence inspection teams,
and as long as no one complains, a non-
conforming fence may stand forever.
Tell the neighbor about the law as
soon as possible. She probably doesnt
know what the law is, and if the fence
is still being built, may be able to
modify it at a low cost. If she suggests
that you mind your own business,
alert the city. All it takes in most cir-
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cumstances is a phone call to the plan-
ning or zoning department or the city
attorneys office. The neighbor will be
ordered to conform; if she doesnt, the
city can fine her and even sue.
My neighbors fence is hideous.
Can I do anything about it?
As long as a fence doesnt pose a threat
of harm to neighbors or those passing
by, it probably doesnt violate any law
just because its ugly. Occasionally,
however, a town or subdivision allows
only certain types of new fencessuch
as board fencesin an attempt to
create a harmonious architectural
look. Some towns also prohibit certain
materialsfor example, electrically
charged or barbed wire fences.
Even without such a specific law, if
a fence is so poorly constructed that it
is an eyesore or a danger, it may be
prohibited by another law, such as a
blighted property ordinance. And if
the fence was erected just for mean-
nessits high, ugly and has no rea-
sonable use to the ownerit may be a
spite fence, and you can sue the
neighbor to get it torn down.
The fence on the line between
my land and my neighbors is in
bad shape. Can I fix it or tear it
down?
Unless the property owners agree oth-
erwise, fences on a boundary line be-
long to both owners when both are
using the fence. Both owners are re-
sponsible for keeping the fence in
good repair, and neither may remove
it without the others permission.
A few states have harsh penalties
for refusing to chip in for mainte-
nance after a reasonable request from
the other owner. Connecticut, for ex-
ample, allows one neighbor to go
ahead and repair, and then sue the
other owner for double the cost.
Of course, its rare that a land-
owner needs to resort to a lawsuit.
Your first step should be to talk to
the neighbor about how to tackle the
problem. Your neighbor will prob-
ably be delighted that youre taking
the initiative to fix a fence thats al-
ready an eyesore and might deterio-
rate into a real danger.
Trees
WOODMAN, SPARE THAT TREE.
T
OUCH NOT A SINGLE BOUGH:
IN YOUTH IT SHELTERED ME,
A
ND ILL PROTECT IT NOW.
GEORGE POPE MORRIS
N E I G H B O R S
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We human beings exhibit some com-
plicated, often conflicting, emotions
over our trees. This is especially true
when it comes to the trees in our own
yards. We take ownership of our trees
and their protection very seriously in
this country, and this is reflected in
the law.
Can I trim the branches of the
neighbors tree that hang over
my yard?
You have the legal right to trim tree
branches up to the property line. But
you may not go onto the neighbors
property or destroy the tree itself.
Deliberately Harming
a Tree
In almost every state, a person who
intentionally injures someone elses tree is
liable to the owner for two or three times
the amount of actual monetary loss.
These penalties protect tree owners by
providing harsh deterrents to would-be
loggers.
Most of a big oak tree hangs
over my yard, but the trunk is on
the neighbors property. Who
owns the tree?
Your neighbor. It is accepted law in
all states that a tree whose trunk
stands wholly on the land of one per-
son belongs to that person.
If the trunk stands partly on the
land of two or more people, it is called
a boundary tree, and in most cases it
belongs to all the property owners.
All the owners are responsible for car-
ing for the tree, and one co-owner
may not remove a healthy tree with-
out the other owners permission.
My neighbor dug up his yard,
and in the process killed a tree
thats just on my side of the
property line. Am I entitled to
compensation for the tree?
Yes. The basic rule is that someone
who cuts down, removes or hurts a
tree without permission owes the
trees owner money to compensate for
the harm done. You can sue to enforce
that rightbut you probably wont
have to, once you tell your neighbor
what the law is.
My neighbors tree looks like its
going to fall on my house any
day now. What should I do?
You can trim back branches to your
property line, but that may not solve
the problem if youre worried about
the whole tree coming down.
City governments often step in to
take care of, or make the owner take
care of, dangerous trees. Some cities
have ordinances that prohibit main-
taining any dangerous condition
including a hazardous treeon pri-
vate property. To enforce such an or-
dinance, the city can demand that the
owner remove the tree or pay a fine.
Some cities will even remove such a
tree for the owner. To check on your
citys laws and policies, call the city
attorneys office.
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You might also get help from a
utility company, if the tree threatens
its equipment. For example, a phone
company will trim a tree that hangs
menacingly over its lines.
If you dont get help from these
sources, and the neighbor refuses to
take action, you can sue. The legal
theory is that the dangerous tree is a
nuisance because it is unreasonable
for the owner to keep it and it inter-
feres with your use and enjoyment of
your property. You can ask the court
to order the owner to prune or remove
the tree. Youll have to sue in regular
court (not small claims court) and
have proof that the tree really does
pose a danger to you.
Views
The privilege of sitting in ones home
and gazing at the scenery is a highly
prized commodity. And it can be a
very expensive one. Potential buyers,
sometimes overwhelmed by a stun-
ning landscape, commit their life
savings to properties, assuming that
the view is permanent. Sometimes it
is not.
If a neighbors addition or
growing tree blocks my view,
what rights do I have?
Unfortunately, you have no right to
light, air or view, unless it has been
granted in writing by a law or subdi-
vision rule. The exception to this
general rule is that someone may not
deliberately and maliciously block
anothers view with a structure that
has no reasonable use to the owner.
This rule encourages building and
expansion, but the consequences can
be harsh. If a view becomes blocked,
the law will help only if:
a local law protects views
the obstruction violates private
subdivision rules, or
the obstruction violates some other
specific law.
How can a view ordinance help?
A few cities that overlook the ocean
or other desirable vistas have adopted
view ordinances. These laws protect a
property owner from having his view
(usually, the view that he had when
he bought the property) obstructed
by growing trees. They dont cover
buildings or other structures that
block views.
The ordinances allow someone who
has lost a view to sue the tree owner
for a court order requiring him to
restore the view. A neighbor who
wants to sue must first approach the
tree owner and request that the tree
be cut back. The complaining person
usually bears the cost of trimming or
topping, unless the tree was planted
N E I G H B O R S
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after the law became effective, or the
owner refuses to cooperate.
Some view ordinances contain ex-
tensive limitations that take most of
the teeth out of them. Some ex-
amples:
Certain species of trees may be
exempt, especially if they grew
naturally.
A neighbor may be allowed to
complain only if the tree is within a
certain distance from his or her
property.
Trees on city property may be
exempt.
Cities Without
View Ordinances
If, like most cities, your city doesnt have
a view ordinance, you might find help
from other local laws. Here are some
laws that may help restore your view:
Fence Height Limits. If a fence is block-
ing your view, it may be in violation of a
local law. Commonly, local laws limit
artificial (constructed) fences in back
yards to six feet high and in front yards
to three or four feet. Height restrictions
may also apply to natural fences, such
as hedges.
Tree Laws. Certain species of trees
may be prohibitedfor example, trees
that cause allergies or tend to harm other
plants. Laws may also forbid trees that
are too close to a street (especially an
intersection), to power lines or even to
an airport.
Zoning Laws. Local zoning regulations
control the size, location and uses of
buildings. In a single-family area, build-
ings are usually limited to 30 or 35 feet.
Zoning laws also usually require a cer-
tain setback, or distance between a struc-
ture and the boundary lines. They also
limit how much of a lot can be occupied
by a structure. For instance, many subur-
ban cities limit a dwelling to 40% to
60% of the property.
I live in a subdivision with a
homeowners association. Will
that help me in a view dispute?
Often, residents of subdivisions and
planned unit developments are sub-
ject to a detailed set of rules called
Covenants, Conditions and Restric-
tions (CC&Rs). They regulate most
matters that could concern a neigh-
bor, including views. For example, a
rule may state that trees cant ob-
struct the view from another lot, or
simply limit tree height to 15 feet.
If someone violates the restrictions,
the homeowners association may ap-
ply pressure (for example, removing
the privilege of using a swimming
pool) or even sue. A lawsuit is costly
and time-consuming, however, and
the association may not want to sue
except for serious violations of the
rules.
If the association wont help, you
can take the neighbor to court your-
self, but be prepared for a lengthy and
expensive experience.
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I want to buy a house with a
great view. Is there anything I
can do to make sure I wont ever
lose the viewand much of my
investment?
First, ask the property owner or the
city planning and zoning office if the
property is protected by a view ordi-
nance. Then check with the real estate
agent to see if neighbors are subject to
restrictions that would protect your
view. Also, if the property is in a
planned unit development, find out
whether a homeowners association
actively enforces the restrictions.
Check local zoning laws for any
property that might affect you. Could
the neighbor down the hill add a sec-
ond-story addition?
Finally, look very closely from the
property to see which trees might
later obstruct your view. Then go in-
troduce yourself to their owners and
explain your concerns. A neighbor
who also has a view will probably un-
derstand your concern. If someone is
unfriendly and uncooperative, you
stand warned.
How to Approach
a View Problem
Before you approach the owner of a tree
that has grown to block your view,
answer these questions:
Does the tree affect the view of other
neighbors? If it does, get them to
approach the tree owner with you.
Trimming costs may be divided among
you.
Which part of the tree is causing view
problems for youone limb, the top,
one side of it?
What is the least destructive action that
could be taken to restore your view?
Maybe the owner will agree to a
limited and careful pruning.
How much will the trimming cost? Be
ready to pay for it. Remember that
every day you wait and grumble is a
day for the trees to grow and for the
job to become more expensive. The
loss of your personal enjoyment is
probably worth more than the trimming
cost, not to mention the devaluation of
your property (which can be thousands
of dollars).
Noise
Nothing so needs re-
forming as other
people’s habits.
MARK TWAIN
If you are a reasonable person and
your neighbor is driving you wiggy
N E I G H B O R S
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with noise, the neighbor is probably
violating a noise law.
Do I have any legal recourse
against a noisy neighbor?
You bet. The most effective weapon
you have to maintain your peace and
quiet is your local noise ordinance.
Almost every community prohibits
excessive, unnecessary and unreason-
able noise, and police enforce these
laws.
Most laws designate certain quiet
hours”—for example, from 10 p.m. to
7 a.m. on weekdays, and until 8 or
9 a.m. on weekends. So running a
power mower may be perfectly accept-
able at 10 a.m. on Saturday, but not
at 7 a.m. Many towns also have deci-
bel level noise limits. When a neigh-
bor complains, they measure the noise
with electronic equipment. To find
out what your towns noise ordinance
says, ask at the public library or the
city attorneys office.
If your neighbor keeps disturbing
you, you can also sue, and ask the court
for money damages or to order the
neighbor to stop the noise (abate the
nuisance, in legal terms). For money
damages alone, you can use small
claims court. For a court order telling
somebody to stop doing something,
youll have to sue in regular court.
Of course, what you really want is
for the nuisance to stop. But getting a
small claims court to order your
neighbor to pay you money can be
amazingly effective. And suing in
small claims court is easy and inex-
pensive, and it doesnt require a law-
yer.
Noise that is excessive and deliber-
ate may also be in violation of state
criminal laws against disturbing the
peace or disorderly conduct. This
means that, in very extreme circum-
stances, the police can arrest your
neighbor. Usually, these offenses are
punishable by fines or short jail sen-
tences.
The neighbor in the apartment
next to mine is very noisy. Isnt
the landlord supposed to keep
tenants quiet?
In addition to the other remedies all
neighbors have, you have another
arrow in your quiver: You can lean on
the landlord to quiet the neighbor.
Standard rental and lease agreements
contain a clause entitled Quiet
Enjoyment. This clause gives tenants
the right to occupy their apartments
in peace, and also imposes upon them
the responsibility not to disturb their
neighbors. Its the landlords job to
enforce both sides of this bargain.
If the neighbors stereo is keeping
you up every night, the tenants are
probably violating the rental agree-
ment, and could be evicted. Especially
if several neighbors complain, the
landlord will probably order the ten-
ant to comply with the lease or face
eviction. For more information about
your rights as a tenant, see Chapter 3.
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Tips for Handling
a Noise Problem
Know the law and stay within it.
Be reasonably tolerant of your
neighbors.
Assert your rights.
Communicate with your neighbors
both the one causing the problem and
others affected by it.
Ask the police for help when it is
appropriate.
Use the courts when necessary.
My neighbors dog barks all the
time, and its driving me crazy.
What can I do?
Usually, problems with barking dogs
can be resolved without resorting to
police or courts. If you do eventually
wind up in court, however, a judge
will be more sympathetic if you made
at least some effort to work things out
first. Here are the steps to take when
youre losing patience (or sleep) over a
neighbors noisy dog:
1. Ask your neighbor to keep the dog
quiet. Sometimes owners are blissfully
unaware that theres a problem. If the
dog barks for hours every daybut
only when its left alonethe owner
may not know that youre being
driven crazy.
If you can establish some rapport
with the neighbor, try to agree on
specific actions to alleviate the prob-
lem: for example, that your neighbor
will take the dog to obedience school
or consult with an animal behavior
specialist, or that the dog will be kept
inside after 10 p.m. After you agree
on a plan, set a date to talk again in a
couple of weeks.
2. Try mediation. Mediators, both
professional and volunteers, are
trained to listen to both sides, iden-
tify problems, keep everyone focused
on the real issues and suggest com-
promises. A mediator wont make a
decision for you, but will help you
and your neighbor agree on a resolu-
tion.
Many cities have community me-
diation groups which train volunteers
to mediate disputes in their own
neighborhoods. Or ask for a referral
from:
the small claims court clerks office
the local district attorneys office
the consumer complaint division, if
there is one
radio or television stations that offer
help with consumer problems, or
a state or local bar association.
For more information on media-
tion, see Chapter 17, Courts and Me-
diation.
3. Look up the law. In some places,
barking dogs are covered by a specific
state or local ordinance. If theres no
law aimed specifically at dogs, a gen-
eral nuisance or noise ordinance
makes the owner responsible. Local
law may forbid loud noise after 10
p.m., for example, or prohibit any
unreasonable noise. And someone
who allows a dog to bark after numer-
ous warnings from police may be ar-
rested for disturbing the peace.
To find out what the law is where
you live, go to a law library and check
N E I G H B O R S
2.11
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the state statutes and city or county
ordinances yourself. Look in the index
under noise, dogs, animals or
nuisance. For more information on
how to do this, see the Legal Research
Appendix. Or call the local animal
control agency or city attorney.
4. Ask animal control authorities to
enforce local noise laws. Be persistent.
Some cities have special programs to
handle dog complaints.
5. Call the police, if you think a crimi-
nal law is being violated. Generally, po-
lice arent too interested in barking
dog problems. And summoning a
police cruiser to a neighbors house
obviously will not improve your al-
ready-strained relations. But if noth-
ing else works, and the relationship
with your neighbor is shot anyway,
give the police a try.
ef
More Information
About Neighbor Law
Neighbor Law: Fences, Trees, Bound-
aries & Noise
, by Cora Jordan (Nolo),
explains laws that affect neighbors and
shows how to resolve common disputes
without lawsuits.
Dog Law
, by Mary Randolph (Nolo), is a
guide to the laws that affect dog owners
and their neighbors.
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http://www.nolo.com
Nolo offers self-help information about a
wide variety of legal topics, including
neighbor law.
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3
Landlords and Tenants
3.2 Leases and Rental
Agreements
3.4 Tenant Selection
3.4 Housing
Discrimination
3.6 Rent and Security
Deposits
3.8 Tenants’ Privacy
Rights
3.9 Repairs and
Maintenance
3.12 Landlord Liability
for Criminal Acts
and Activities
3.14 Landlord Liability
for Lead Poisoning
3.15 Landlord’s Liability
for Exposure to
Asbestos and Mold
3.16 Insurance
3.17 Resolving Disputes
Property has its duties as well
as its rights.
THOMAS DRUMMOND
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Thirty years ago, custom, not law,
controlled how most landlords and
tenants interacted with each other.
This is no longer true. Today,
whether you focus on leases and rental
agreements; habitability; discrimina-
tion; the amount, use and return of
security deposits; how and when a
landlord may enter a rental unit or a
dozen other issues, both landlord and
tenant must understand their legal
rights and responsibilities.
Because landlord-tenant laws vary
significantly depending on where you
live, remember to check your state
and local laws for specifics. A list of
state landlord-tenant statutes is in-
cluded at the end of this chapter. You
can find and read the state statutes
online. (See Finding Statutes and
Regulations Online in the Legal Re-
search Appendix.)
Leases and
Rental
Agreements
Its important to carefully readand
fully understandthe terms of your
lease or rental agreement. This piece
of paper is the contract that forms the
legal basis for the landlord-tenant
relationship.
Why is it important to sign a
lease or rental agreement?
The lease or rental agreement is the
key document of the tenancy. A thor-
ough lease or rental agreement will
set out important issues such as:
the length of the tenancy
the amount of rent and deposits the
tenant must pay
the number of people who can live
on the rental property
who pays for utilities
whether the tenant may have pets
whether the tenant may sublet the
property
the landlords access to the rental
property, and
who pays attorney fees if there is a
lawsuit.
Leases and rental agreements
should always be in writing, even
though oral agreements for less than a
year are enforceable in most states.
While oral agreements may seem easy
and informal, they often lead to dis-
putes. If a tenant and landlord later
disagree about key agreements, such
as whether the tenant can sublet, the
result is all too likely to be a court
argument over who said what to
whom, when and in what context.
Whats the difference between
a rental agreement and a lease?
The biggest difference is the length of
occupancy. A written rental agree-
ment provides for a tenancy of a short
period (often 30 days). The tenancy is
automatically renewed at the end of
this period unless the tenant or land-
lord ends it by giving written notice,
typically 30 days. For these month-to-
month rentals, the landlord can
change the terms of the agreement
with proper written notice, subject to
L A N D L O R D S A N D T E N A N T S
3.3
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any rent control laws. This notice is
usually 30 days, but can be shorter in
some states if the rent is paid weekly
or bi-weekly or if the landlord and
tenant agree. In some states, the no-
tice period is longer.
A written lease, on the other hand,
gives a tenant the right to occupy a
rental unit for a set termmost often
for six months or a year, but some-
times longeras long as the tenant
pays the rent and complies with other
lease provisions. Unlike a rental
agreement, when a lease expires it
does not usually automatically renew
itself. A tenant who stays on with the
landlords consent will generally be
considered a month-to-month tenant
(with the same terms and conditions
that were present in the lease).
In addition, with a fixed-term
lease, the landlord cannot raise the
rent or change other terms of the ten-
ancy during the lease, unless the
changes are specifically provided for
in the lease or the tenant agrees.
What happens if a tenant
breaks a long-term lease?
As a general rule, a tenant may not
legally break a lease unless the land-
lord significantly violates its terms
for example, by failing to make neces-
sary repairs, or by failing to comply
with an important law concerning
health or safety. A few states have
laws that allow tenants to break a
lease because health problems or a job
relocation require a permanent move.
A tenant who begins active military
service may break a lease after giving
30 days notice.
A tenant who breaks a lease with-
out a legally recognized cause will be
responsible for the remainder of the
rent due under the lease term. In most
states, however, a landlord has a legal
duty to try to find a new tenant as
soon as possibleno matter what the
tenants reason for leavingrather
than charge the tenant for the total
remaining rent due under the lease.
At that point, the old tenants respon-
sibility for the rent will stop.
When can a landlord legally
break a lease and end a
tenancy?
Usually, a landlord may legally break
a lease if a tenant significantly violates
its terms or the lawfor example, by
paying the rent late, keeping a dog in
violation of a no-pets clause in the
lease, substantially damaging the
property or participating in illegal
activities on or near the premises,
such as selling drugs.
Usually a landlord must first send
the tenant a notice stating that the
tenancy has been terminated. State
laws set out very detailed require-
ments as to how a landlord must write
and deliver (serve) a termination no-
tice, depending on what the tenant has
done wrong. The termination notice
may state that the tenancy is over and
warn the tenant that he or she must
vacate the premises or face an eviction
lawsuit. Or, the notice may give the
tenant a few days to clean up his or
her actfor example, pay the rent or
find a new home for the dog. (If the
tenant fixes the problem or leaves as
directed, no one goes to court.) If a
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tenant doesnt comply with the termi-
nation notice, the landlord can file a
lawsuit to evict the tenant.
Tenant
Selection
Choosing tenants is the most impor-
tant decision any landlord makes. To
do it well, landlords need a reliable
system that helps weed out tenants
who will pay their rent late, damage
the rental unit or cause legal or practi-
cal problems later.
Whats the best way for
landlords to screen tenants?
Savvy landlords should ask all pro-
spective tenants to fill out a written
rental application that asks for the
following information:
employment, income and credit
history
Social Security and drivers license
numbers
details on past evictions or bank-
ruptcies, and
references.
Before choosing tenants, landlords
should check with previous landlords
and other references; verify income,
employment and bank account infor-
mation; and obtain a credit report.
The credit report is especially impor-
tant because it will indicate whether a
particular person has a history of pay-
ing rent or bills late, has gone through
bankruptcy, has been convicted of a
crime or has ever been evicted.
How can a landlord avoid
discrimination lawsuits when
choosing a tenant?
Fair housing laws specify clearly illegal
reasons to refuse to rent to a tenant.
(For details, see Housing Discrimination,
below.) Landlords are legally free to
choose among prospective tenants as
long as their decisions comply with
these laws and are based on legitimate
business criteria. For example, a land-
lord is entitled to reject someone with
a poor credit history, insufficient in-
come to pay the rent or past behav-
iorsuch as damaging propertythat
makes the person a bad risk. A legally
recognized occupancy policy limiting
the number of people per rental unit
one that is clearly tied to health and
safetycan also be a legal basis for
refusing tenants.
Housing
Discrimination
Not so long ago, a landlord could
refuse to rent to an applicant, or could
evict a tenant, for almost any reason.
If a landlord didnt like your race or
religion, or the fact that you had chil-
dren, you might find yourself out on
the street. But times have changed.
To protect every Americans right to
be treated fairly and to help people
find adequate housing, Congress and
state legislatures passed laws prohibit-
ing discrimination, most notably the
federal Fair Housing Acts.
L A N D L O R D S A N D T E N A N T S
3.5
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What types of housing
discrimination are illegal?
The federal Fair Housing Act and Fair
Housing Amendments Act prohibit
landlords from choosing tenants on the
basis of a group characteristic such as:
race
religion
ethnic background or national
origin
sex
age
the fact that the prospective tenant
has children (except in certain
designated senior housing), or
a mental or physical disability.
In addition, some state and local
laws prohibit discrimination based on
a persons marital status or sexual
orientation. And some cities and
counties have added other criteria,
such as ones personal appearance.
On the other hand, landlords are
allowed to select tenants using criteria
that are based on valid business rea-
sons, such as requiring a minimum
income or positive references from
previous landlords, as long as these
standards are applied equally to all
tenants.
Examples of Housing
Discrimination
The Fair Housing Act and Amendments
prohibit landlords from taking any of the
following actions based on race, religion
or any other protected category:
advertising or making any statement
that indicates a preference based on
group characteristic, such as skin color
falsely denying that a rental unit is
available
setting more restrictive standards, such
as higher income, for certain tenants
refusing to rent to members of certain
groups
refusing to accommodate the needs of
disabled tenants, such as allowing a
guide dog, hearing dog or service dog
setting different terms for some tenants,
such as adopting an inconsistent policy
of responding to late rent payments, or
terminating a tenancy for a
discriminatory reason.
How does a tenant file a
discrimination complaint?
A tenant who thinks that a landlord
has broken a federal fair housing law
should contact the U.S. Department
of Housing and Urban Development
(HUD), the agency which enforces the
Fair Housing Act. To find the nearest
office, call HUDs Fair Housing Infor-
mation Clearinghouse at 800-343-
3442, or check the HUD Website at
http://www.hud.gov. HUD will pro-
vide a complaint form and will inves-
tigate and decide the merits of the
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claim. A tenant must file his or her
complaint within one year of the al-
leged discriminatory act. HUD will
typically appoint a mediator to nego-
tiate with the landlord and reach a
settlement (called a conciliation). If
a settlement cant be reached, the fair
housing agency will hold an adminis-
trative hearing to determine whether
discrimination has occurred.
If the discrimination is a violation
of a state fair housing law, the tenant
may file a complaint with the state
agency in charge of enforcing the law.
In California, the Department of Fair
Employment and Housing enforces
the states two fair housing laws.
Also, instead of filing a complaint
with HUD or a state agency, tenants
may file lawsuits directly in federal or
state court. If a state or federal court
or housing agency finds that discrimi-
nation has taken place, a tenant may
be awarded damages, including any
higher rent he or she had to pay as a
result of being turned down, and
damages for humiliation or emotional
distress.
Rent and
Security
Deposits
Landlords may charge any dollar
amount for rent, except in certain
areas covered by rent control. Many
states do, however, have rules as to
when and how rent must be paid and
how it may be increased.
Security deposits are more strictly
regulated by state law. Most states
dictate how much money a landlord
can require, how the funds can be
usedfor example, to cover unpaid
rentand when and how the deposit
must be returned.
What laws cover rent due dates,
late rent and rent increases?
By custom, leases and rental agree-
ments usually require rent to be paid
monthly, in advance. Often rent is
due on the first day of the month.
However, it is legal for a landlord to
require rent to be paid at different
intervals or on a different day of the
month. Unless the lease or rental
agreement specifies otherwise, there is
no legally recognized grace period
in other words, if a tenant hasnt paid
the rent on time, the landlord can
usually terminate the tenancy the day
after it is due. Some landlords charge
fees for late payment of rent or for
bounced checks; these fees are usually
legal if they are reasonable. The laws
on late fees can be found in your
states landlord-tenant statutes, listed
at the end of this chapter.
For month-to-month rentals, the
landlord can raise the rent (subject to
any rent control laws) with proper
written notice, typically 30 days.
With a fixed-term lease, the landlord
may not raise the rent during the
lease, unless the increase is specifically
called for in the lease or the tenant
agrees.
L A N D L O R D S A N D T E N A N T S
3.7
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How Rent Control Works
Communities in only five states
California, the District of Columbia,
Maryland, New Jersey and New York
have laws that limit the amount of rent
landlords may charge. Rent control
ordinances (also called rent stabilization,
maximum rent regulation or a similar
term) limit the circumstances and times
rent may be increased. Many rent control
laws require landlords to have a legal or
just cause (that is, a good reason) to
terminate a tenancyfor example, if the
tenant doesnt pay rent or if the landlord
wants to move a family member into the
rental unit. Landlords and tenants in New
York City, Newark, San Francisco and
other cities with rent control should get a
current copy of the ordinance and any
regulations interpreting it. Check the
phone book for the address and phone
number of the local rent control board, or
contact the mayor or city managers
office.
How much security deposit can
a landlord charge?
All states allow landlords to collect a
security deposit when the tenant
moves in; the general purpose is to
assure that the tenant pays rent when
due and keeps the rental unit in good
condition. Half the states limit the
amount landlords can charge, usually
not more than a month or two worth
of rentthe exact amount depends on
the state.
Many states require landlords to
put deposits in a separate account, and
some require landlords to pay tenants
the interest on deposits.
What are the rules for returning
security deposits?
The rules vary from state to state, but
landlords usually have a set amount of
time in which to return deposits, usu-
ally 14 to 30 days after the tenant
moves outeither voluntarily or by
eviction.
Landlords may normally make cer-
tain deductions from a tenants secu-
rity deposit, provided they do it cor-
rectly and for an allowable reason.
Many states require landlords to pro-
vide a written itemized accounting of
deductions for unpaid rent and for
repairs for damages that go beyond
normal wear and tear, together with
payment for any deposit balance.
A tenant may sue a landlord who
fails to return his or her deposit when
and how required, or who violates
other provisions of security deposit
laws such as interest requirements.
Often these lawsuits are brought in
small claims court. If the landlord has
intentionally and flagrantly violated
the ordinance, in some states a tenant
may recover the entire deposit
sometimes even two or three times
this amountplus attorney fees and
other damages.
The rules for the keeping and re-
turn of security deposits can be found
in state landlord-tenant statutes,
listed at the end of this chapter.
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Tenants
Privacy Rights
In most states, the tenants duty to
pay rent is conditioned on the
landlords proper repair and mainte-
nance of the premises. This means
that landlords have a legal responsi-
bility to keep fairly close tabs on the
condition of the property. To balance
landlords responsibilities with ten-
ants rights to privacy in their homes,
laws in many states set rules about
when and how landlords may legally
enter rented premises.
Under what circumstances may
a landlord enter rental property?
Typically, a landlord has the right to
legally enter rented premises in cases
of emergency, in order to make
needed repairs (in some states, just to
determine whether repairs are neces-
sary) or to show the property to pro-
spective new tenants or purchasers.
Several states allow landlords the
right of entry during a tenants ex-
tended absence (often defined as seven
days or more) to maintain the prop-
erty as necessary and to inspect for
damage and needed repairs. In most
cases, a landlord may not enter just to
check up on the tenant and the rental
property.
Must landlords provide notice of
entry?
States typically require landlords to
provide advance notice (usually 24
hours) before entering a rental unit.
Without advance notice, a landlord or
manager may enter rented premises
while a tenant is living there only in
an emergency, such as a fire or serious
water leak, or when the tenant gives
permission.
To find out how much notice a
landlord must give a tenant before
entering, check your states landlord-
tenant statutes, listed at the end of
this chapter.
Is it legal for a landlord to
answer questions about a
tenants credit?
Creditors, banks and prospective land-
lords may ask a landlord to provide
credit or other information about a
current or former tenant. A landlord
who sticks to the facts that are rel-
evant to the tenants creditworthiness
(such as whether the tenant paid rent
on time) may respond to these inquir-
ies without fear of legal difficulties
initiated bt the tenant. To be extra
careful, some landlords insist that
tenants sign a release giving the land-
lord permission to respond to such
requests.
L A N D L O R D S A N D T E N A N T S
3.9
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Repairs and
Maintenance
In 1863, an English judge wrote that
Fraud apart, there is no law against
letting [leasing] a tumble-down
house. But in 20th century America,
its no longer legal to be a slumlord.
Landlords must repair and maintain
their rental property or face financial
losses and legal problems from ten-
antswho may withhold rent and
pursue other legal remediesand
from government agencies that en-
force housing codes.
What are the landlords repair
and maintenance
responsibilities?
Under most state and local laws,
rental property owners must offer and
maintain housing that satisfies basic
habitability requirements, such as
adequate weatherproofing; available
heat, water and electricity; and clean,
sanitary and structurally safe pre-
mises. Local building or housing
codes typically set specific standards,
such as the minimum requirements
for light, ventilation and electrical
wiring. Many cities require the instal-
lation of smoke detectors in residen-
tial units and specify security mea-
sures involving locks and keys.
To find out more about state laws
on repair and maintenance responsi-
bilities, check your states landlord-
tenant statutes listed at the end of this
chapter. Your local building or hous-
ing authority and health or fire de-
partment can provide information on
local housing codes and penalties for
violations.
What are a tenants rights if the
landlord refuses to maintain the
property?
If a landlord doesnt meet his or her
legal responsibilities, a tenant usually
has several options, depending on the
state. These options include:
paying less rent
withholding the entire rent until
the problem is fixed
making necessary repairs or hiring
someone to make them and deduct-
ing the cost from the next months
rent
calling the local building inspector,
who can usually order the landlord
to make repairs, or
moving out, even in the middle of a
lease.
A tenant who has lived under sub-
standard conditions can also sue the
landlord for a partial refund of rent
paid during that time, and in some
circumstances can sue for the discom-
fort, annoyance and emotional distress
caused by the substandard conditions.
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Tenants should check state and
local laws and understand remedies
available before taking any action,
especially withholding rent.
What must tenants do to keep
the rental property in good
shape?
All tenants have the responsibility to
keep their own living quarters clean
and sanitary. A landlord can usually
delegate his repair and maintenance
tasks to the tenant in exchange for a
reduction in rent. If the tenant fails to
do the job well, however, the landlord
is not excused from his responsibility
to maintain habitability. In addition,
tenants must carefully use common
areas and facilities, such as lobbies,
garages and pools.
Is a landlord liable if a tenant or
visitor is injured on the rental
property?
A landlord may be liable to the ten-
antor othersfor injuries caused by
dangerous or defective conditions on
the rental property. In order to hold
the landlord responsible, the tenant
must prove that the landlord was neg-
ligent and that the landlords negli-
gence caused an injury. To do this,
the tenant must show that:
the landlord had control over the
problem that caused the injury
the accident was foreseeable
fixing the problem (or at least
giving adequate warnings) would
not have been unreasonably expen-
sive or difficult
a serious injury was the probable
consequence of not fixing the
problem
the landlord failed to take reason-
able steps to avert the accident
the landlords failurehis negli-
gencecaused the tenants accident,
and
the tenant was genuinely hurt.
For example, if a tenant falls and
breaks his ankle on a broken front
door step, the landlord will be liable
if the tenant can show that:
It was the landlords responsibility
to maintain the steps (this would
usually be the case, because the
steps are part of the common area,
which is the landlords responsibil-
ity).
An accident of this type was foresee-
able (falling on a broken step is
highly likely).
A repair would have been easy or
inexpensive (fixing a broken step is
a minor job).
The probable result of a broken step
is a serious injury (a fall certainly
qualifies).
The landlord failed to take reason-
able measures to maintain the steps
(this will be easy to prove if the step
was broken for weeks, or even days,
but less so if the step broke five
minutes earlier and showed no
previous signs of weakening).
The broken step caused the injury
(this is easy to prove if the tenant
has a witness to the fall, but might
be hard if there are no witnesses and
the landlord claims that the tenant
really injured himself somewhere
else and is attempting to pin the
blame on the landlord), and
He is really hurt (in the case of a
broken bone, this is easy to establish).
L A N D L O R D S A N D T E N A N T S
3.11
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A tenant can file a personal injury
lawsuit for medical bills, lost earn-
ings, pain and other physical suffer-
ing, permanent physical disability and
disfigurement and emotional distress.
A tenant can also sue for property
damage that results from faulty main-
tenance or unsafe conditions.
ef
More Information on Personal
Injury Lawsuits
How to Win Your Personal Injury Claim,
by Joseph L. Matthews (Nolo), provides
step-by-step details on how to understand
what a claim is worth, prepare a claim
for compensation, negotiate a fair
settlement and manage a case even if a
lawyer is not involved.
How can property owners
minimize financial losses and
legal problems related to repairs
and maintenance?
Landlords who offer and maintain
housing in excellent condition can
avoid many problems. Heres how:
Clearly set out responsibilities for
repair and maintenance in the lease
or rental agreement.
Use a written checklist to inspect
the premises and fix any problems
before new tenants move in.
Encourage tenants to immediately
report plumbing, heating, weather-
proofing or other defects or safety or
security problemswhether in the
tenants unit or in common areas
such as hallways and parking garages.
Keep a written log of all tenant
complaints and repair requests with
details as to how and when prob-
lems were addressed.
Handle urgent repairs as soon as
possible. Take care of major incon-
veniences, such as a plumbing or
heating problem, within 24 hours.
For minor problems, respond in 48
hours. Always keep tenants in-
formed as to when and how the
repairs will be made and the reasons
for any delays.
Twice a year, give tenants a checklist
on which to report potential safety
hazards or maintenance problems
that might have been overlooked.
Use the same checklist to inspect all
rental units once a year.
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Landlord
Liability for
Criminal Acts
and Activities
Can a law-abiding citizen end up fi-
nancially responsible for the criminal
acts of a total stranger? Yesif its a
landlord who owns rental property
where an assault or other crime oc-
curred. Rental property owners are
being sued with increasing frequency
by tenants injured by criminals, with
settlements and jury awards typically
ranging from $100,000 to $1 million.
What are the landlords responsibili-
ties for tenant safety and security?
Property owners are responsible for
keeping their premises reasonably safe
for tenants and guests. Landlords in
most states now have at least some
degree of legal responsibility to pro-
tect their tenants from would-be as-
sailants and thieves and from the
criminal acts of fellow tenants. Land-
lords must also protect the neighbor-
hood from their tenants illegal activi-
ties, such as drug dealing. These legal
duties stem from building codes, or-
dinances, statutes and, most fre-
quently, court decisions.
How can a landlord limit
responsibility for crime
committed by strangers on the
rental property?
Effective preventive measures are the
best response to possible liabilities
from criminal acts and activities. The
following steps will not only limit the
likelihood of crime, but also reduce
the risk that the property owner will
be found responsible if a criminal
assault or robbery does occur. A land-
lord should:
Meet or exceed all state and local
security laws that apply to the rental
property, such as requirements for
deadbolt locks on doors, good
lighting and window locks.
Realistically assess the crime situa-
tion in and around the rental
property and neighborhood and
design a security system that
provides reasonable protection for
the tenantsboth in individual
rental units and common areas such
as parking garages and elevators.
Local police departments, the
landlords insurance company and
private security professionals can all
provide useful advice on security
measures. If additional security
requires a rent hike, the landlord
should discuss the situation with his
or her tenants. Many tenants will
pay more for a safer place to live.
Educate tenants about crime prob-
lems in the neighborhood and
describe the security measures
provided and their limitations.
Maintain the rental property and
conduct regular inspections to spot
and fix any security problems, such
as broken locks or burned out
exterior flood lights. Asking tenants
for their suggestions as part of an
ongoing repair and maintenance
system is also a good idea.
L A N D L O R D S A N D T E N A N T S
3.13
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Handle tenant complaints about
dangerous situations, suspicious
activities or broken security items
immediately. Failing to do this may
saddle a landlord with a higher level
of legal liability should a tenant be
injured by a criminal act after a
complaint is made.
The Costs of Crime
The money a landlord spends today on
effective crime-prevention measures will
pale in comparison to the costs that may
result from crime on the premises. The
average settlement paid by landlords
insurance companies for horrific crimes
such as rape and assault is $600,000,
and the average jury award (when cases
go to trial) is $1.2 million.
What kind of legal trouble do
landlords face from tenants who
deal drugs on the property?
Drug-dealing tenants can cause land-
lords all kinds of practical and legal
problems:
It will be difficult to find and keep
good tenants and the value of the
rental property will plummet.
Anyone who is injured or annoyed
by drug dealersbe it other tenants
or people in the neighborhood
may sue the landlord on the grounds
that the property is a public nui-
sance that seriously threatens public
safety or morals.
Local, state or federal authorities
may levy stiff fines against the
landlord for allowing the illegal
activity to continue.
Law enforcement authorities may
seek criminal penalties against the
landlord for knowingly allowing
drug dealing on the rental property.
In extreme cases, the presence of
drug dealers may result in the
government confiscating the rental
property.
How can a property owner
avoid legal problems from
tenants who deal drugs or
otherwise break the law?
There are several practical steps land-
lords can take to avoid trouble from
tenants and limit their exposure to
any lawsuits that are filed:
Screen tenants carefully and choose
tenants who are likely to be law-
abiding and peaceful citizens. Weed
out violent or dangerous individuals
to the extent allowable under
privacy and anti-discrimination laws
that may limit questions about a
tenants past criminal activity, drug
use or mental illness.
Keep the results of background
checks that show that the tenants
rent appeared to come from legiti-
mate sources (jobs and bank ac-
counts).
Dont accept a cash deposit or rental
payments.
Do not tolerate tenants disruptive
behavior. Include an explicit provi-
sion in the lease or rental agreement
prohibiting drug dealing and other
illegal activity by tenants or guests
and promptly evict tenants who
violate the clause.
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Be aware of suspicious activity, such
as heavy traffic in and out of the
rental premises.
Respond to tenant and neighbor
complaints about drug dealing on
the rental property. Get advice from
police immediately upon learning of
a problem.
Consult with security experts to do
everything reasonable to discover
and prevent illegal activity on the
rental property.
Protecting Tenants From
the Manager
Rental property owners should be
particularly careful when hiring a
property managerthe person who
interacts with all tenants and has access
to master keys. Landlords should
scrupulously check a managers
background to the fullest extent allowed
by law, and closely supervise his or her
job performance. A tenant who gets hurt
or has property stolen or damaged by a
manager could sue the property owner
for failing to screen the manager
properly. If tenants complain about
illegal acts by a manager, landlords
should pay attention. Finally, property
owners should make sure their insurance
covers illegal acts of their employees.
Landlord
Liability for
Lead
Poisoning
Landlords are increasingly likely to be
held liable for tenant health problems
resulting from exposure to lead and
other environmental toxins, even if
the landlord didnt causeor even
know aboutthe danger.
What are a landlords legal
responsibilities regarding lead
in rental property?
Because of the health problems caused
by lead poisoning, the Residential
Lead-Based Paint Hazard Reduction
Act was enacted in 1992. This law is
commonly known as Title X (ten).
Environmental Protection Agency
(EPA) regulations implementing Title
X apply to rental property built be-
fore 1978.
Under Title X, before signing or
renewing a lease or rental agreement,
and before undertaking any renova-
tion, a landlord must give every ten-
ant the EPA pamphlet, Protect Your
Family From Lead in Your Home, or a
state-approved version of this pam-
phlet. At the start of the tenancy,
both the landlord and tenant must
sign an EPA-approved disclosure form
L A N D L O R D S A N D T E N A N T S
3.15
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to prove that the landlord told the
tenants about any known lead-based
paint or hazards on the premises.
Property owners must keep this dis-
closure form as part of their records
for three years from the date that the
tenancy begins.
A landlord who fails to comply
with EPA regulations faces penalties
of up to $10,000 for each violation.
And a landlord who is found liable for
tenant injuries from lead may have to
pay three times what the tenant suf-
fered in damages.
ef
More Information on Lead
Hazard Resources
Information on the evaluation and control
of lead dust, and copies of
Protect Your
Family From Lead in Your Home
may be
obtained by calling the National Lead
Information Center at 800-424-LEAD, or
checking its website at http://
www.epa.gov/opptintr/lead/nlic.htm. In
addition, state housing departments have
information on state laws and regulations
governing the evaluation and control of
lead hazards.
Are there any rental properties
exempt from Title X regulations?
These properties are not covered by
Title X:
housing for which a construction
permit was obtained, or on which
construction was started, after
January 1, 1978
housing certified as lead-free by a
state-accredited lead inspector
lofts, efficiencies and studio apart-
ments
short-term vacation rentals of 100
days or less
a single room rented in a residential
dwelling
housing designed for persons with
disabilities, unless any child less
than six years old lives there or is
expected to live there
retirement communities (housing
designed for seniors, where one or
more tenants is at least 62 years
old), unless children under the age
of six are present or expected to live
there.
Landlords
Liability for
Exposure to
Asbestos and
Mold
In addition to lead, property owners
may be liable for tenant health prob-
lems caused by exposure to other en-
vironmental hazards, such as asbestos
and mold.
Regulations concerning asbestos are
issued by the Occupational Safety and
Health Administration (OSHA). They
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set strict standards for the testing,
maintenance and disclosure of asbes-
tos in buildings constructed before
1981. For information call the nearest
OSHA office or check OSHAs
website at http://www.osha.gov.
Mold is the newest environmental
hazard fueling lawsuits against rental
property owners. Across the country,
tenants have won multi-million-dollar
cases against landlords for significant
health problemssuch as rashes,
chronic fatigue, nausea, cognitive
losses, hemorrhaging and asthma
allegedly caused by exposure to toxic
molds in their building. In a typical
case, the Delaware Supreme Court in
May 2001 upheld a $1.4 million
award to two tenants who suffered
asthma and other health problems
caused by mold that grew when the
landlord refused to fix leaks in their
apartment.
There are no federal or state laws or
regulations covering permissible ex-
posure to mold, though California has
directed its Department of Health
Services to study the issue. New York
Citys Department of Health has de-
veloped guidelines for indoor air qual-
ity, which landlords in New York
City should follow. In fact, any land-
lord would be wise to consult them.
You can read them online at http://
www.ci.nyc.ny.us. San Francisco has
added mold to its list of nuisances,
thereby allowing tenants to sue land-
lords under private and public nui-
sance laws if they fail to clean up seri-
ous outbreaks (San Francisco Health
Code §581).
Insurance
Both tenants and landlords need in-
surance to protect their property and
bank accounts. Without adequate
insurance, landlords risk losing hun-
dreds of thousands of dollars of prop-
erty from fire or other hazards. While
tenants may not have as much at stake
financially, they also need insurance
especially tenants with expensive per-
sonal belongings. Tenant losses from
fire or theft are not covered by the
landlords insurance.
How can insurance help protect
a rental property business?
A well-designed insurance policy can
protect rental property from losses
caused by many perils, including fire,
storms, burglary and vandalism.
(Earthquake and flood insurance are
typically separate and, in some areas,
mold may soon join the list.) A com-
prehensive policy will also include
liability insurance, covering injuries
or losses suffered by others as the re-
sult of defective conditions on the
property.
Equally important, liability insur-
ance covers the cost (mostly lawyers
bills) of defending personal injury
lawsuits.
Here are some tips on choosing
insurance:
Purchase enough coverage to protect
the value of the property and assets.
Be sure the policy covers not only
physical injury but also libel, slander,
discrimination, unlawful and retalia-
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tory eviction and invasion of privacy
suffered by tenants and guests.
Carry liability insurance on all
vehicles used for business purposes,
including the managers car or truck
if he or she will use it on the job.
Make sure your policy is occurence
based, not claims based. Heres
the difference: under a claims-based
policy, your policy must be in effect
on the date you make the claim
even if it was in place when the
incident leading to the claim oc-
curred. Under an occurance-based
arrangement, you can make the claim
after the policy has endedwhich is
obviously to your advantage.
If you need more information, The
Legal Guide for Starting & Running a
Small Business, by Fred S. Steingold
(Nolo), contains a detailed discussion
of small business law, including how
to insure your rental property.
What does renters insurance
cover?
The average renters policy covers
tenants against losses to their belong-
ings occurring as a result of fire and
theft, up to the amount stated on the
face of the policy, such as $25,000 or
$50,000.
Most renter policies include de-
ductible amounts of $250 or $500.
This means that if a tenants apart-
ment is burglarized, the insurance
company will pay only for the amount
of the loss over and above the deduct-
ible amount.
In addition to fire and theft, most
renters policies include personal li-
ability coverage ($100,000 is a typical
amount) for injuries or damage caused
by the tenantfor example, if a
tenants garden hose floods the
neighbors cactus garden, or a tenants
guest is injured on the rental property
due to the tenants negligence.
Renters insurance is a package of
several types of insurance designed to
cover tenants for more than one risk.
Each insurance companys package
will be slightly differenttypes of
coverage offered, exclusions, the dollar
amounts specified and the deductible
will vary. Tenants who live in a flood
or earthquake-prone area will need to
pay extra for coverage. Policies cover-
ing flood and earthquake damage can
be hard to find; tenants should shop
around until they find the type of
coverage that they need. Theres lots
of information on the Webtype
renters insurance into your favorite
search engine to learn more.
Resolving
Disputes
Legal disputesactual and poten-
tialcome in all shapes and sizes for
landlords and tenants. Whether its a
disagreement over a rent increase,
responsibility for repairs or return of a
security deposit, rarely should lawyers
and litigation be the first choice for
resolving a landlord-tenant dispute.
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How can landlords and tenants
avoid disputes?
Both landlords and tenants should
follow these tips to avoid legal prob-
lems:
Know your rights and responsibili-
ties under federal, state and local
law.
Make sure the terms of your lease or
rental agreement are clear and
unambiguous.
Keep communication open. If
theres a problemfor example, a
disagreement about the landlords
right to enter a tenants apart-
mentsee if you can resolve the
issue by talking it over, without
running to a lawyer.
Keep copies of any correspondence
and make notes of conversations
about any problems. For example, a
tenant should ask for repairs in
writing and keep a copy of the letter.
The landlord should keep a copy of
the repair request and note when and
how the problem was repaired.
Weve talked about the problem
and still dont agree. What
should we do next?
If you cant work out an agreement on
your own, but want to continue the
rental relationship, consider media-
tion by a neutral, third party. Unlike
a judge, the mediator has no power to
impose a decision but will simply
work to help find a mutually accept-
able solution to the dispute. Media-
tion is often available at little or no
cost from a publicly funded program.
ef
More Information About
Mediation
For information on local mediation
programs, call your mayors or city
managers office, and ask for the staff
member who handles landlord-tenant
mediation matters or housing disputes.
That person should refer you to the public
office, business or community group that
handles landlord-tenant mediations.
You can learn more about mediation by
reading Chapter 17 of this book,
Courts
and Mediation
.
If mediation doesnt work, is
there a last step before going to
a lawyer?
If you decide not to mediate your
dispute, or mediation fails, its time
to pursue other legal remedies. If the
disagreement involves money, such as
return of the security deposit, you can
take the case to small claims court. A
few states use different names for this
type of court (such as Landlord-Ten-
ant Court), but traditionally the pur-
pose has been the same: to provide a
speedy, inexpensive resolution of dis-
putes that involve relatively small
amounts of money.
Keep in mind that your remedy in
small claims court may be limited to
an award of money damages. The
maximum amount you can sue for
varies from $3,000 to $7,500, de-
pending on your state.
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You can find more information
about small claims court in Chapter
17, Courts and Mediation.
Landlord-Tenant
Statutory Codes
Here are some of the key statutes pertaining
to landlord-tenant law in each state.
ALABAMA
Ala. Code §§ 35-9-1 to 35-9-100
ALASKA
Alaska Stat. §§ 34.03.010 to 34.03.380
ARIZONA
Ariz. Rev. Stat. Ann. §§ 12-1171 to
12-1183, §§ 33-1301 to 33-1381
ARKANSAS
Ark. Code Ann. §§ 18-16-101 to 18-16-306
CALIFORNIA
Cal. Civ. Code §§ 1925 to 1954, 1961 to
1962.7, 1995.010 to 1997.270
COLORADO
Colo. Rev. Stat. §§ 38-12-101 to 38-12-
104, 38-12-301 to 38-12-302
CONNECTICUT
Conn. Gen. Stat. Ann. §§ 47a-1 to 47a-51
DELAWARE
Del. Code Ann. tit. 25, §§ 5101 to 7013
DIST. OF COLUMBIA
D.C. Code Ann. §§ 45-1401 to 45-1597,
45-2501 to 45-2593
FLORIDA
Fla. Stat. Ann. §§ 83.40 to 83.66
GEORGIA
Ga. Code Ann. §§ 44-7-1 to 44-7-81
HAWAII
Haw. Rev. Stat. §§ 521-1 to 521-78
IDAHO
Idaho Code §§ 6-301 to 6-324, §§ 55-201
to 55-313
ILLINOIS
765 Ill. Comp. Stat. §§ 705/0.01 to 740/5
INDIANA
Ind. Code Ann. §§ 32-7-1-1 to 37-7-9-10
IOWA
Iowa Code Ann. §§ 562A.1 to 562A.36
KANSAS
Kan. Stat. Ann. §§ 58-2501 to 58-2573
KENTUCKY
Ky. Rev. Stat. Ann. §§ 383.010 to 383.715
LOUISIANA
La. Rev. Stat. Ann. §§ 9:3201 to 9:3259;
La. Civ. Code Ann. art. 2669 to 2742
MAINE
Me. Rev. Stat. Ann. tit. 14, §§ 6001 to
6046
MARYLAND
Md. Code Ann. [Real Prop.] §§ 8-101 to
8-604
MASSACHUSETTS
Mass. Gen. Laws Ann. ch. 186, §§ 1 to 21
MICHIGAN
Mich. Comp. Laws §§ 554.601 to 554.640
MINNESOTA
Minn. Stat. Ann. §§ 504B.001 to
504B.471
MISSISSIPPI
Miss. Code Ann. §§ 89-8-1 to 89-8-27
MISSOURI
Mo. Rev. Stat. §§ 441.005 to 441.880,
§§ 535.150 to 535.300
MONTANA
Mont. Code Ann. §§ 70-24-101 to 70-25-
206
NEBRASKA
Neb. Rev. Stat. §§ 76-1401 to 76-1449
NEVADA
Nev. Rev. Stat. Ann. §§ 118A.010 to
118A.520
NEW HAMPSHIRE
N.H. Rev. Stat. Ann. §§ 540:1 to 540:29,
540-A:1 to 540-A:8
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NEW JERSEY
N.J. Stat. Ann. §§ 46:8-1 to 46:8-49
NEW MEXICO
N.M. Stat. Ann. §§ 47-8-1 to 47-8-51
NEW YORK
N.Y. Real Prop. Law §§ 220 to 238, Real
Prop. Acts. §§ 701 to 853, Mult. Dwell.
Law (all), Mult. Res. Law (all), Gen. Oblig.
Law §§ 7-103 to 7-108
NORTH CAROLINA
N.C. Gen. Stat. §§ 42-1 to 42-14.2, 42-
25.6 to 42-76
NORTH DAKOTA
N.D. Cent. Code §§ 47-16-01 to 47-16-41
OHIO
Ohio Rev. Code Ann. §§ 5321.01 to
5321.19
OKLAHOMA
Okla. Stat. Ann. tit. 41, §§ 1 to 136
OREGON
Or. Rev. Stat. §§ 90.100 to 90.450
PENNSYLVANIA
68 Pa. Cons. Stat. Ann. §§ 250.101 to
250.510-B
RHODE ISLAND
R.I. Gen. Laws §§ 34-18-1 to 34-18-57
SOUTH CAROLINA
S.C. Code Ann. §§ 27-40-10 to 27-40-910
SOUTH DAKOTA
S.D. Codified Laws Ann. §§ 43-32-1 to
43-32-29
TENNESSEE
Tenn. Code Ann. §§ 66-28-101 to 66-28-
520
TEXAS
Tex. Prop. Code Ann. §§ 91.001 to
92.354
UTAH
Utah Code Ann. §§ 57-17-1 to 57-17-5,
57-22-1 to 57-22-6
VERMONT
Vt. Stat. Ann. tit. 9, §§ 4451 to 4468
VIRGINIA
Va. Code Ann. §§ 55-218.1 to 55-248.40
WASHINGTON
Wash. Rev. Code Ann. §§ 59.04.010 to
59.04.900, 59.18.010 to 59.18.911
WEST VIRGINIA
W. Va. Code §§ 37-6-1 to 37-6-30
WISCONSIN
Wis. Stat. Ann. §§ 704.01 to 704.45
WYOMING
Wyo. Stat. §§ 1-21-1201 to 1-21-1211,
§§ 34-2-128 to 34-2-129
L A N D L O R D S A N D T E N A N T S
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ef
More Information About
Landlord-Tenant Law
From the landlords point of view:
Every Landlords Legal Guide
, by Marcia
Stewart, Ralph Warner and Janet Portman
(Nolo). This 50-state book provides
extensive legal and practical information
on leases, tenant screening, rent, security
deposits, privacy, repairs, property
managers, discrimination, roommates,
liability, tenancy termination and much
more. It includes more than 25 legal forms
and agreements as tear-outs and on disk.
LeaseWriter
(Nolo)(CD-ROM for
Windows/Macintosh). This software
program generates a customized legal
residential lease or rental agreement,
plus more than a dozen key documents
and forms every landlord and property
manager needs. It includes a database to
track tenants and rental properties, and a
log for rental payments, repairs and
problems. The program gives you instant
access to state-specific landlord-tenant
information, and extensive online legal
help.
From the tenants point of view:
Every Tenants Legal Guide
, by Janet
Portman and Marcia Stewart
(Nolo)
. This
book gives tenants in all 50 states the
legal and practical information they need
to deal with their landlords and protect
their rights when things go wrong. It
covers all important issues of renting,
including signing a lease, getting a
landlord to make needed repairs,
fighting illegal discrimination, protecting
privacy rights, dealing with roommates,
getting the security deposit returned
fairly, moving out and much more.
Renters Rights
, by Janet Portman and
Marcia Stewart (Nolo). A concise, highly
accessible guide for tenants in every
state, loaded with tips and strategies.
For both landlords and tenants:
Everybodys Guide to Small Claims
Court
, by Attorney Ralph Warner
(National and California Editions)
(Nolo)
.
The book explains how to evaluate your
case, prepare for court and convince a
judge youre right. It also tells you what
remedies (money only, or enforcement of
the lease) are available in your state.
How to Mediate Your Dispute
, by Peter
Lovenheim
(Nolo)
, explains how to
choose a mediator, prepare a case and
navigate the mediation process.
Additionally, tenants unions and rental
property owners associations are good
sources of advice. Look in your telephone
books white pages for names of these
organizations.
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For tenants renting commercial
property:
Leasing Space for Your Small Business
,
by Janet Portman and Fred. S. Steingold
(Nolo). Gives commercial tenants the
information they need to understand and
negotiate a commercial lease, plus tips
on finding suitable space, choosing and
working with brokers and lawyers and
bargaining effectively for the best terms
and conditions.
http://www.nolo.com
Nolo offers self-help information about a
wide variety of legal topics, including
landlord-tenant law and provides links to
federal and state statutes.
http://tenant.net
TenantNet provides information about
landlord-tenant law, with a focus on ten-
ants rights. TenantNet is designed prima-
rily for tenants in New York City, but the
site offers information about the law in
many other states. The site also provides the
text of the federal fair housing law.
http://www.spl.org
The Seattle Public Library has links to
many cities that have posted their ordi-
nances (and often their rent control laws)
online.
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4
Workplace Rights
4.2 Fair Pay and
Time Off
4.9 Workplace Health
and Safety
4.12 Workers’ Compensation
4.17 Age Discrimination
4.21 Sexual Harassment
4.25 Disability
Discrimination
4.29 Losing or Leaving
Your Job
I LIKE WORK; IT FASCINATES ME.
I CAN SIT AND LOOK AT IT FOR HOURS.
JEROME K. JEROME
If youre like most workers, you have experienced occasional
job-related problems or have questions about whether you are
being fairly and legally treated on the job. Here are several
common problems:
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You were not hired for a job and
you have good reason to suspect it
was because of your race, age, sex,
sexual orientation or because you are
disabled.
Your employer promoted a less-
qualified personperhaps someone
who is younger than you areto fill
a position you were promised.
You are regularly forced to work
overtime but are not given extra
pay. Or, you are paid for working
extra hours, but you do not receive a
premium rate, such as time-and-a-
half.
You need to take a leave of absence
from your job to care for a sick
parent, but you are concerned that
this will jeopardize your job or your
eligibility for a promotion.
You have been called to serve on a
jury and wonder if your employer
must pay you for this time.
You have just been laid off and you
want to know whether, if business
at your company picks up in the
future, you have any right to get
your job back. You also want to
know whether youre entitled to
unemployment payments, or
whether your employer owes you
severance pay.
It is reassuring for many workers to
learn that they do not face these issues
alone. In recent years, a number of
laws have been passed to protect your
rights in the workplace. Federal laws
now establish some basic guarantees
for most workerssuch as the right
to be paid fairly and on time and to
work free from discrimination. And
state laws may place their own twists
on your workplace rightsgiving
more protection than federal law, for
example, or regulating whether or not
you are entitled to time off work to
vote.
Fair Pay and
Time Off
I do not like work
even when someone else does it.
MARK TWAIN
These days, most of us spend at least
half of our waking hours working.
Ideally, this time will be spent on
jobs that are fulfilling. But whether or
not we enjoy our work, the bottom
line for almost all of us is to be paid
fairly and on time. Fortunately, both
state and federal laws protect this
right.
I suspect my employer is bending
some of the rules on paying
employees. What are the legal
controls on pay for work?
The most important and far-reaching
law guaranteeing a workers right to
be paid fairly is the federal Fair Labor
Standards Act or FLSA. The FLSA:
defines the 40-hour workweek
covers the federal minimum wage
(currently $5.15 per hour)
sets requirements for overtime, and
places restrictions on child labor.
The FLSA is the single law most
often violated by employers. But em-
W O R K P L A C E R I G H T S
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ployers must also comply with other
local, state or federal workplace laws
that sometimes set higher standards
on wages and hours. If a state law sets
a higheror more worker-friendly
standard, then your employer must
follow it. So in addition to determin-
ing whether you are being paid prop-
erly under the FLSA, you may need to
check other laws that apply to your
situation. For example, many states
have a higher minimum wage than
mandated by federal law. Your em-
ployer must comply with whichever
minimum wage is higher.
To learn about state and local labor
laws that might apply to you, contact
the local office of your state depart-
ment of labor, which should be able
to supply you with written materials
setting forth your legal rights.
What is the current minimum
wage?
The federal minimum wage is cur-
rently $5.15 per hour. But many
states have their own minimum wage
laws that require a higher rate of pay.
For example, Rhode Islands mini-
mum wage is $6.15 per hour. Em-
ployers must pay whichever minimum
wage ratefederal or stateis higher.
To find out the minimum wage rates
in the 50 states, the District of Co-
lumbia, Puerto Rico and Guam, visit
the U.S. Department of Labors
website at http://www.dol.gov/dol/esa/
public/minwage/america.htm. You
can also contact your state labor de-
partment for information.
In addition, some cities and coun-
ties have enacted so-called living
wage ordinances. These can set the
minimum wage that your employer
must pay even higher. To find out if
your area has a living wage ordinance,
contact your local government offices.
My boss says that because Im a
supervisor, I am not legally
entitled to overtime pay. Is this
true?
It may be. Some employees are ex-
empt from the overtime requirements
of the FLSAand the biggest and
most abused exemption is for execu-
tive, administrative and professional
workers. To qualify as an exempt ex-
ecutive, the employee must, among
other things, supervise two full-time
employees (or the equivalent). The
definitions of administrative and pro-
fessional employees have their own
quirks. For example, employees cat-
egorized as professionals must per-
form work that is primarily intellec-
tual. The definitions also change with
the employees salary level. For ex-
ample, if the weekly salary of the ex-
ecutive, administrative or professional
employee exceeds a certain minimum,
fewer factors are required to qualify
for the exemption.
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Determining whether you truly are
exempt from overtime requirements
becomes even more complex when
you factor in state law requirements.
If you have a question about whether
your particular job is exempt, it may
be worth your while to go to the near-
est law library and carefully read the
Fair Labor Standards Act, 29 U.S.C.
§§ 201 and following. You can also
read this law online by visiting the
U.S. Department of Labor site at
http://www.dol.gov.
To learn about overtime laws in
your state, contract your state depart-
ment of labor.
I put in more than forty hours on
the job each week, without
overtime pay. Am I entitled
to time off to compensate for
this?
Most workers are familiar with com-
pensatory or comp timethe practice
of offering employees time off from
work in place of cash payments for
overtime. What comes as a shock to
many is that the practice is illegal in
most situations. Under the FLSA,
only state or government agencies
may legally allow their employees
time off in place of wages (29 U.S.C.
§ 207(o)). Even then, comp time may
be awarded only:
according to the terms of an agree-
ment arranged by union representa-
tives, or
if the employer and employee agree
to the arrangement before work
begins.
When compensatory time is al-
lowed, it must be awarded at the rate
of one and one-half times the overtime
hours workedand comp time must
be taken during the same pay period
that the overtime hours were worked.
Some states do allow private em-
ployers to give employees comp time
instead of cash. But there are com-
plex, often conflicting laws control-
ling how and when it may be given. A
common control, for example, is that
employees must voluntarily request in
writing that comp time be given in-
stead of overtime paybefore the
extra hours are worked. Check with
your states labor department for spe-
cial laws on comp time in your area.
Many employers and employees
routinely violate the rules governing
the use of compensatory time in place
of cash overtime wages. However,
such violations are risky. Employees
can find themselves unable to collect
money due them if a company goes
out of business or they are fired. And
employers can end up owing large
amounts of overtime pay to employees
as the result of a labor department
prosecution of compensatory time
violations.
Can my boss force me to work
overtime?
Under the FLSA (which, youll recall,
is a federal law) your employer can
force you to work overtime and can
even fire you if you refuse to do so.
The FLSA does not limit the num-
ber of hours in a day or days in a week
that an employer can schedule an em-
ployee to work. It only requires em-
W O R K P L A C E R I G H T S
4.5
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ployers to pay non-exempt employees
overtime (time and a half the workers
regular rate of pay) for any hours over
40 that the employee works in a week.
However, your state law may pro-
vide additional rights. Contact your
state labor department to learn more.
Does my employer have to pay
me overtime if I work more than
eight hours in a day?
Under the FLSA, your employer does
not have to pay you overtime if you
work more than eight hours in any
given day. The federal law is inter-
ested only in weeks, not days, so as
long as you work less than 40 hours in
a week, you arent entitled to over-
time.
In this area, however, its definitely
worth checking to see what your state
law has to say on the subject. Some
states, such as California, do require
employers to pay overtime to employ-
ees who work more than eight hours
in a day. Your employer must comply
with whichever lawfederal or
stateis most beneficial to you.
I work as a waitress and make
good tips. My boss says that
because I get this extra money
at work, he can pay me a wage
that is lower than the hourly
minimum wage. Is this true?
It depends on how much money you
make in tips. Employers must pay all
employees not less than the minimum
wage.
But the matter of minimum wage
becomes tricky when an employee
routinely receives at least $30 per
month in tips. Under federal law,
employers are allowed to credit half of
those tips against the minimum wage
requirement, which, under federal
law, is currently $5.15 per hour. So,
they can credit up to $2.12 an hour of
the tips received toward their wage
obligation and actually pay you only
$2.13 an hour. However, the
employers offset must not exceed the
tips the employee actually receives.
EXAMPLE
Alphonse is employed as a waiter and
earns more than $10 per hour in tips.
Denis, the restaurants owner, is required
to pay Alphonse at least $2.13 per hour
on top of his tips for the first 40 hours
worked in each week.
If business slows and Alphonses tips dip
to, say, $1 an hour, Denis may credit the
tip amount toward Alphonses hourly
minimum wage. Denis must pay the addi-
tional salary required to make up the full
amount of minimum wage Alphonse is
owed: $5.15 an hour.
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I am required to carry a beeper
24 hours a day, every day of
the week for my job. I am
occasionally called on my
vacation, holidays and other
days off. Am I entitled to be
paid anything for on-call time?
Under federal law, vacation days, holi-
days and other paid days off work
should be just thatdays off work
and you are entitled to enjoy them
free from the reins of your beeper.
When your employer requires you to
be on-call but does not require you to
stay on the companys premises, the
following two rules generally apply:
On-call time that you control and
use for your own enjoyment or
benefit is not counted as payable
time.
On-call time over which you have
little or no control and which you
cannot use for your own enjoyment
or benefit is payable time.
Disputes usually boil down to the
slipperiness in the definition of con-
trol and use of time. If the occasional
beep beckons you only to call in to
give advice, but you are otherwise free
to spend your time any way you want,
your employer need only pay for the
time you spend answering the beeper.
However, if your employer insists that
you be available to return to work on
demand and puts constraints on your
behavior between beeper callsyou
cannot consume alcohol, or you must
stay within a certain radius of work,
for exampleyou may be entitled to
compensation for your on-call time.
Similarly, if you receive five or six
beeper calls on every day off, and if
each of those beeps require you to
come into the office or be in a specific
place, then a court will likely see that
your time isnt your own and will
require that your employer compen-
sate you.
Andas alwaysbe sure to check
with your state labor department to
see if your state has different rules.
Independent Contractors
Are Exempt
The Fair Labor Standards Act covers only
employees, not independent contractors,
who are considered independent
business people. Whether a person is an
employee for purposes of the FLSA,
however, generally turns on whether that
worker is employed by a single
employer, and not on the sometimes
more lax Internal Revenue Service
definition of an independent contractor.
If nearly all of your income comes from
one company, a court would probably
rule that you are an employee of that
company for purposes of the FLSA, re-
gardless of whether other details of your
worklife would appear to make you an
independent contractor.
The FLSA was passed to clamp down
on employers who cheated workers of
their fair wages. As a result, employee
status is broadly interpreted so that as
many workers as possible come within
the protections of the law. In recent cases
determining close questions of employ-
ment status, growing numbers of courts
W O R K P L A C E R I G H T S
4.7
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have found workers to be employees
rather than independent contractors.
Courts are more likely to find that work-
ers are employees when:
the relationship appears to be
permanent
the worker lacks bargaining power
with regard to the terms of his or her
employment, and
the individual worker is economically
dependent upon the business to which
he or she gives service.
o
What laws ensure my right to
take vacations?
Heres a surprising legal truth that
most workers would rather not learn:
No law requires employers to pay you
for time off, such as vacation or holi-
days. This means that if you receive a
paid vacation, its because of custom,
not law.
And just as vacation benefits are
discretionary with each employer, so
is the policy of how and when they
accrue. For example, it is perfectly
legal for an employer to require a cer-
tain length of employmentsix
months or a year are commonbefore
an employee is entitled to any vaca-
tion time. It is also legal for employ-
ers to prorate vacations for part-time
employees, or to deny them the ben-
efit completely. Employers are also
free to set limits on how much paid
time off employees may store up be-
fore it must be taken or is lost.
If your employer does have a policy
of offering employees paid time off,
however, it cannot discriminate in
offering itall employees must be
subject to the same rules.
If I lose or leave my job,
when will I receive my final
paycheck?
Unfortunately, there is no easy answer
to this question. Many state laws, but
not all, mandate that a worker who is
fired must be paid all accrued wages
and promised vacation pay immedi-
ately. Furthermore, state laws often
set short limitsgenerally 72
hoursas the time in which this pay-
ment must be made if an employee
quits. But youll need to check with
your states deparment of labor to
learn the details of the law that ap-
plies to you.
Am I entitled to take time off
from work if I get sick?
No law requires an employer to offer
paid time off for illness. As with paid
vacation time, however, an employer
who offers paid sick time to some
workers cannot discriminate by deny-
ing it to others.
Though you may not be entitled to
paid time off, the Family and Medical
Leave Act (FMLA), a federal law
passed in 1993, gives workers some
rights to unpaid leave for medical
reasons. Under the FMLA, you may be
eligible for up to 12 weeks of unpaid
sick leave during any 12-month pe-
riod. Your employer can count your
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accrued paid benefitsvacation, sick
leave and personal leave daystoward
the 12 weeks of leave allowed under
the law. But many employers give
employees the option of deciding
whether or not to include paid leave
time as part of their 12 weeks of sick
leave.
The FMLA applies to all private
and public employers with 50 or more
employeesan estimated one-half of
the workforce. To be covered under
the law, you must have:
been employed at the same work-
place for a year or more, and
worked at least 1,250 hours (about
24 hours a week) during the year
preceding the leave.
There are a number of loopholes in
the FMLA. Companies with fewer
than 50 employees working at offices
within a 75-mile radius are exempt
from the FMLAthis means that
small regional companies of even the
largest corporations may not need to
comply with the Act. The law also
allows companies to exempt the high-
est paid 10% of employees. And
finally, schoolteachers and instructors
who work for educational agencies
and private elementary or secondary
schools may have restrictions on their
FMLA leave.
Note, however, that a number of
states have passed their own versions
of family leave lawsand most of
them give workers more liberal leave
rights. A number of laws apply, for
example, to smaller workplaces and
extend to workers who have been on
the job only a short time. Check with
your states department of labor for
more information.
What if a member of my family
gets sickcan I take time off to
care for him or her?
Possibly. Workers rights under the
Family and Medical Leave Act
(FMLA)or under your states ver-
sion of italso apply if a member of
your close family gets sick, or if you
give birth to or adopt a child. The
rights for new parents apply to both
mothers and fathers in all situations
birth or adoption.
My employer refused to grant
me the time off for sick leave
guaranteed by the FMLA. What
can I do?
The FMLA is enforced by the U.S.
Department of Labor. If you have
specific questions about this law, in-
cluding how to file a claim against
your employer for failing to comply,
contact your local Department of La-
bor office. You should be able to find a
listing under U.S. Government, Depart-
ment of Labor, in the phone book. You
can also find a list of local offices of the
U.S. Department of Labor by visiting
the agencys website at http://
www.dol.gov.
You generally must file a claim
under the FMLA within two years of
an employers violation. If the viola-
tion was willful (intentional), youll
have up to three years to file.
W O R K P L A C E R I G H T S
4.9
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Workplace
Health and
Safety
Over the past 20 years, workers have
pushed strongly for laws to protect
their health and safety on the job.
And they have been somewhat suc-
cessful. Several laws now establish
basic safety standards aimed at reduc-
ing the number of illnesses, injuries
and deaths in workplaces. Because
most workplace safety laws rely for
their effectiveness on employees who
are willing to report job hazards, most
laws also prevent employers from fir-
ing or discriminating against employ-
ees who report unsafe conditions to
proper authorities.
Do I have any legal rights if I
feel that my workplace is unsafe
or unhealthy?
The main federal law covering threats
to workplace safety is the Occupational
Safety and Health Act of 1970 (OSHA).
OSHA requires employers to provide
a workplace that is free of dangers
that could physically harm employees.
The law quite simply requires that
your employer protect you from rec-
ognized hazards in the workplace. It
does not specify or limit the types of
dangers covered. Instead, it includes
everything from equipment that
might cause a serious cut or bruise to
the unhealthy effects of long-term
exposure to radiation, chemicals or
airborne pollutants.
ef
More Information About
Wages, Hours and Time Off
You can check into your employers
wage and payment policies by calling
the local U.S. Labor Department, Wage
and Hour Division office, listed in the
federal government section of your
telephone directory.
Most of the exemptions to FLSA cover-
age are listed in federal statute, 29
U.S.C. §213. The most direct way to
become familiar with these exemptions is
to read about them in an annotated edi-
tion of the U.S. Code, which is what your
local law library (or even a large public
library) is most likely to have. You can
also find this law through Nolos Legal
Research Center at http://
www.nolo.com/research/index.html.
Also, the United States Department of
Labor, 200 Constitution Avenue, NW,
Washington, DC 20210, 202-219-
7316, offers pamphlets describing
federal wage and hours laws and the
Family Medical Leave Act. Or, visit the
agencys website at http://www.dol.gov.
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Most states now have their own
OSHA laws, most of which offer pro-
tections similar to the federal law. A
few states, including California, re-
quire all employers to fashion work-
place safety plans. And Texas, big in
its approach to most everything, has
instituted a 24-hour hotline to receive
complaints; the state prohibits em-
ployers from discriminating against
those who call in.
How do I assert my rights to a
safe workplace?
If you feel that your workplace is un-
safe, your first action should be to
make your supervisor aware of the
danger. If your employer doesnt take
prompt action, follow up in writing.
Then, if you are still unsuccessful in
getting your company to correct the
safety hazard, you can file a complaint
at the nearest OSHA office. Look
under the U.S. Labor Department in
the federal government section of your
local telephone directory. You can
also file a complaint online at http://
www.osha.gov/as/opa/worker/
index.html.
If you feel that a workplace hazard
poses an imminent danger (which is a
danger that could immediately cause
death or serious physical harm), you
should act immediately and call the
agencys hotline at 800-321-OSHA.
Preventing Additional
Injuries
Workplace hazards often become obvi-
ous only after they cause an injury. For
example, an unguarded machine part
that spins at high speed may not seem
dangerous until someones clothing or
hair becomes caught in it. But even after
a worker has been injured, employers
sometimes failor even refuseto recog-
nize that something that hurt one person
is likely to hurt another.
If you have been injured at work by a
hazard that should be eliminated before
it injures someone else, take the follow-
ing steps as quickly as possible after
obtaining the proper medical treatment:
Immediately file a claim for workers
compensation benefits so that your
medical bills will be paid and you will
be compensated for your lost wages
and injury. In some states, the amount
you receive from a workers comp
claim will be larger if a violation of a
state workplace safety law contributed
to your injury. (For more information
about workers compensation, see the
next series of questions in this chapter.)
Point out to your employer that a con-
tinuing hazard or dangerous condition
exists. As with most workplace safety
complaints, the odds of getting action
will be greater if other employees join
in your complaint.
If your employer does not eliminate the
hazard promptly, file a complaint with
OSHA and any state or local agency
that you think may be able to help.
W O R K P L A C E R I G H T S
4.11
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You can obtain a list of state health
and safety agencies on the OSHA
website at http://www.osha.gov. For
example, if your complaint is about
hazardous waste disposal, you may be
able to track down a specific local
group that has been successful in inves-
tigating similar complaints in the past.
Does OSHA protect against the
harmful effects of tobacco
smoke in the workplace?
OSHA rules apply to tobacco smoke
only in rare and extreme circumstances,
such as when contaminants created by
a manufacturing process combine with
tobacco smoke to create a dangerous
workplace air supply that fails OSHA
standards. Workplace air quality stan-
dards and measurement techniques are
so technical that typically only OSHA
agents or consultants who specialize in
environmental testing are able to de-
termine when the air quality falls be-
low allowable limits.
If OSHA wont protect me from
secondhand tobacco smoke at
work, is there anything I can do
to limit or avoid exposure?
If your health problems are severely
aggravated by co-workers smoking,
there are a number of steps you can
take.
Check local and state laws. A grow-
ing number of local and state laws
prohibit smoking in the workplace.
Most of them also set out specific pro-
cedures for pursuing complaints. Your
states labor department should have
up-to-date information about these. If
you cant find local laws that prohibit
smoking in workplaces, check with a
national nonsmokers rights group,
such as Americans for Nonsmokers
Rights, 2530 San Pablo Avenue, Suite
J, Berkeley, CA 94702, 510-841-3032,
http://www.no-smoke.org.
Ask your employer for an accommoda-
tion. Successful accommodations to
smoke-sensitive workers have in-
cluded installing additional ventila-
tion systems, restricting smoking ar-
eas to outside or special rooms and
segregating smokers and nonsmokers.
Consider income replacement programs.
If you are unable to work out a plan to
resolve a serious problem with work-
place smoke, you may be forced to
leave the workplace. But you may
qualify for workers compensation or
unemployment insurance benefits. See
Losing or Leaving Your Job, below.
ef
More Information About
Workplace Health and Safety
The Occupational Safety and Health
Administration, 200 Constitution Avenue,
NW, Washington, DC 20210,
202-693-1999, publishes pamphlets
about workplace safety laws. You can
also visit OSHA online at http://
www.osha.gov.
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Workers
Compensation
If you are injured on the jobor suf-
fer a work-related illness or disease
that prevents you from workingyou
may be eligible to receive benefits
from your state workers compensa-
tion program. You also may be en-
titled to free medical care. If your
disability is classified as permanent or
results in death, additional benefits
may be available to you and your fam-
ily. If you receive workers compensa-
tion benefits, you lose your right to
sue your employer for the injury.
Who pays workers
compensation benefits?
In most states, employers are required
to purchase insurance for their employ-
ees from a workers compensation in-
surance companyalso called an insur-
ance carrier. In some states, larger em-
ployers who are clearly solvent are al-
lowed to self-insure or act as their own
insurance companies, while smaller
companies (with fewer than three or
four employees) are not required to
carry workers compensation insurance
at all. When a worker is injured, her
claim is filed with the insurance com-
panyor self-insuring employerwho
pays medical and disability benefits
according to a state-approved formula.
Are all on-the-job injuries
covered by workers
compensation?
Most are. The workers compensation
system is designed to provide benefits
to injured workers no matter whether
an injury is caused by the employers
or employees negligence. But there
are some limits. Generally, injuries
caused because an employee is intoxi-
cated or using illegal drugs are not
covered by workers compensation.
Coverage may also be denied in situa-
tions involving:
self-inflicted injuries (including
those caused by a person who starts
a fight)
injuries suffered while a worker was
committing a serious crime
injuries suffered while an employee
was not on the job, and
injuries suffered when an employees
conduct violated company policy.
If your employers conduct is espe-
cially egregious (for example, your
employer did something intentional
or reckless that injured you), you
may be allowed to bypass the work-
ers compensation system and sue
your employer in courtfor much
larger amounts of money than you
could cover through workers com-
pensation.
Does an injury have to have a
definite date of onset in order to
be covered?
Not necessarily.Your injury does not
need to be caused by an accident
such as a fall from a ladder. Many
workers, for example, receive compen-
sation for repetitive stress injuries,
including carpal tunnel syndrome and
back problems, that are caused by
W O R K P L A C E R I G H T S
4.13
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overuse or misuse over a long period
of time. You may also be compensated
for some illnesses and diseases that are
the gradual result of work condi-
tionsfor example, heart conditions,
lung disease and stress-related diges-
tive problems.
Are You Covered by
Workers Compensation?
Most workers are eligible for workers
compensation coverage, but every state
excludes some workers. Exclusions often
include:
business owners
independent contractors
casual workers
domestic employees in private homes
farm workers
maritime workers
railroad employees, and
unpaid volunteers.
Check the workers compensation law
of your state to see whether these exclu-
sions affect you.
Federal government employees are
also excluded from state workers com-
pensation coverage, but they receive
workers compensation benefits under a
separate federal law.
Employees who arent covered by
workers compensation usually must sue
the employer for damages or, in some
cases, they can sue the maker of a faulty
piece of equipment.
Do I have to be injured at my
workplace to be covered by
workers compensation?
No. As long as your injury is job-
related, its covered. For example,
youll be covered if you are injured
while traveling on business, doing a
work-related errand or even attending
a required, business-related social
function.
How do I claim workers
compensation benefits?
First, promptly report the work-
related injury or sickness to your
employer. Most states require that this
be done within two to 30 days
following an injury. If an injury occurs
over time (for example, a breathing
problem or carpal tunnel syndrome),
you must report your condition soon
after you discover it and realize that it
is caused by your work.
Next, get the medical treatment
you need and follow the doctors
instructions exactly. (This may
include an off-work order or a lim-
ited-duties work order.) Finally, file a
claim with your workers compensa-
tion carrier. Necessary forms must be
provided by your employer. Ask
someone in the personnel or benefits
department.
Finally, make sure you save copies of
all correspondence with your employer,
its insurance carrier and your doctor
concerning your workers compensation
claim.
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What kind of benefits will I
receive?
The workers compensation system
provides replacement income, medical
expenses and sometimes vocational
rehabilitation benefitsthat is, on
the job training, schooling or job
placement assistance. The benefits
paid through workers compensation,
however, are almost always limited to
relatively modest amounts.
If you become temporarily unable
to work, youll usually receive two-
thirds of your average wage up to a
fixed ceiling. But because these pay-
ments are tax-free, if you received
decent wages prior to your injury,
youll fare reasonably well in most
states. You will be eligible for these
wage-loss replacement benefits as soon
as youve lost a few days of work be-
cause of an injury or illness that is
covered by workers compensation.
If you become permanently unable
to do the work you were doing prior
to the injury, or unable to do any work
at all, you may be eligible to receive
long-term or lump-sum benefits. The
amount of the payment you may be
entitled to receive varies greatly with
the nature and extent of your injuries.
If you anticipate a permanent work
disability, contact your local workers
compensation office as soon as pos-
sible; these benefits are rather complex
and may take a while to process.
Social Security Benefits
for the Permanently
Disabled
If youre permanently unable to return to
work, you may qualify for Social Security
Disability benefits. Social Security will,
over the long run, provide more benefits
than workers compensationbut be
forewarned that these benefits are hard to
get. They are reserved for seriously injured
workers. To qualify, your injury or illness:
must prevent you from doing any
substantial gainful work, and
must be expected to last at least twelve
months, or to result in death.
If you think you may meet the above
requirements, contact your local Social
Security office. For more information about
Social Security benefits, see Chapter 14.
Can I be treated by my own
doctor and, if not, can I trust a
doctor provided by my
employer?
In some states, you have a right to see
your own doctor if you make this re-
quest in writing before the injury
occurs. More typically, however,
injured workers are referred to a doc-
tor or health plan recruited and paid
for by their employer.
W O R K P L A C E R I G H T S
4.15
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Your doctors report will have a big
impact upon the benefits you receive.
While its crucial that you tell the
doctor the truth about both your in-
jury and your medical history (your
benefits may be denied based on fraud
if you dont), be sure to clearly iden-
tify all possible job-related medical
problems and sources of pain. In
short, this is no time to downplay or
gloss over the presence of a pain.
Keep in mind that a doctor paid for
by your employers insurance com-
pany is not your friend. The desire to
get future business may motivate a
doctor to minimize the seriousness of
your injury or to identify it as a pre-
existing condition.
If I am initially treated by an
insurance company doctor, do I
have a right to see my own
doctor at some point?
State workers compensation systems
establish technical and often tricky
rules in this area. Often, you have the
right to ask for another doctor at the
insurance companys expense if you
clearly state you dont like the one the
insurance company provides, although
there is sometimes a waiting period
before you can get a second doctor.
Also, if your injury is serious, you
usually have the right to a second
opinion. And in some states, after you
are treated by an insurance companys
doctor for a certain period (90 days is
typical), you may have the automatic
right to transfer your treatment to
your own doctor or health planwith
the cost being paid for by the workers
comp insurance company.
To understand your rights, contact
your state workers compensation
office (also called industrial relations
office). You can also get copy of your
states rulesor, if necessary, research
your state workers compensation laws
and regulations in the law library.
The Appendix contains information
about how to do your own legal re-
search.
Suppose I suffer an injury to a
part of my body that had been
injured previouslywill I still be
covered?
If the previous injury was also work-
related, workers compensation should
provide full coverage. If it wasnt, you
may receive lower-level benefits.
If your earlier injury occurred at a
former job, its generally up to your
current employers insurance company
and your former employer to sort out
whos responsible for paying your
benefitssometimes they will split
the costs between them.
How do I find a good workers
compensation lawyerand how
much will it cost?
You usually dont need a lawyer unless
you suffer a permanent disability, or all
or part of your workers compensation
claim is denied. If one of these situa-
tions occurs, youll probably want to
do some research to familiarize yourself
with your rights and duties. For ex-
ample, many claims are denied based
on a doctors report claiming that you
are not injured. If you dispute this, you
may have a right to obtain a second
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doctors opinion paid for by the work-
ers compensation insurer.
If your claim is denied, consider
hiring an experienced workers com-
pensation lawyer to help you navigate
the appeals process. The best way to
find a good lawyer is often through
word of mouthtalk to other injured
workers or check with a local union or
other workers organization.
In most states, fees for legal repre-
sentation in workers compensation
cases are limited to between 10% and
15% of any eventual award. Because
these fees are relatively modest, work-
ers compensation lawyers customarily
take on many clients and, as a result,
do not have time to provide much
individual attention. Most of your
contacts with your attorneys office
will be with paralegals and other sup-
port personnel. This is not a bad thing
in itself, if the office is well run by
support staff. Be sure that the office is
able to stay on top of paperwork and
filing deadlines, and that a knowl-
edgeable person is available to answer
your questions clearly and promptly.
What to Do When the
Insurance Company Wont Pay
Some workers compensation carriers
take an aggressive stance and deny
legitimate claims for workers compensa-
tion. When this happens, its often
because the insurer claims you havent
been injured or, if you have, that its not
serious enough to qualify you for
temporary or total disability. Commonly,
this is done after a private investigator
hired by the insurance company follows
you and obtains photographs showing
you engaging in fairly strenuous physical
activity, such as lifting a box or mowing
the lawn, despite claiming a back injury.
If your legitimate benefits are denied,
you should immediately file an appeal
with your state appeals agencycalled
the industrial accidents board, the
workers compensation appeals board or
something similar. You may also want to
hire an attorney to help you press your
claim.
If I receive workers
compensation, can I also sue my
employer in court?
Generally, no. The workers compen-
sation system was established as part
of a legal trade-off. In exchange for
giving up the right to sue an
employer in court, you get workers
compensation benefits no matter who
was at fault. Before the workers com-
pensation system was passed, if you
went to court, you stood to recover a
large amount of money, but only if
you could prove the injury was caused
by your employer.
Today, you may be able to sue in
court if your injury was caused by
someone other than your employer
(a visitor or outside contractor, for
example) or if it was caused by a
defective product (such as a flaw in
the construction of the equipment you
were working with).
You might even be able to sue your
employer in court if your injury was
caused by intentional, reckless or ille-
gal conduct on your employers part.
W O R K P L A C E R I G H T S
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What if my employer tells me
not to file a workers
compensation claim or threatens
to fire me if I do?
In most states, it is a violation of the
workers compensation laws to retali-
ate against an employee for filing a
workers compensation claim. If this
happens, immediately report it to your
local workers compensation office.
ef
More Information About
Workers’ Compensation
How to Handle Your Workers Compen-
sation Claim
, by Christopher Ball (Nolo),
includes all forms and instructions for
filing a workers compensation claim in
California. The book is also useful for
people who live elsewhere, given the
absence of self-help resources for other
states; it provides a good overview of
how the system works.
Age
Discrimination
Young men think old men are
fools, but old men know young
men are fools.
GEORGE CHAPMAN
Unfortunately, rather than value older
workers intelligence, experience and
work ethic, some employers assume
that older workers are out of touch
or set in their ways. And, because
older workers often earn higher sala-
ries and have higher healthcare premi-
ums than younger workers, some em-
ployers think they are too expen-
sive. For these reasons, some employ-
ers try to get rid of their more sea-
soned workers and are reluctant to
hire older workers.
Fortunately, federal and state laws
afford some protection to older work-
ers who face discrimination in the
workplaceand also help protect
their pension rights when they leave.
My employer has just cut the
workforce in half, singling out
older workers. Is there any legal
protection for us?
Possibly. The federal Age Discrimina-
tion in Employment Act (ADEA)
provides that workers over the age of
40 cannot be arbitrarily discriminated
against because of age in any employ-
ment decision. Perhaps the single
most important rule under the ADEA
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is that no worker can be forced to
retire.
Under the ADEA, there has to be a
valid reasonnot related to agefor
all employment decisions, especially
lay-offs. Examples of valid reasons
would be poor job performance by the
employee or an employers economic
trouble. If lay-offs have been an-
nounced or are in the wind, talk with
other affected workers. If most people
who are laid off are 40 or older, and
the majority of workers kept on are
younger, you may have the basis for
an ADEA complaint or lawsuit. This
is especially likely if the employer has
hired younger workers to take the
places of workers over 40.
Many states also have laws that
prohibit age discrimination. To find
out if your state has such a law, con-
tact your state labor department or
fair employment office.
Does the ADEA protect all
workers from age
discrimination?
Unfortunately not; there are limits on
both the employees and the employers
who are covered. The ADEA applies
only to employees age 40 and older
and only to workplaces with 20 or
more employees. The ADEA applies
to federal employees, private sector
employees and labor union employees.
It does not, however, cover state em-
ployees.
There are several other exceptions
to the broad protection of the ADEA:
Executives or people in high
policy-making positions can be
forced to retire at age 65 if they
would receive annual retirement
pension benefits worth $44,000 or
more.
There are special exceptions for
police and fire personnel, tenured
university faculty and certain federal
employees having to do with law
enforcement and air traffic control.
If you are in one of these categories,
check with your personnel office or
benefits plan office for details.
An additional exception to the
federal age discrimination law is
made when age is an essential part
of a particular jobreferred to by
the legal jargon of a bona fide
occupational qualification (BFOQ).
For example, if an employer who
sets age limits on a particular job
can prove that the limit is necessary
because a workers ability to ad-
equately perform the particular job
does, in fact, diminish after the age
limit is reached, its okay to dis-
criminate. However, it has become
more difficult for employers to
prove a BFOQ because the law
protects workers as young as age 40.
If Im not protected by the
ADEA, is an employer free to
discriminate against me
because of my age?
That depends on where you live. All
states except Alabama and South Da-
kota have laws against age discrimina-
tion in employment, and those state
laws often provide greater protection
than the federal law. For example,
several states provide age discrimina-
tion protection to workers before they
reach age 40, and other states protect
W O R K P L A C E R I G H T S
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Can my employer force me to
take early retirement?
No employer can require you to retire
because of your age. An early retire-
ment plan is legal only if it gives you
a choice between two options: keep-
ing things as they are or choosing to
retire under a plan that leaves you
better off than you previously were.
This choice must be a genuine one;
you must be free to reject the offer. In
addition, if either choice leaves you
worse off, the offer violates the Older
Workers Benefit Protection Act.
How can I enforce my rights
under the laws that protect
against age discrimination?
If you believe that an employer has
discriminated against you because of
your age, you can file a complaint
with the federal Equal Employment
Opportunity Commission (EEOC)
just as you would against any other
workplace discrimination. Call 800-
669-4000 to find the EEOC office
nearest you. You can also find a list of
EEOC regional offices on the agencys
website at http://www.eeoc.gov. If the
EEOC does not resolve your com-
plaint to your satisfaction, you can
consult an attorney for advice about
filing a lawsuit.
In addition, you can file a com-
plaint under your state age discrimi-
nation law, if your state has one. Con-
tact your state labor department or
fair employment office for details.
Like all fair employment laws, age
discrimination laws require you to file
a complaint within a specified amount
against the actions of employers with
fewer than 20 employees. In addition,
state laws against age discrimination
do protect state employees, unlike the
federal ADEA.
To find out more about the laws of
your own state, contact your state
labor department.
Ive noticed a pattern where I
work: Older workers tend to be
laid off just before their pension
rights lock in or vest. Is that
legal?
Using various ploys like this one to
cheat workers out of their promised
pensions is a technique some employ-
ers use to save money. But its not
legal. The federal Older Workers
Benefit Protection Act forbids
using an employees age as the basis
for discrimination in benefits, and
targeting older workers for their
staff cutting programs.
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of time, usually 180 days. Therefore,
it is important for you to act as soon
as you realize that you might be the
victim of age discrimination. If you
wait too long, you might lose your
rights.
Out From Under the
Golden Parachute
A growing number of employers ask
older workers to sign waiversalso
called releases or agreements not to sue.
In return for signing the waivers, the
employer offers the employee an incen-
tive to leave the job voluntarily, such as a
significant amount of severance pay. The
Older Workers Benefit Protection Act
places a number of restrictions on such
waivers:
Your employer must make the waiver
understandable to the people who are
likely to use it.
The waiver may not cover any rights or
claims that you discover are available
after you sign it, and it must specify
that it covers your rights under the
ADEA.
Your employer must offer you some-
thing of value (such as severance
pay)over and above what is already
owed to youin exchange for your
signature on the waiver.
Your employer must advise you, in
writing, that you have the right to con-
sult an attorney before you sign the
waiver.
If the offer is being made to a group or
class of employees, your employer
must inform you in writing how the class
of employees is defined; the job titles
and ages of all the individuals to
whom the offer is being made; and the
ages of all the employees in the same
job classification or unit of the company
to whom the offer is not being made.
You must be given a fixed time in
which to make a decision on whether
or not to sign the waiver.
More Information About
Age Discrimination
Several organizations offer help and
information on age discrimination in
employment. Among the most helpful are:
American Association of Retired Persons
601 E Street, NW
Washington, DC 20049
800-424-3410
http://www.aarp.org
AARP is a nonprofit membership orga-
nization of older Americans open to
anyone age 50 or older. It offers a wide
range of publications on retirement plan-
ning, age discrimination and employ-
ment-related topics. Networking and
direct services are available through
local chapters.
Older Womens League
666 Eleventh Street, NW, Suite 700
Washington, DC 20001
202-783-6686
The Older Womens League provides
advice on discrimination and other issues
facing elderly men and women.
W O R K P L A C E R I G H T S
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Sexual
Harassment
Sexual harassment on the job took a
dramatic leap into public awareness in
October 1991, when Professor Anita
Hill made known her charges against
Judge Clarence Thomas after his
nomination to the U.S. Supreme
Court. Many other incidents have
erupted since then, including
investigations into the Navy after the
Tailhook incident and into govern-
ment officials after Senator Bob
Packwood was accused of harassing
several female staffers. Paula Jones
dominated headlines for months with
her claim that President Clinton ha-
rassed her while a conventioneering
governor. And more recently,
Mitsubishi Motors agreed to pay a
record $34 million settlement to hun-
dreds of women harassed at its auto
assembly plant.
Enforcement of the laws prohibit-
ing sexual harassment has been
stepped up in the last few years. But
in workplaces across America, the
issue is far from settled. Sexual harass-
ment is still a daily problem for many
workers, especially women.
What is sexual harassment?
In legal terms, sexual harassment is
any unwelcome sexual advance or
conduct on the job that creates an
intimidating, hostile or offensive
working environment. In real life,
sexually harassing behavior ranges
from repeated offensive or belittling
jokes to a workplace full of offensive
pornography to an outright sexual
assault.
Are there laws that protect
against sexual harassment on
the job?
Yes. But surprisingly, those laws are
fairly new. In 1980, the Equal Em-
ployment Opportunity Commission
(EEOC) issued regulations defining
sexual harassment and stating it was a
form of sex discrimination prohibited
by the Civil Rights Act, which had
been originally passed in 1964. In
1986, the U.S. Supreme Court first
ruled that sexual harassment was a
form of job discriminationand held
it to be illegal.
Today, there is greater understand-
ing that the Civil Rights Act prohib-
its sexual harassment at work. In ad-
dition, most states have their own fair
employment practices laws that pro-
hibit sexual harassmentmany of
them more strict than the federal law.
To find out more about the federal
prohibition against sexual harassment,
contact the EEOC office nearest you.
For a list of EEOC regional offices,
call the main EEOC office at 800-
669-4000 or refer to the agencys
website at http://www.eeoc.gov.
To learn more about state laws
prohibiting sexual harassment, con-
tact your state labor department or
state fair employment office. In addi-
tion, your local EEOC office should be
able to give you information about
the laws in your state.
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Can a man be sexually
harassed?
Yes, a man can be sexually harassed.
The laws prohibiting sexual harass-
ment on the job protect all workers,
male and female, from being harassed
on the basis of their gender.
But in the overwhelming majority
of cases of sexual harassment, its a
male co-worker or supervisor who is
harassing a female worker. No one is
sure why this is so. Socialization prob-
ably plays a part: Men are more likely
than women to find sexual advances
flattering, women more likely to be
perceived as the gatekeepers of sexual
conduct. Economics probably enter,
too. There are simply more women in
the workforce than ever beforeand
at least some male workers feel the
influx as a threat to their own liveli-
hoods. Finally, sexual harassment is
usually a power ploy, a way to keep
some workers in lower-paid, less re-
spected positionsor force them out
of the workplace altogether.
Are gays and lesbians protected
by the laws against sexual
harassment?
Whether federal civil rights laws pro-
tect gays and lesbians is a hot ques-
tion these days. The U.S. Supreme
Court has not addressed the issue, so
there is no definitive word on whether
gays and lesbians can find shelter un-
der the federal prohibition against
sexual harassment in the workplace. A
number of lower federal courts have
considered the issue, however, and
they have proven to be quite hostile to
the protection of gays and lesbians.
If you are gay or lesbian, you might
find protection under a state law or a
local ordinance. In addition, you
might live in an area where the federal
courts are more receptive to granting
protection. To find out about what
laws might protect you in your geo-
graphical area, contact the Lambda
Legal Defense and Education Fund at
202-809-8585 or http://
www.lambdalegal.org.
Im being sexually harassed at
work. What is the first thing I
should do?
Tell the harasser to stop. Surprisingly
oftensome experts say up to 90% of
the timethis works.
When confronted directly, harass-
ment is especially likely to end if it is
at a fairly low level: off-color jokes,
inappropriate comments about your
appearance, tacky cartoons tacked onto
the office refrigerator or repeated re-
quests for dates after you have said no.
But clearly saying you want the
offensive behavior to stop does more
than let the harasser know that the
behavior is unwelcome. It is also a
crucial first step if you later decide to
take more formal action against the
harasser, whether through your
companys complaint procedure or
through the legal system. And be sure
to document whats going on by keep-
ing a diary or journal; your case will
be stronger if you can later prove that
the harassment continued after you
confronted the harasser.
W O R K P L A C E R I G H T S
4.23
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What if the harassment doesnt
stop even after Ive confronted
the harasser?
If confronting the harasser doesnt
work, complain, complain, complain.
Talk to your supervisor. Talk to the
harassers supervisor. If that doesnt
work, talk to their supervisors, and so
on. If your company has a complaint
procedure in place, follow it. If your
company has a human resources de-
partment, talk to someone there. And
every step of the way, document your
complaints. Save copies of all letters
and e-mails. Take notes of all conver-
sations. You have a right to a work
environment free of sexual harass-
ment, and you must be assertive about
making that right work for you.
Of course, there will be times when
you are afraid to complain about ha-
rassment, perhaps because the harasser
is your supervisor or because the ha-
rasser has made threats against you.
The laws against sexual harassment
prohibit your employer from retaliat-
ing against you for complaining about
sexual harassment. Although this fact
might be cold comfort if you fear for
your job or your safety, the fact is that
the law can protect you only if you let
someone with power at your work-
place know about your problem. Be
creative. If your supervisor is the one
harassing you, go to his supervisor or
go to a supervisor in another depart-
ment.
Collect as much detailed evidence
as possible about the harassment. Be
sure to save any offensive letters, pho-
tographs, cards or notes you receive.
And if you were made to feel uncom-
fortable because of jokes, pin-ups or
cartoons posted at work, confiscate
themor at least make copies. An
anonymous, obnoxious photo or joke
posted on a bulletin board is not any-
one elses personal property, so you are
free to take it down and keep it as
evidence. If thats not possible, photo-
graph the workplace walls. Note the
dates the offensive material was
postedand whether there were hos-
tile reactions when you took it down
or asked another person to do so.
Also, keep a detailed journal. Write
down the specifics of everything that
feels like harassment. Include the
names of everyone involved, what hap-
pened, and where and when it took
place. If anyone else saw or heard the
harassment, note that as well. Be as
specific as possible about what was said
and doneand how it affected you,
your health or your job performance.
If your employer has conducted
periodic evaluations of your work,
make sure you have copies. In fact,
you may want to ask for a copy of
your entire personnel filebefore you
tip your hand that you are considering
taking action against a harassing co-
worker. Your records will be particu-
larly persuasive evidence if your evalu-
ations have been good but after you
complain, your employer retaliates by
trying to transfer or fire you, claiming
poor job performance.
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If Youre Afraid of
Offending
The super-cautious advicedont talk
with co-workers about anything but
businessis surely overkill. The better
approach is to use common sense. There
is plenty of room to be friendly and
personable without behaving in a way
that is likely to offend workers of either
gender.
Some rough guides for evaluating your
own workplace behavior:
If you wouldnt say or do something in
front of your spouse or parents, its
probably a poor idea to say or do it at
work.
Would you say or do it in front of a
colleague of the same gender?
How would you feel if your mother,
wife, sister or daughter were subjected
to the same words or behavior?
How would you feel if a co-worker
said or did the same things to you?
Does it need to be said or done at all?
If you are truly concerned that your
words or conduct may be offensive to a
co-worker, there is one surefire way to
find out: ask.
If the harassment still doesnt
stop, what are my options short
of filing a lawsuit or a complaint
with a government agency?
If the harasser has ignored your oral
requests to stop, or you are uncom-
fortable making the request, write a
succint letter demanding an end to
the behavior. If that doesnt end the
harassment, you may want to take
more forceful action. Consider giving
a copy of your letter to the harassers
supervisoralong with a memo ex-
plaining that the behavior has become
more outrageous.
If the harassment still does not
abateor if you believe the supervisor
is sympathetic to the harassment or
the harassersend the letter to the
next-ranked worker or official at your
workplace. Include a cover letter in
which you offer your own remedy for
the situationsomething realistic
that might help end the discomfort,
such as transferring the harasser to a
more distant worksite. If its your own
supervisor who has been harassing
you, consider asking to be assigned a
different supervisor.
These days, most workplaces have
specific written policies prohibiting
sexual harassment. If you have fol-
lowed the steps that seem reasonable
to you but the harassment continues,
your next option is to pursue any pro-
cedure your company has established
for handling harassment.
What legal steps can I take to
end the harassment?
If all investigation and settlement at-
tempts fail to produce satisfactory re-
sults, one option is to file a civil law-
suit for damages either under the fed-
eral Civil Rights Act or under a state
fair employment practices statute.
Even if you intend right from the
beginning to file such a lawsuit, you
sometimes must first file a claim with
a government agency. For example, an
employee pursuing a claim under the
Civil Rights Act must first file a
claim with the federal EEOC, and a
W O R K P L A C E R I G H T S
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similar complaint procedure is re-
quired under some state laws. The
EEOC or state agency may decide to
prosecute your case on its own, but
that happens only occasionally.
More commonly, at some point, the
agency will issue you a document
referred to as a right-to-sue letter
that allows you to take your case to
court. When filing an action for
sexual harassment, you will almost
always need to hire a lawyer for help.
ef
More Information
About Sexual Harassment
Sexual Harassment on the Job
, by
William Petrocelli and Barbara Kate
Repa (Nolo), explains what sexual
harassment is and how to stop it.
9to5, National Association
of Working Women
614 Superior Avenue, NW
Cleveland, OH 44113
216-566-9308 (general information)
800-522-0925 (hotline)
http://www.9to5.org
9to5 is a national nonprofit member-
ship organization for working women. It
provides counseling, information and
referrals for problems on the job, includ-
ing family leave, pregnancy disability,
termination, compensation and sexual
harassment. 9to5 also offers a newsletter
and publications. There are local chap-
ters throughout the country.
Disability
Discrimination
Many individuals fortunate enough to
be healthy in mind and bodyand to
be employedlament the difficulties
a workplace can impose. But for those
with physical or mental disabilities,
many workplaces can be truly daunt-
ing. Fortunately, the federal Ameri-
cans with Disabilities Act (ADA), has
helped to level the playing field a bit.
What laws protect disabled
workers from workplace
discrimination?
The Americans with Disabilities Act
(ADA) prohibits employment dis-
crimination on the basis of workers
disabilities. Generally, the ADA pro-
hibits employers from:
discriminating on the basis of
virtually any physical or mental
disability
asking job applicants questions
about their past or current medical
conditions
requiring job applicants to take
medical exams, and
creating or maintaining worksites
that include substantial physical
barriers to the movement of people
with physical disabilities.
The ADA covers companies with
15 or more employees. Its coverage
broadly extends to private employers,
employment agencies and labor orga-
nizations. A precursor of the ADA,
the Vocational Rehabilitation Act,
prohibits discrimination against dis-
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abled workers in state and federal
government.
In addition, many state laws pro-
tect against discrimination based on
physical or mental disability.
Exactly whom does the
ADA protect?
The ADAs protections extend to dis-
abled workersdefined as people who:
have a physical or mental impair-
ment that substantially limits a
major life activity
have a record of impairment, or
are regarded as having an impair-
ment.
An impairment includes physical
disorders, such as cosmetic disfigure-
ment or loss of a limb, as well as men-
tal and psychological disorders.
The ADA protects job applicants
and employees who, although dis-
abled as defined above, are still quali-
fied for a particular job. In other
words, they would be able to perform
the essential functions of a job with
some form of accommodation, such as
wheelchair access, a voice-activated
computer or a customized workspace.
As with other workers, whether a
disabled worker is deemed qualified
for a given job depends on whether he
or she has appropriate skill, experi-
ence, training or education for the
position.
If I am disabled, how do I get
my employer to accommodate
my disability?
The first step is simple, but often
skipped: Ask. The ADA places the
burden on you, the employee, to in-
form the employer that you have a
disability and that you need an accom-
modation for it. Indeed, the ADA
forbids employers from asking em-
ployees whether they have a disability.
When you ask for an accommoda-
tion, you do not need to use formal
legal language or even do it in writing
(though its always a good idea to
document your request). Just tell your
employer what your disability is and
why you need an accommodation. If
you arent comfortable going to your
employer and making this request
yourself, you can ask a friend, family
member, or representative to do it for
you.
Once you request the accommoda-
tion, your employer should engage in
an informal process of determining
whether it can accommodate you and,
if so, how. Remember that your em-
ployer may be concerned about cost or
worried that other employees may
incorrectly view you as getting spe-
cial treatment. The more helpful and
understanding you can be during this
process, the more likely it is that your
employer will find a way to accommo-
date you.
As part of this process, your em-
ployer is allowed to ask you for docu-
mentation, or proof, of your disabil-
ity. It is important that you comply
with this request to the best of your
ability; if you dont, then you will lose
your right to an accommodation.
If an accommodation is not rea-
sonable (see below for more explana-
tion), your employer does not have to
provide it. Nor does your employer
have to provide you with the accom-
W O R K P L A C E R I G H T S
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modation that you want, as long as it
provides another one that is effective.
You dont have to accept a particu-
lar accommodation, but be prepared to
defend your choice on the grounds
that the accommodation isnt effective.
If a court decides that the offered ac-
commodation was reasonable, you may
no longer be qualified for the job, and
your employer can terminate you.
Accommodations Dont
Need to Cost a Bundle
According to ergonomic and job
accommodation experts, the cost of
accommodating a particular workers
disability is often surprisingly low.
31% of accommodations cost nothing.
50% cost less than $50.
69% cost less than $500.
88% cost less than $1,000.
The Job Accommodation Network
(JAN), which provides information about
how to accommodate people with dis-
abilities, gives the following examples of
inexpensive accommodations:
Glare on a computer screen caused an
employee with an eye disorder to get
eye fatigue. The problem was solved
with a $39 antiglare screen.
A deaf medical technician couldnt
hear the buzz of a timer, which was
necessary for laboratory tests. The
problem was solved with an indicator
light at a cost of $26.95.
To contact JAN, call 1-800-526-7234
or visit its website at http://janweb.icdi.
wvu.edu.
How can I tell if a particular
accommodation offered by my
employer is reasonable?
The ADA points to several specific
accommodations that are likely to be
deemed reasonablesome of them
changes to the physical set-up of the
workplace, some of them changes to
how or when work is done. They in-
clude:
making existing facilities usable by
disabled employeesfor example,
by modifying the height of desks
and equipment, installing computer
screen magnifiers or installing
telecommunications devices for the
deaf
restructuring jobsfor example,
allowing a ten-hour/four-day
workweek so that a worker can
receive weekly medical treatments
modifying exams and training
materialsfor example, allowing
more time for taking an exam, or
allowing it to be taken orally
instead of in writing
providing a reasonable amount of
additional unpaid leave for medical
treatment
hiring readers or interpreters to
assist an employee, and
providing temporary workplace
specialists to assist in training.
These are just a few possible ac-
commodations. The possibilities are
limited only by an employees and
employers imaginationsand the
reality that might make one or more
of these accommodations financially
impossible in a particular workplace.
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When can an employer legally
claim that a particular
accommodation is simply not
feasible?
The ADA does not require employers
to make accommodations that would
cause them an undue hardshipa
weighty concept defined in the ADA
only as an action requiring signifi-
cant difficulty or expense.
The Equal Employment Opportu-
nity Commission (EEOC), the federal
agency responsible for enforcing the
ADA, has set out some of the factors
that will determine whether a particu-
lar accommodation presents an undue
hardship on a particular employer:
the nature and cost of the accommo-
dation
the financial resources of the em-
ployer (a large employer may be
expected to foot a larger bill than a
mom-and-pop business)
the nature of the business (including
size, composition and structure of
the workforce), and
accommodation costs already
incurred in the workplace.
It is not easy for employers to prove
that an accommodation is an undue
hardship, as financial difficulty alone
is not usually sufficient. Courts will
look at other sources of money, in-
cluding tax credits and deductions
available for making some accommo-
dations, as well as the disabled
employees willingness to pay for all
or part of the costs.
Taking Action Under
the ADA
The ADA is enforced by the Equal
Employment Opportunity Commission
(EEOC). To start an investigation of your
claim, file a complaint at the local EEOC
office. Call 800-669-4000 to find the
office nearest you. Or refer to the agencys
website at http://www.eeoc.gov.
If you live in a state with laws that protect
workers against discrimination based on
physical or mental disability, you can
choose to file a complaint under your
states law, the ADA or both. To find out
about state laws, contact your state labor
department or fair employment office.
For additional information on the ADA,
contact:
Office of the Americans
with Disabilities Act
Civil Rights Division
U.S. Department of Justice
P.O. Box 66118
Washington, DC 20035-6118
Hotline:
800-514-0301 (voice)
800-514-0383 (TTY)
http://www.usdoj.gov/
crt/ada/adahom1.htm
W O R K P L A C E R I G H T S
4.29
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Losing
or Leaving
Your Job
Nothing is really work
unless you would rather be
doing something else.
SIR JAMES A. BARRIE
The possibility of being laid off or
fired looms large in the list of fears of
most workers. Employers have tradi-
tionally had a free hand to hire and
fire, but a number of recent laws and
legal rulings restrict these rights.
For what reasons can I be fired?
Unfortunately, the answer to this
question is: It depends. Generally,
the reasons for which you can be fired
depend in large part on whether you
have a contract for employment.
Determining whether you have an
employment contract can be tricky. A
contract can be oral or written, ex-
press or implied. Sometimes, a con-
tract is a document labeled Contract
for Employment that has a number
of provisions and that is signed by you
and your employer. Other times, it is
an oral promise that your employer
makes to you when you are hired that
you will only be fired if you perform
your job incompetently. Still other
times, it is something that is implied
from the peculiar circumstances of
your employment, such as the amount
of time you have worked for your em-
ployer, the way that your employer
has treated other employees and pro-
visions in your employee handbook.
If you do have a contract for em-
ployment, that generally (but not
always) means that you can be fired
only for good cause, a legal concept
that includes such things as incompe-
tence, excessive absences and violation
of work rules.
If you dont have a contract for
employment (which is likely since the
majority of employees in this country
do not have employment contracts),
then your employer can terminate you
for any reason that isnt illegal (see
below). For example, your employer
can terminate you simply because she
doesnt like you or because your work
style does not fit in with the company
or because you and your supervisor
disagree too much on how your job
should be done. Be aware, however,
that sometimes these sorts of superfi-
cial reasons, such as I just didnt like
her or She didnt fit in with the rest
of the office, can mask the real reason
behind the termination, which is an
illegal one.
Whether or not you have an em-
ployment contract, the law does place
limits on your employers ability to
fire you. For example, employers do
not have the right to discriminate
against you illegally or to violate state
or federal laws, such as those control-
ling wages and hours. Most state dis-
crimination laws are quite broad. In
addition to protecting against the
traditional forms of discrimination
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based on race, color, religion, national
origin and age, many also protect
against discrimination based on sexual
orientation, physical and mental dis-
ability, marital status and receiving
public funds.
Separate state laws protect workers
from being fired or demoted for tak-
ing advantage of laws protecting them
from discrimination and unsafe work-
place practices. And there are a num-
ber of other more complex reasons
that may make it illegal for an em-
ployer to fire youall boiling down
to the fact that an employer must deal
with you fairly and honestly.
Ive just received a warning from
my employer, and I suspect I will
be fired soon. What should I do?
If you find yourself on the receiving
end of a disciplinary notice you con-
sider to be unfair, there are several
steps you should take to avoid losing
your job.
First, be sure you understand ex-
actly what work behavior is being
challenged. Check your company
handbook to see if there is a clear
policy against what youve done. If
you are unclear, ask for a meeting
with your supervisor or human re-
sources staff to discuss the issue more
thoroughly.
If you think that there might be
some truth to what you are told, find
out what you can do to improve the
situation. Arrange a meeting with
your supervisor and ask her what you
can do to improve. Or you can make
your own suggestions. For example, if
your employer is unhappy with your
performance, consider requesting
training or educational materials. If
your employer thinks that you talk
too much on company time, ask to
move your workstation to a place
where you wont be quite so tempted
to talk. Make sure you document any
meeting or communication with your
supervisor regarding the discipline,
your performance and strategies you
can pursue to improve.
If you disagree with allegations
that your work performance or behav-
ior is poor, you may want to ask for
the assessment in writing. You can
then write a clarification and ask that
it be inserted in your personnel file.
But do this only if you feel your
employers assessment is clearly inac-
curate; otherwise you may risk esca-
lating a minor verbal reprimand into
a more major incident that will be
permanently recorded in your file.
Before you sit down to write, take
some time to reflect and perhaps dis-
cuss your situation with friends.
If you think you are likely to be
fired, see if any policy in the employee
handbook will buy you timefor
example, the right to file an appeal
so the controversy can die down and,
if necessary, you can change your
work habits.
Finally, read between the lines to
see whether your employers action
may be discriminatory or in other
ways unfair. Look particularly at the
timing. For example, if you were let
go shortly before your rights in the
company pension plan were perma-
nently locked in or vested, the com-
pany may be guilty of age discrimina-
W O R K P L A C E R I G H T S
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tion. Look also at uneven applications
of discipline: Are women more often
given substandard performance re-
views or fired before they could be
elevated to supervisor?
What can I do to protect any
legal rights I might have before
leaving my job?
Even if you decide not to challenge the
legality of your firing, you will be in a
much better position to enforce all of
your workplace rights if you keep careful
written records of everything that hap-
pens. For example, if you apply for un-
employment insurance benefits and your
former employer challenges that applica-
tion, you will probably need to prove
that you were dismissed for reasons that
were not related to your misconduct.
There are a number of ways to docu-
ment events. The easiest is to keep an
employment diary where you record and
date each significant work-related event
such as performance reviews, commen-
dations or reprimands, salary increases
or decreases and even informal com-
ments your supervisor makes to you
about your work. Note the date, time
and location for each event, which
members of management were involved
and whether or not witnesses were
present. Whenever possible, back up
your log with materials issued by your
employer, such as copies of the em-
ployee handbook, memos, brochures,
employee orientation videos and any
written evaluations, commendations or
criticisms of your work. In addition, if a
problem develops, ask to see your per-
sonnel file and make a copy of all re-
ports and reviews in it.
Am I entitled to severance pay if
Im fired?
No law requires an employer to provide
severance pay. Nevertheless, some em-
ployers voluntarily offer one or two
months salary to employees who are
laid off. A few are more generous to
long-term employees, basing severance
pay on a formula such as one months
pay for every year an employee worked
for the company.
An employer may be legally obli-
gated to give you some severance pay if
you were promised it, as evidenced by:
a written contract stating that
severance will be paid
a promise in an employee handbook
of severance pay
a long history of the company paying
severance to other employees in your
position, or
an oral promise to pay you sever-
ancealthough you may run into
difficulties proving the promise
existed.
My biggest concern about
losing my job is losing health
insurance coverage. Do I have
any rights?
Ironically, workers have more rights
to health insurance coverage after they
lose their jobs than while employed.
This is because of a 1986 law, the
Consolidated Omnibus Budget
Reconciliation Act (COBRA). Under
COBRA, employers with 20 or more
employees must offer them the option
of continuing to be covered by the
companys group health insurance
plan at the workers own expense for a
specific periodoften 18 months
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after employment ends. Family cover-
age is also included. In some other
circumstances, such as the death of
the employee, that employees depen-
dents can continue coverage for up to
36 months.
Another federal law, the Health
Insurance Portability and Account-
ability Act, makes it easier for em-
ployees to change jobs without the
fear of losing insurance coverageand
makes it easier for many employees to
get coverage in the first place. The
law imposes some restrictions on
group health plans, including HMOs.
Under this law:
Employees with preexisting condi-
tions may not be denied coverage
under a new health insurance plan if
they have been continuously covered
for 12 months under another plan.
Employees who do not have this
prior coverage may be denied
coverage based on a preexisting
condition for only one year.
No group health plan may discrimi-
nate in eligibility for coverage or
premiums based on health status,
physical or mental condition, claims
experience, receipt of healthcare,
medical history, genetic informa-
tion, evidence of insurability or
disability of the individual or
dependents seeking coverage.
Getting Money When
Youre Out of Work
If youve lost your job, you may be
desperately seeking income. Its best to
act quickly to apply for unemployment
and other possible benefits, as there is
often a delayin a few states, as long as
six weeksbetween the time you apply
and the date on which you actually
receive a check.
Here is a brief breakdown of what is
covered by each of the three major in-
come replacement programs.
Unemployment insurance. This program
may provide some financial help if you
lose your job, temporarily or perma-
nently, through no fault of your own.
Benefits will be less than your former pay
and temporaryoften lasting for about
26 weeks.
Workers compensation. When you
cannot work because of a work-related
injury or illness, this program is designed
to provide you with prompt replacement
income. It may also pay the medical bills
resulting from a workplace injury or illness;
compensate you for a permanent injury,
such as the loss of a limb; and provide
death benefits to the survivors of workers
who die from a workplace injury or illness.
For more information, see the questions
and answers on workers compensation
that appear earlier in this chapter.
Social Security disability insurance. This
is intended to provide income to adults
who, because of injury or illness, cannot
work for at least 12 months. Unlike the
workers compensation program, it does
not require that your disability be caused
by a workplace injury or illness.
W O R K P L A C E R I G H T S
4.33
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Also consider possible income from a
private disability insurance program if
you were paying for it through payroll
withholdings, or if your employer paid
for such premiums.
In addition, a few states offer disability
benefits as part of their unemployment
insurance programs. Typical program
requirements mandate that you submit
your medical records and show that you
requested a leave of absence from your
employer. Some may also require proof
that you intend to return to your job when
you recover. Call the local unemployment
insurance and workers compensation
insurance offices to determine whether
your state is one that maintains this kind
of coverage.
http://www.nolo.com
Nolo offers self-help information about a
wide variety of legal topics, including
workplace rights.
http://www.eeoc.gov
The U.S. Equal Employment Opportunity
Commission is the federal agency respon-
sible for enforcing federal fair employment
laws, including Title VII (which outlaws
discrimination in employment based on
race, gender, religion and national ori-
gin), the Equal Pay Act, the Age Dis-
crimination in Employment Act and the
Americans with Disabilities Act. The
agencys website is a gold mine of informa-
tion about these fair employment laws.
Among other things, it includes informa-
tion on your workplace rights, the text of
the fair employment laws and instructions
on how to file a charge against your em-
ployer.
http://www.dol.gov
The U.S. Department of Labor enforces
many of the laws that govern your rela-
tionship with your employer, including
wage and hour laws, health and safety
laws and benefits laws. This website offers
information about your rights under all of
the laws enforced by the department, and it
contains links to state labor department
websites.
http://www.law.cornell.edu
The Legal Information Institute at
Cornell Law School provides information
about discrimination in the workplace,
including relevant codes and regulations.
http://www.ahipubs.com
The Alexander Hamilton Institute serves
up common sense packaged as FAQs about
many aspects of employment, from benefits
to safety and health concerns. The infor-
mation is aimed at managers, but its
helpful for employees, too.
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5
Small Businesses
5.2 Before You Start
5.8 Legal Structures
for Small Businesses
5.15 Nonprofit Corporations
5.18 Small Business Taxes
5.24 Home-Based Businesses
5.29 Employers’ Rights &
Responsibilities
Business is never so healthy as
when, like a chicken, it must do a
certain amount of scratching for
what it gets.
HENRY FORD
Fo
r all sorts of personal and economic reasons, more Americans
are starting and running their own businesses today than ever before.
This trend has been helped by the increasing availability of powerful
and affordable data storage and communications equipment, most
notably the personal computer and the Internet. Because of
this
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accessible technology, todays savvy
small-time operator can often accom-
plish tasks that just a few decades ago
could be tackled only by large corpo-
rations.
But not all change has been posi-
tive. When it comes to the law, the
relatively informal world of just 40
years agowhere deals were often
sealed with a handshakehas given
way to a world where legal rules affect
almost every small business relation-
ship, including organizing the busi-
ness, dealing with co-owners, hiring
and supervising employees and relat-
ing to customers and suppliers. Stay-
ing on top of all these rules is as neces-
sary as it is challenging. Fortunately,
by using affordable, good quality self-
help legal resources and getting addi-
tional help from a knowledgeable
small business lawyer, you can master
the laws you need to know to keep
your business healthy.
Before
You Start
Your
imagination
is your preview
of lifes
coming
attractions.
ALBERT EINSTEIN
No matter what type of business
youre thinking of starting, there are
some practical and legal issues youll
face right away, including choosing a
name and location for your business,
deciding whether or not to hire em-
ployees, writing a business plan,
choosing a legal structure (sole propri-
etorship, partnership, corporation or
limited liability company), establish-
ing a system for reporting and paying
taxes and adopting policies to deal
with your customers. This section
addresses many of these concerns. As
you read, dont be discouraged by the
details. If you have chosen a business
that you will truly enjoy and, after
creating a tight business plan, are
confident youll make a decent profit,
your big jobs are done. Furthermore,
many people and affordable sources of
information are available to help you
cope with the practical details we
discuss here.
Im thinking of starting my own
business.What should I do first?
Be sure you are genuinely interested
in what the business does. If you
arent, you are unlikely to succeed in
the long runno matter how
lucrative your work turns out to be.
Yes, going into business with a firm
plan to make a good living is impor-
tant, but so, too, is choosing a
business that fits your life goals in an
authentic way. Here are a few things
you might want to consider before
you take the leap:
Do you know how to accomplish the
principal tasks of the business?
(Dont open a transmission repair
S M A L L B U S I N E S S E S
5.3
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shop if you hate cars, or a restaurant
if you cant cook.)
If the business involves working
with others, do you do this well?
If not, look into the many opportu-
nities to begin a one-person busi-
ness.
Do you understand basic business
tasks, such as bookkeeping and how
to prepare a profit-and-loss forecast
and cash-flow analysis? If not, learn
beforenot afteryou begin.
Does the business fit your personal-
ity? If you are a shy introvert, stay
away from businesses that require
lots of personal selling. If you are
easily bored, find a business which
will allow you to deal with new
material on a regular basis (publish-
ing a newsletter, for example).
What should I keep in mind
when choosing a name for my
business?
First, assume that you will have com-
petitors and that you will want to
market your products or services un-
der the name you choose. (This will
make your name a trademark.) For
marketing purposes, the best names
are those that customers will easily
remember and associate with your
business. Also, if the name is memo-
rable, it will be easier to stop others
from using it in the future.
Most memorable business names
are made-up words, such as Exxon and
Kodak, or are somehow fanciful or
surprising, such as Double Rainbow
ice cream and Penguin Books. And
some notable names are cleverly sug-
gestive, such as The Body Shop (a
store that sells personal hygiene prod-
ucts) and Accuride tires.
Names that tend to be forgotten
by consumers are common names
(names of people), geographic terms
and names that literally describe some
aspect of a product or service. For in-
stance, Steves Web Designs may be
very pleasing to Steve as a name, but
its not likely to help Steves custom-
ers remember his company when faced
with competitors such as Sams Web
Designs and Sheris Web Designs.
Similarly, names like Central Word
Processing Services or Robust Health
Foods are not particularly memorable.
Of course, over time even a com-
mon name can become memorable
through widespread use and advertis-
ing, as with Ben and Jerrys Ice Cream.
And unusual names of people can
sometimes be very memorable indeed,
as with Fuddruckers (restaurants and
family entertainment centers).
Choosing a Domain
Name
If your business will have a website, part
of choosing your business name will be
deciding on a domain name. Using all or
part of your business name in your
domain name will make your website
easier for potential customers to find. But
many domain names are already taken,
so youll want to see whats available
before you settle on a business name.
See
Conducting a Trademark Search
in
Chapter 8,
Trademarks
, for more infor-
mation on conducting name searches.
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How do I find out whether Im
legally permitted to use the
business name Ive chosen?
Your first step depends on whether
you plan to form a corporation or a
limited liability company (LLC). If
you do, you should check with the
Secretary of States office in your state
to see whether your proposed name is
the same or confusingly similar to an
existing corporate or LLC name in
your state. If it is, youll have to
choose a different name.
If you dont plan to incorporate or
form an LLC, check with your county
clerk to see whether your proposed
name is already on the list maintained
for fictitious or assumed business
names in your county. In the few
states where assumed business name
registrations are statewide, check with
your Secretary of States office. (The
county clerk should be able to tell you
whether youll need to check the
name at the state level.) If you find
that your chosen name or a very simi-
lar name is listed on a fictitious or
assumed name register, you shouldnt
use it.
If my proposed business name
isnt listed on a county or state
register, am I free to use it
however I like?
Not necessarily. Even if you are permit-
ted to use your chosen name as a corpo-
rate, LLC or assumed business name in
your state or county, you might not be
able to use the name as a trademark or
service mark. To understand what all
this is about, consider the potential
functions of a business name:
A business name may be a trade
name that describes the business for
purposes of bank accounts, invoices,
taxes and the public.
A business name may be a trade-
mark or servicemark used to iden-
tify and distinguish products or
services sold by the business (for
example, Ford Motor Co. sells Ford
automobiles, and McDonalds
Corporation offers McDonalds fast
food services).
While your corporate or assumed
business name registration may le-
gally clear the name for the first pur-
pose, it doesnt speak to the second.
For example, if your business is orga-
nized as a limited liability company
or corporation, you may get the green
light from your Secretary of State to
use IBM Toxics as your business name
(if no other corporation or LLC in
your state is using it or something
confusingly similar), but if you try to
use that name out in the marketplace,
youre asking for a claim of trademark
violation from the IBM general
counsels office.
To find out whether you can use
your proposed name as a trademark or
servicemark, you will need to do
whats known as a trademark search.
See Chapter 8, Trademarks.
Ive found out that the name I
want to use is available. What
do I need to do to reserve it for
my business?
If you are forming a corporation or an
LLC, every state has a procedureoper-
ated by the Secretary of States office
under which a proposed name can be
S M A L L B U S I N E S S E S
5.5
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reserved for a certain period of time,
usually for a fee. Additional reserva-
tion periods can usually be purchased
for additional fees. (For more informa-
tion about corporations and LLCs, see
Legal Structures for Small Businesses,
below.)
If you are not forming a corpora-
tion or an LLC, then you may need to
file a fictitious or assumed business
name statement with the agency that
handles these registrations in your
state (usually the county clerk, but
sometimes the Secretary of State).
Generally speaking, you need to file a
fictitious business name statement
only if your business name does not
include the legal names of all the
owners.
If you plan to use your business
name as a trademark or servicemark
and your service or product will be
marketed in more than one state (or
across territorial or international bor-
ders), you can file an application with
the U.S. Patent and Trademark Office
to reserve the name for your use. See
Chapter 8, Trademarks.
What should I keep in mind
when choosing a location for
my business?
Commercial real estate brokers are
fond of saying the three most impor-
tant factors in establishing a business
are location, location and location.
While true for some types of busi-
nessessuch as a retail sandwich shop
that depends on lunchtime walk-in
tradefor many, locating in a popu-
lar, high-cost area is a mistake. For
example, if you design computer soft-
ware, repair tile, import jewelry from
Indonesia or do any one of ten thou-
sand other things that dont rely on
foot traffic, your best bet is to search
out convenient, low-cost, utilitarian
surroundings. And even if yours is a
business that many people will visit,
consider the possibility that a low-
cost, offbeat location may make more
sense than a high-cost, trendy one.
What about zoning and other
rules that restrict where a
business may locate?
Never sign a lease without being ab-
solutely sure you will be permitted to
operate your business at that location.
If the rental space is in a shopping
center or other retail complex, this
involves first checking carefully with
management, because many have con-
tractual restrictions (for example, no
more than two pizza restaurants in the
Mayfair Mall). If your business will be
located in a non-shopping center area,
youll need to be sure that you meet
applicable zoning rules, which typi-
cally divide a municipality into resi-
dential, commercial, industrial and
mixed-use areas.
Youll also need to find out
whether any other legal restrictions
will affect your operations. For ex-
ample, some cities limit the number
of certain types of businesssuch as
fast food restaurants or coffee barsin
certain areas, and others require that a
business provide off-street parking,
close early on weeknights, limit ad-
vertising signs or meet other rules as a
condition of getting a permit. Fortu-
nately, many cities have business de-
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velopment offices that help small
business owners understand and cope
with restrictions.
What is a business plan, and
do I need to write one?
A business plan is a written document
that describes the business you want to
start and how it will become profit-
able. The document usually starts with
a statement outlining the purpose and
goals of your business and how you
plan to realize them, including a de-
tailed marketing plan. It should also
contain a formal profit-and-loss projec-
tion and cash-flow analysis designed to
show that if the business develops as
expected, it will be profitable.
Your business plan enables you to
explain your business prospects to po-
tential lenders and investors in a lan-
guage they can understand. Even
more important, the intellectual rigor
of creating a tight business plan will
help you see whether the business you
hope to start is likely to meet your
personal and financial goals. Many
times when budding entrepreneurs
take an honest look at their financial
numbers, they see that hoped-for
profits are unlikely to materialize. Or,
put another way, one of the most im-
portant purposes of writing a good
business plan is to talk yourself out of
starting a bad business.
I plan to sell products and services
directly to the public. What do I
need to know to comply with
consumer protection laws?
Many federal and state laws regulate
the relationship between a business
and its customers. These laws cover
such things as advertising, pricing,
door-to-door sales, written and im-
plied warranties and, in a few states,
layaway plans and refund policies. You
can find out more about consumer
protection laws by contacting the Fed-
eral Trade Commission, 6th and Penn-
sylvania Avenue, NW, Washington
DC 20850, 202-326-2222, http://
www.ftc.gov, and by contacting your
states consumer protection agency.
Although its essential to under-
stand and follow the rules that protect
consumers, most successful businesses
regard them as only a foundation for
building friendly customer service
policies designed to produce a high
level of customer satisfaction. For ex-
ample, many enlightened businesses
tell their customers they can return
any purchase for a full cash refund at
any time for any reason. Not only does
this encourage existing customers to
continue to patronize the business, but
it can be a highly effective way to get
customers to brag about the business
to their friends.
Selling Goods and
Services on Consignment
Many small business people, especially
those who produce art, crafts and spe-
cialty clothing items, sell on consignment.
In a consignment agreement, the owner
of goods (in legal jargon, the consignor)
puts the goods in the hands of another
person or businessusually a retailer (the
consignee)who then attempts to sell
S M A L L B U S I N E S S E S
5.7
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them. If the goods are sold, the consignee
receives a fee, which is usually a percent-
age of the purchase price, and the rest of
the money is sent to the consignor. For
example, a sculptor (the consignor) might
place his or her work for sale at an art
gallery (the consignee) with the under-
standing that if the artwork sells, the
gallery keeps 50% of the sale price. Or a
homeowner might leave old furniture with
a resale shop that will keep one-third of
the proceeds if the item sells. Typically,
the consignor remains the owner of the
goods until the consignee sells them.
As part of any consignment of valuable
items, the consignor (owner) wants to be
protected if the goods are lost or stolen
while in the consignees possession. The
key here is to establish that the consignee
has an insurance policy which will cover
any loss. When extremely valuable items
are being consigned, its often appropri-
ate for the cosignor to ask to be named
as a co-insured so that she can receive a
share of the insurance proceeds if a loss
occurs.
If youre a consignee, check your insur-
ance coverage. Before you accept the
risk of loss or theft, make sure your busi-
ness insurance policy covers you for loss
of personal property of others left in
your possessionand that the amount of
coverage is adequate. Getting full reim-
bursement for the selling price of con-
signed goods may require an added
supplement (called an endorsement) to
your insurance policy. Check with your
insurance agent or broker.
For a consignment contract, including
detailed insrtructions and guidance, as
well as small business forms and con-
tracts, see Nolos new business software,
Quicken Lawyer Business
.
ef
More Information About
Starting Your Small Business
Legal Guide for Starting & Running a
Small Business,
by Fred S. Steingold
(Nolo), provides clear, plain-English
explanations of the laws that affect busi-
ness owners every day. It covers partner-
ships, corporations, limited liability com-
panies, leases, trademarks, contracts,
franchises, insurance, hiring and firing
and much more.
Legal Forms for Starting & Running a Small
Business,
by Fred S. Steingold (Nolo),
contains the forms and instructions you
need to accomplish many routine legal
tasks, such as borrowing money, leasing
property and contracting for goods and
services.
The Small Business Start-Up Kit
, by Peri
H. Pakroo (Nolo), shows you how to
choose from among the basic types of
business organizations, write an effective
business plan, file the right forms in the
right place, acquire good bookkeeping
and accounting habits and get the proper
licenses and permits.
Small Time Operator
, by Bernard
Kamoroff, C.P.A. (Bell Springs Publishing),
is a good source of practical information
on getting a small business off the
groundfrom business licenses, to taxes,
to basic accounting. It includes ledgers
and worksheets to get you started.
Quicken Lawyer Business
, (software by
Nolo), contains over 60 interactive forms
and contracts that all small businesses
N o l o s E n c y c l o p e d i a o f E v e r y d a y L a w
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should have, plus the text of five best-
selling Nolo business titles.
Running a One-Person Business
, by
Claude Whitmyer and Salli Rasberry (Ten
Speed Press), covers the nuts and bolts of
doing business on your own: finances,
time management, marketing and more.
How to Write a Business Plan
, by Mike
McKeever (Nolo), shows you how to write
the business plan necessary to finance
your business and make it work. It in-
cludes up-to-date sources of financing.
Guerrilla Marketing
, by Jay Conrad
Levinson (Houghton Mifflin), contains
hundreds of ideas and strategies to help
you market your business.
Marketing Without Advertising
, by
Michael Phillips and Salli Rasberry
(Nolo), shows you how to generate sales
and encourage customer relations without
spending a lot of money on advertising.
Legal
Structures
for Small
Businesses
There is no one legal structure thats
best for all small businesses. Whether
youre better off starting as a sole pro-
prietor or choosing one of the more
complicated organizational structures,
such as a partnership, corporation or
limited liability company (LLC), usu-
ally depends on several factors, in-
cluding the size and profitability of
your business, how many people will
own it and whether it will entail li-
ability risks not covered by insurance.
If Im the only owner, whats the
easiest way to structure my
business?
The vast majority of small business
people begin as sole proprietors, be-
cause its cheap, easy and fast. With a
sole proprietorship, theres no need to
draft an agreement or go to the trouble
and expense of registering a corpora-
tion or limited liability company
(LLC) with your state regulatory
agency. All it usually entails is getting
a local business license, and unless you
are doing business under your own
name, filing and possibly
publishing a
fictitious name statement.
If its so simple, why arent all
businesses sole proprietorships?
There are several reasons why doing
business as a sole proprietor is not ap-
propriate for everyone. First, a sole
proprietorship is possible only when a
business is owned by one person or, in
some cases, a husband and wife. Sec-
ond, the owner of a sole proprietorship
is personally responsible for all busi-
ness debts, whereas limited liability
companies and corporations normally
shield their owners assets from such
debts. And finally, unlike a corpora-
tion (or a partnership or LLC that
elects to be taxed as a corporation),
which is taxed separately from its own-
ers (something that can result in lower
taxes for some small businessessee
below), a sole proprietor and her busi-
S M A L L B U S I N E S S E S
5.9
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ness are considered to be the same
legal entity for tax purposes. This
means youll report all of the
businesss income, expenses and de-
ductions on your individual tax re-
turn.
Im starting my business with
several other people. What are
the advantages and disadvan-
tages of forming a general
partnership?
One big advantage of a general part-
nership is that you usually dont have
to register it with your state and pay
an often hefty fee, as you do to estab-
lish a corporation or limited liability
company. And because a partnership
is normally a pass through tax en-
tity (the partners, not the partnership,
are taxed on the partnerships profits),
filing income tax returns is easier than
it is for a regular corporation, where
separate tax returns must be filed for
the corporate entity and its owners.
But because the business-related acts
of one partner legally bind all others,
it is essential that you go into busi-
ness with a partner or partners you
completely trust. It is also essential
that you prepare a written partnership
agreement establishing, among other
things, each partners share of profits
or losses and day-to-day duties as well
as what happens if one partner dies or
retires.
Finally, a major disadvantage of
doing business as a partnership is that
all partners are personally liable for
business debts and liabilities (for ex-
ample, a judgment in a lawsuit).
While its true that a good insurance
policy can do much to reduce lawsuit
worries and that many small, savvy
businesses do not face debt problems,
its also true that businesses that face
significant risks in either of these areas
should probably organize themselves
as a corporation or LLC in order to
benefit from the limited liability these
business structures provide.
What exactly is limited liability”—
and why is it so important?
Some types of businessescorporations
and limited liability companies are the
most commonshield their owners
from personal responsibility for busi-
ness debts. For instance, if the business
goes bankrupt, its owners are not usu-
ally required to use their personal as-
sets to make good on business losses
unless they voluntarily assume respon-
sibility. Other types of businesses
sole proprietorships and general part-
nershipsdo not provide this shield,
which means their owners are person-
ally responsible for business liabilities.
To see how this works, assume some-
one obtains a large court judgment
against an incorporated business. Be-
cause corporate stockholders are not
personally liable for business debts,
their houses and other personal assets
cant be taken to pay the judgment,
even if the corporation files for bank-
ruptcy. By comparison, if a sole propri-
etorship or partnership gets into the
same kind of trouble, the houses, bank
accounts and other valuable personal
assets of the businesss owners (and
possibly their spouses) can be attached
and used to satisfy the debt.
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5. 10
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Why do so many small business
owners choose not to take
advantage of limited liability
protection?
Many small businesses simply dont
have major debt or lawsuit worries, so
they dont need limited liability pro-
tection. For example, if you run a
small service business (perhaps you
are a graphic artist, management con-
sultant or music teacher), your
chances of being sued or running up
big debts are low. And when it comes
to liability for many types of debts,
creating a limited liability entity
makes little practical difference for
newly formed businesses. Often, if
you want to borrow money from a
commercial lender or establish credit
with a vendor, you will be required to
pledge your personal assets or person-
ally guarantee payment of the debt
(waive limited liability status) should
your business be unable to pay.
Finally, organizing your business
to achieve limited liability status is
no substitute for purchasing a good
business insurance policy especially if
your business faces serious and pre-
dictable financial risks (for instance,
the risk that a customer may trip and
fall on your premises or that your
products may malfunction). After all,
without insurance, if a serious injury
occurs, all the assets of your busi-
nesswhich will probably amount to
a large portion of your net worth
can be grabbed to satisfy any resulting
court judgment. It follows that even if
you operate your business as a sole
proprietorship, if you purchase com-
prehensive business insurance, your
personal assets may not be at signifi-
cant risk and you may therefore con-
clude you dont need limited liability
status.
Given all its limitations, when is
it wise for a small business
person to seek limited liability
status?
You should consider forming a busi-
ness that offers its owners limited
liability if:
your business subjects you to a risk
of lawsuits in an area where insur-
ance coverage is unaffordable or
incomplete, or
your business will incur significant
debts and is well established and has
a good credit rating so that you no
longer need to personally guarantee
every loan or credit application.
The easiest and most popular way
to gain limited liability status is to
form a corporation or a limited liabil-
ity company (LLC).
S M A L L B U S I N E S S E S
5.11
SMALL BUSINESS STRUCTURES: AN OVERVIEW
Type of Entity Main Advantages Main Drawbacks
Sole Simple and inexpensive to create Owner personally liable for
Proprietorship and operate business debts and liabilities
Owner reports profit or loss on his
or her personal tax return
General Relatively easy and inexpensive to create Owners (partners) personally liable
Partnership and operate for business debts
Owners (partners) report their share of Must prepare and file separate partnership
profit or loss on their personal tax returns tax return
Limited Limited partners have limited personal General partners personally liable
Partnership liability for business debts as long as for business debts
they dont participate in management
General partners can raise cash without More expensive to create than a
involving outside investors in general partnership
management of business
Suitable mainly for companies that
invest in real estate or other businesses
Regular Owners have limited personal liability More expensive to create than
Corporation for business debts partnership or sole proprietorship
Owners fringe benefits (such as health Paperwork can seem burdensome to
insurance and pension plans) can be some owners
deducted as business expenses
Owners can split corporate profit among Separate taxable entity that must prepare
owners and corporation, sometimes and file a separate corporate tax
paying a lower overall tax rate
S Corporation Owners have limited personal liability More expensive to create than
for business debts partnership or sole proprietorship
Owners report their share of corporate More paperwork than for a limited liability
profit or loss on their personal tax returns company, which offers some of the same
advantages
Owners can use corporate loss to offset Income must be allocated to owners
income from other sources (such as another in proportion to their ownership interests
business in which they are active)
Deductibility of fringe benefits limited for
owners who own more than 2% of shares
Professional Owners have no personal liability for More expensive to create than
Corporation malpractice of other owners partnership or sole proprietorship
Paperwork can seem burdensome to
some owners
All owners must generally belong to, and
often be licensed to practice in, the same
profession
Nonprofit Corporation doesnt pay income taxes Full tax advantages available only to
Corporation groups organized for charitable,
Contributions to charitable corporations scientific, educational, literary or
are tax-deductible religious purposes
Fringe benefits can be deducted as Property transferred to corporation
business expense stays there; if corporation ends,
property must go to another nonprofit
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N o l o s E n c y c l o p e d i a o f E v e r y d a y L a w
5. 12
Limited All states except Massachusetts allow LLCs More expensive to create than
Liability to be organized with only one member partnership or sole proprietorship
Company
Owners have limited personal liability
for business debts even if they
participate in management
Profit and loss can be allocated Laws for creating LLCs in a few states may
differently than ownership interests not reflect latest federal tax changes
IRS rules now allow LLCs to choose
between being taxed as partnership
or corporation
Professional Same advantages as a regular limited Same as for a regular limited liability
Limited Liability liability company company
Company
Gives state-licensed professionals a way Members must all belong to the same
to enjoy those advantages profession
At least one state (CA) does not permit
professionals to organize as an LLC
Limited Liability Mostly of interest to partners in old-line Unlike a limited liability company or a
Partnership professions such as law, medicine and professional limited liability company, owners
accounting (partners) remain personally liable for many
Owners (partners) arent personally liable
types of obligations owed to business
for the malpractice of other partners
creditors, lenders and landlords
Owners report their share of profit or loss
Not available in all states
on their personal tax returns
Often limited to a short list of professions
Is forming a corporation difficult?
No. As long as you and close associates
and family members will own all of
the stock and none of the stock will be
sold to the public, the necessary docu-
mentsprincipally your articles of
incorporation and corporate bylaws
can usually be prepared in a few hours.
While
most states use the term ar-
ticles of incorporation to refer to the
basic document creating the corpora-
tion, some states (including Connecti-
cut, Delaware, New York and Okla-
homa) use the term certificate of in-
corporation. Washington calls the
document a certificate of formation
and Tennessee calls it a charter.
The first step is to check with your
states corporate filing office (usually
either the Secretary of State or Depart-
ment of Corporations) and conduct a
trademark search to be sure the name
you want to use is legally available.
You then fill in blanks in a pre-
printed form (available from most
states corporate filing offices or
websites) listing the purpose of your
corporation, its principal place of
business and the number and type of
shares of stock. Youll file these docu-
ments with the appropriate office,
along with a registration fee that will
usually be between $200 and $1,000,
depending on the state.
Type of Entity Main Advantages Main Drawbacks
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S M A L L B U S I N E S S E S
5.13
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as well as partnerships and limited
liability companies that have not
elected to be taxed as regular, or C,
corporationsare known as pass-
through tax entities, meaning that all
business profits and losses are re-
flected on the individual tax returns
of the owners. For example, if a sole
proprietors convenience store turns a
yearly profit of $85,000, this amount
goes right on his personal tax return.
By contrast, a regular profit corpora-
tion (and any partnership or LLC that
elects to be taxed like a corporation) is
a separate tax entitymeaning that
the business files a tax return and pays
its own taxes.
But the fact that a corporation is
taxed separately from its owners
doesnt always mean that profits will be
taxed twice. Thats because owners of
most incorporated small businesses are
also employees of those businesses; the
money they receive in the form of sala-
ries and bonuses is tax-deductible to
the corporation as an ordinary and nec-
essary business expense. If it pays sur-
plus money to owners in the form of
reasonable salaries, along with bonuses
and other fringe benifits, a corporation
does not have to show a profit, and
therefore will pay no corporate income
tax. In addition, most small corpora-
tions dont pay dividends, so the divi-
dends arent taxed twice.
Are there tax advantages to
forming a corporation?
Frequently, yes. Corporations pay
federal income tax at a lower rate than
do most individuals for the first
$75,000 of their profits15% of the
Youll also need to complete, but
not file, corporate bylaws. These will
outline a number of important corpo-
rate housekeeping details, such as
when annual shareholder meetings
will be held, who can vote and the
manner in which shareholders will be
notified if there is need for an addi-
tional special meeting.
Fortunately, a good self-help book
can make it easy and safe to incorpo-
rate your business without a lawyer.
What about operating my
corporation? Arent ongoing
legal formalities involved?
Assuming your corporation has not
sold stock to the public, conducting
corporate business is remarkably
straightforward and uncomplicated.
Often it amounts to little more than
recording key corporate decisions (for
example, borrowing money or buying
real estate) and holding an annual
meeting. Even these formalities can
often be done by written agreement
and dont usually necessitate a face-to-
face meeting between the directors.
Doesnt forming a corporation
mean income will be taxed
twiceonce at the corporate
level and then again when
dividends are paid to the
corporations owners
(shareholders)?
Taxation of business is complicated;
well be able to cover only the main
points here. First, understand that
most types of businessessole
proprietorships and corporations that
have qualified for subchapter S status,
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first $50,000 of profit and 25% of the
next $25,000. By contrast, in a sole
proprietorship or partnership, where
the business owner(s) pay taxes on all
profits at their personal income tax
rates, up to 39.6% could be subject to
federal income tax.
A corporation can often reduce
taxes by paying its owner-employees a
decent salary (which, of course, is tax-
deductible to the corporation but tax-
able to the employee), and then retain-
ing additional profits in the business
(say, for future expansion). The addi-
tional profits will be taxed at the
lower corporate tax rates. Under IRS
rules, however, the maximum amount
of profits most corporations are al-
lowed to retain is $250,000, and some
professional corporations are limited
to $150,000.
Recently Ive heard a lot about
limited liability companies. How
do they work?
For many years, small business people
have been torn between operating as
sole proprietors (or, if several people
are involved, as partnerships) or incor-
porating. On the one hand, many
owners are attracted to the tax-report-
ing simplicity of being a sole propri-
etors or partner. On the other, they
desire the personal liability protection
offered by incorporation. Until the
mid 1990s it was possible to safely
achieve these dual goals only by form-
ing a corporation and then complying
with a number of technical rules to
gain S-corporation status from the
IRS. Then the limited liability com-
pany (LLC) was introduced and slowly
gained full IRS acceptance.
LLCs can have many of the most
popular attributes of both partner-
ships (pass-through tax status) and
corporations (limited personal liabil-
ity for the owners). You can establish
an LLC by filing a document called
articles of organization with your
states corporate filing office (often the
Secretary or Department of State).
While most states use the term ar-
ticles of organization to refer to the
basic document creating an LLC, some
states (including Delaware, Missis-
sippi, New Hampshire, New Jersey
and Washington) use the term cer-
tificate of formation. Two other
states (Massachusetts and Pennsylva-
nia) call the document a certificate of
organization.
Can any small business register
as a limited liability company?
Most small businesses can be run as
LLCs because limited liability compa-
nies are recognized by all states. And
almost all states (except Massachu-
setts) now permit one-owner LLCs,
which means that sole proprietors can
easily organize their businesses as
LLCs to obtain both limited liability
and pass-through tax status.
Are there any drawbacks to
forming a limited liability
company?
Very few, beyond the fact that LLCs
require a moderate amount of paper-
work at the outset and a filing fee.
You must file Articles of Organization
with your states Secretary of State,
S M A L L B U S I N E S S E S
5.15
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Nonprofit
Corporations
In the long run you hit only
what you aim at. Therefore,
though you should fail
immediately, you had better
aim at something high.
HENRY DAVID THOREAU
A nonprofit corporation is a group of
people who join together to do some
activity that benefits the public, such
as running a homeless shelter, an art-
ists performance group or a low-cost
medical clinic. Making an incidental
profit from these activities is allowed
under legal and tax rules, but the
primary purpose of the organization
should be to do good work, not make
money. Nonprofit goals are typically
educational, charitable or religious.
How do nonprofit organizations
begin?
Most nonprofits start out as small,
informal loosely structured organiza-
tions. Volunteers perform the work,
and the group spends what little
money it earns to keep the organiza-
tion afloat. Formal legal papers (such
as a nonprofit charter or bylaws) are
rarely prepared in the beginning. Le-
gally, groups of this sort are consid-
ered nonprofit associations, and each
member can be held personally liable
for organizational debts and liabilities.
along with a filing fee that will range
from a few hundred dollars in some
states to almost $1,000 in others.
ef
More Information About
Choosing a Structure for
Your Small Business
Legal Guide to Starting & Running a
Small Business
, by Fred S. Steingold
(Nolo), explains what you need to know
to choose the right form for your business
and shows you what to do to get started.
Legal Forms for Starting & Running a
Small Business
, by Fred S. Steingold
(Nolo), provides all the forms youll need
to get your business up and running, no
matter what ownership structure you
choose.
LLC Maker,
by Anthony Mancuso (Nolo),
is interactive software containing all the
information and forms youll need to set
up an LLC on your own.
Form Your Own Limited Liability Com-
pany
, by Anthony Mancuso (Nolo),
explains how to set up an LLC in any
state, without the aid of an attorney.
Incorporate Your Business
, by Anthony
Mancuso (Nolo), explains how to set up
a corporation in any state.
How to Form Your Own Corporation
(California and Texas editions)
, by
Anthony Mancuso (Nolo), offers state-
specific instructions and forms for creat-
ing a corporation in those states.
N o l o s E n c y c l o p e d i a o f E v e r y d a y L a w
5. 16
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Once a nonprofit association gets
going and starts to make money, or
wishes to obtain a tax exemption to
attract public donations and qualify
for grant funds, the members will
formalize its structure. Usually the
members decide to incorporate, but
forming an unincorporated nonprofit
association by adopting a formal asso-
ciation charter and operating bylaws is
an alternative.
Most groups form a nonprofit
corporation because it is the tradi-
tional formthe IRS and grant agen-
cies are very familiar with it. Also,
once incorporated, the individual
members of the nonprofit are not per-
sonally liable for debts of the organiza-
tiona big legal advantage over the
unincorporated association.
Will my association benefit from
becoming a nonprofit
corporation?
Here are some circumstances that
might make it worth your while to
incorporate and get tax-exempt status:
You want to solicit tax-deductible
contributions. Contributions to
nonprofits are generally tax deduct-
ible for those who make them. If
you want to solicit money to fund
your venture, youll make it more
attractive to potential donors if their
contributions are tax-deductible.
Your association makes a taxable profit
from its activities.
If your association
will generate any kind of income
from its activities, its wise to
incorporate so that you and your
associates dont have to pay income
tax on this money.
You want to apply for public or private
grant money. Without federal tax-
exempt status, your group is un-
likely to qualify for grants.
Your members want some protection from
legal liability. By incorporating your
association, you can generally
insulate your officers, directors and
members from liability for the
activities they engage in on behalf of
the corporation
Your advocacy efforts might provoke
legal quarrels. If, for instance, your
association is taking aim at a
powerful industry (such as tobacco
companies), it might be worth
incorporating so that your
associations officers and directors
will have some protection from the
spurious lawsuits that are sure to
comeand will also receive com-
pensation for their legal fees.
Forming a nonprofit corporation
brings other benefits as well, such as
lower nonprofit mailing rates and lo-
cal real estate and personal property
tax exemptions.
Is forming a nonprofit
corporation difficult?
Legally, no. To form a nonprofit cor-
poration, one of the organizations
founders prepares and files standard
articles of incorporationa short legal
document that lists the name and the
directors of the nonprofit plus other
basic information. The articles are
filed with the Secretary of States office
for a modest filing fee. After the ar-
ticles are filed, the group is a legally
recognized nonprofit corporation.
S M A L L B U S I N E S S E S
5.17
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Is there more to forming a
nonprofit than this simple legal
task?
Taxwise, there is more. In addition to
filing your articles, you will want to
apply for and obtain federal and state
nonprofit tax exemptions. If the for-
mation of your organization depends
on its nonprofit tax status, youll
likely want to know whether youll
qualify for tax exemption at the out-
set. Unfortunately, your corporation
must be formed before you submit
your federal tax exemption applica-
tion. Why? Because the IRS requires
that you submit a copy of your filed
articles with the exemption applica-
tion. Still, you should carefully review
the tax exemption application before
you submit your corporation papers.
Doing so will give you a good idea of
whether your organization will
qualify for a tax exemption or not.
What type of tax exemption do
most nonprofits get?
Most organizations obtain a federal
tax exemption under Section 501(c)(3)
of the Internal Revenue Code, for
charitable, education, religious, scien-
tific or literary purposes. States typi-
cally follow the federal lead and grant
state tax-exempt status to nonprofits
recognized by the IRS as 501(c)(3)
organizations.
How can my organization get a
501(c)(3) tax exemption?
Youll need to get the IRS Package
1023 exemption application. This is a
lengthy and technical application
with many references to the federal
tax code. Most nonprofit organizers
need help in addition to the IRS in-
structions that accompany the form.
But you can do it on your own if you
have a good self-help resource by your
side such as Nolos How to Form Your
Own Nonprofit Corporation, by Anthony
Mancuso, which shows you, line by
line, how to complete your application.
Are there any restrictions
imposed on 501(c)(3)
nonprofits?
You must meet the following condi-
tions to qualify for a 501(c)(3) IRS tax
exemption:
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The assets of your nonprofit must be
irrevocably dedicated to charitable,
educational, religious or similar
purposes. If your 501(c)(3) nonprofit
dissolves, any assets it owns must be
transferred to another 501(c)(3)
organization. (In your organizational
papers, you dont have to name the
specific organization that will
receive your assetsa broad dedica-
tion clause will do.)
Your organization cannot campaign
for or against candidates for public
office, and political lobbying
activity is restricted.
If your nonprofit makes a profit
from activities unrelated to its
nonprofit purpose, it must pay taxes
on the profit (but up to $1,000 of
unrelated income can be earned tax-
free).
ef
More Information About
Nonprofit Corporations
How to Form a Nonprofit Corporation
,
by Anthony Mancuso (Nolo), shows you
how to form a tax-exempt corporation in
all 50 states. In California, look for
How
to Form a Nonprofit Corporation in
California
, also by Anthony Mancuso
(Nolo).
The Law of Tax Exempt Organizations
,
by Bruce Hopkins (Wiley), is an in-depth
guide to the legal and tax requirements
for obtaining and maintaining a
501(c)(3) tax exemption and public
charity status with the IRS.
Small
Business
Taxes
THE MAN WHO IS
ABOVE HIS BUSINESS
MAY ONE DAY FIND HIS
BUSINESS ABOVE HIM.
SAMUEL DREW
Taxes are a fact of life for every small
business. Those who take the time to
understand and follow the rules will
have little trouble with tax authorities.
By contrast, those who are sloppy or
dishonest are likely to be dogged by
tax bills, audits and penalties. The
moral is simple: Meeting your obliga-
tions to report business information
and pay taxes is one of the cornerstones
of operating a successful business.
I want to start my own small
business. What do I have to do
to keep out of trouble with the
IRS?
Start by learning a new set of 3
Rs”—recordkeeping, recordkeeping
and (you guessed it) recordkeeping.
IRS studies show that poor records
not dishonestycause most small
business people to lose at audits or fail
to comply with their tax reporting
obligations, with resulting fines and
penalties. Even if you hire someone to
S M A L L B U S I N E S S E S
5.19
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keep your records, you need to know
how to supervise himif he goofs up,
youll be held responsible.
I dont have enough money in
my budget to hire a business
accountant or tax preparer. Is it
safe and sensible for me to keep
my own books?
Yes, if you remember to keep thor-
ough, current records. Consider using
a check register-type computer pro-
gram such as Quicken (Intuit) to track
your expenses, and if you are doing
your own tax return, use Intuits com-
panion program, Turbotax for Busi-
ness. To ensure that youre on the
right track, its a good idea to run
your bookkeeping system by a savvy
small business tax professional, such as
a CPA. With just a few hours of work,
she should help you avoid most com-
mon mistakes and show you how to
dovetail your bookkeeping system
with tax filing requirements.
When your business is firmly in
the black and your budget allows for
it, consider hiring a bookkeeper to do
your day-to-day payables and receiv-
ables. And hire an outside tax pro to
handle your heavy-duty tax work
not only are the fees a tax-deductible
business expense, but chances are your
business will benefit if you put more
of your time into running it and less
into completing paperwork.
Recordkeeping Basics
Keep all receipts and canceled checks for
business expenses. It will help if you
separate your documents by category,
such as:
auto expenses
rent
utilities
advertising
travel
entertainment, and
professional fees.
Organize your documents by putting
them into individual folders or envelopes,
and keep them in a safe place. If you are
ever audited, the IRS is most likely to zero
in on business deductions for travel and
entertainment, and car expenses. Remem-
ber that the burden will be on younot
the IRSto explain your deductions. If
youre feeling unsure about how to get
started or what documents you need to
keep, consult a tax professional familiar
with recordkeeping for small businesses.
What isand isnta tax-
deductible business expense?
Just about any ordinary, necessary and
reasonable expense that helps you
earn business income is deductible.
These terms reflect the purpose for
which the expense is made. For ex-
ample, buying a computer, or even a
sound system, for your office or store is
an ordinary and necessary business
expense, but buying the same items for
your family room obviously isnt. The
property must be used in a trade or
business, which means it is used with
the expectation of generating income.
In addition to the ordinary and
necessary rule, a few expenses are spe-
cifically prohibited by law from being
tax deductiblefor instance, you cant
N o l o s E n c y c l o p e d i a o f E v e r y d a y L a w
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deduct a bribe paid to a public official.
Other deduction no-nos are traffic tick-
ets and clothing you wear on the job,
unless it i