• BE PREPARED!
• Assessing Your Needs
• Space Layout
• Space Analysis
• Further Questions
• Next Steps

Your theater group is growing, you are an artist and interested in exploring live/work options or you have found out that your lease on your performance space will not be renewed - whatever your situation - It might be time to move!

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The most important aspect of moving to a new space, whether it is leased or purchased is to:

BE PREPARED!

Think about why you need a new space. Do you need more storage? A bigger performance space? Better access for your clients, colleagues or students? More parking options? Lots of windows or more open space or better ventilation? Your answers will help you define and direct your search.

While brainstorming, try to answer these five fundamental questions:

1. What size of space do you need?
2. What type of space do you need?
3. What can you afford?
4. Which neighborhoods can provide you with the space you want and need at a price you can afford?
5. Which neighborhoods offer the professional and artistic support systems you need to thrive as an artist, business or organization?

Many other questions will arise that will be unique to your situation and needs: Do you have particular space layout requirement? Do you need a space that can accommodate several art production methods? Do you rehearsal, performance and office space? You might end up with a very long list!

Once you've articulated your needs, prioritize them. Try to spend at least an hour or more devoted to this step. Round up all major stakeholders -- including those who will work and/or live in the new space -- to participate in this exercise, so that the final list of priorities, wants and needs will reflect each person's concerns.

If your need for space is urgent, and you do not have time to go through the first step, at least read Chapter 6: Residential Leases and Chapter 7: Commercial and Industrial Leases. These contain critical information on expenses you might be liable for over and above your rent, as well as your rights and responsibilities in most residential and commercial or industrial leases. If you are thinking of purchasing, review Chapter 8: Buying Real Estate for information on how the lending process works.

Tip: If you are leasing space make sure to keep in contact with you landlord periodically especially as the end of your lease nears - try and get a sense of the landlord's intention regarding renewing the lease. Even if you feel secure in your space it is never a bad idea to have a preemptive plan should something unexpected occur.

Assessing Your Needs

To determine the size and type of space you need, begin by reviewing your current workspace layout. Do you have enough wall space, storage space, etc.? Is the location right? Is it too big, or too small? What do you need more or less of in your new space? Do you wish to combine your living and working spaces?

To help you document and clarify your needs, complete the Space Layout Requirement Worksheets and the Space Analysis Worksheets (even if you are currently lacking a space).

Space Layout

The Space Layout Requirement Worksheets help you to compare the layout and total square footage of your current space with a potential new space. As you complete the worksheets, disregard categories that do not apply to your situation, while keeping two things in mind:

1. What type of activities will occur in the room?
2. What type of furniture and/or equipment will the space need to accommodate?

In determining the total square footage requirements for your new work or live/work space, don't forget to include features such as the hallways between enclosed rooms, or the amount of space around a work station -- typically, an additional 15-30% added to your total square footage. For spaces of 1,500 square feet and up, it might be wise to use the services of an interior designer or space planner in order to create a layout that optimizes efficiency and accuracy in measurement.

Space Analysis

Will your new space need a loading dock? An Auditorium? More parking? Room for residential quarters? The Space Analysis Worksheets will help you answer these questions by getting you to analyze your current space. Ignore questions irrelevant to your particular situation.

Google's SketchUp is a useful and free design and layout tool.

TIP: Arts organizations and businesses should enlist more than one person in searches for space, so that individuals' preferences do not outweigh the needs of the entire group.

Further Questions

As you fine-tune your space needs, also consider the following questions:

• Can you be productive in a residential space?
• Do you need commercial/industrial space?
• Do you want to lease or buy?
• Have you considered buying space -- either alone or with colleagues? See Chapter 8: Buying Real Estate and Chapter 11: Models of Ownership for more information.
• How many occupants share your current space? How many will share your next space?
• Which locations do you prefer?
• When can you move?
• What is your budget?
• What special features must a space offer in order to accommodate your art practice?
• If leasing, how long must the lease last?
• Will you have to store or dispose of toxic materials?
• Are there any other requirements you need to address?
• Might your long-term plans, or those of your organization, affect the use or need of the space?
• Do you need to frequently accommodate gatherings of people? If so, how many?
• What, if any, are the deficiencies of your current space?

Next Steps:

If you've completed the worksheets, you might be wondering, "What does all this mean?" At the very least, these exercises have gotten you to focus on your space needs and, hopefully, identify more of them.

In addition, the worksheets form a handy, written summary that can serve as your guide when evaluating potential spaces. As you refine your needs, revisit these worksheets. Invite others who will share or use the space to also complete them.

• Preparing Your Budget
• Space Expenses
• Moving Costs
  • Moving Yourself
  • Hiring a Mover
• Additional Costs
• Final Considerations
• Leasing Information
• Purchasing Space
• Leasing vs. Buying

Now that you have started thinking about the type of space you want and need, contemplate your funding options. With any lease or purchase, you must answer these two questions:

1. How much you can afford to pay?
2. What are the actual costs associated with operating the space?

This chapter helps you to examine your finances and expenses and to better understand the costs associated with operating a space. The three distinct sets of worksheets for you to complete in this chapter

• Worksheets for leasing
• Worksheets for buying
• To Lease or Buy Comparison Chart

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Preparing Your Budget:

Understanding how you spend money is critical in determining your budget. Know your annual net income (i.e., how much you earn after taxes) and total expenses: The difference is called your disposable or residual income.

Although you still might not know what type of space you want, remember that many options are available to you. As an individual artist you can choose to:

• Combine living and working in a single residential space.
• Combine living and working in a single commercial or industrial space.
• Keep your living and working spaces separate.

For arts organizations and groups you may want to consider your performance and administrative needs. As an arts organization you can choose to:

• Combine rehearsal, performance and administrative space
• Keep performance and administrative/rehearsal space separate
• Any combination of the three

In addition as an individual artist or arts organization you should consider the advantages and disadvantages of:

• Leasing space
• Purchasing space
• Combination of the two

You should visit the Department of Planning and Development (DPD) early in your preparations. Discuss your plans with a DPD land use planner and a permit specialist in the Applicant Services Center (ASC) before you lease or buy new space. The land use planner will review the allowed use for the facility and the permit specialist will discuss what improvements are needed for an occupancy permit. Who contracts for and funds the improvements needs to be negotiated with the landlord or seller as does the schedule for completing the improvements. (The ASC is located in the Seattle Municipal Tower on 700 Fifth Avenue, Suite 2000.)

As you look for space, you can either:

• Remain within your current budget -- the amount you presently spend on space (i.e. apartment, loft, studio space, theater, or office space etc.)
• Increase your budget.

If you increase your spending on space, then your residual income typically represents your available amount of funds. For example, if your current apartment is $600 per month, and your studio, $150 per month -- and you end up with $150 in residual income after paying your other expenses -- you can raise your space budget to $900, which represents the cost of your apartment and studio combined with your residual income ($600 + $150 +$150).

Keep in mind, however, that a larger space typically comes with higher utility bills, insurance premiums, property taxes (if applicable), etc.

To help calculate these expenses, individual artists should fill out the Calculation of Annual Expenses for Individuals. Small businesses and nonprofits should use the Calculation of Annual Expenses for Businesses and Organizations.

• Worksheet Considerations for Individuals : List all your annual costs (no matter how minor), including art supplies, food, professional fees, child support payments, clothing, entertainment, insurance, transportation costs, cigarettes, etc. Also include the cost of your current living and working spaces, if applicable. If you now rent workspace, note your total rent for that space (including all taxes, utilities, etc.) at the very bottom of the worksheet as indicated. Calculate your workspace costs and household rental costs separately. If your live and work spaces are combined, then calculate everything together. Fill in the form as best as you can, ignoring those categories that do not pertain to you and adding those that are not listed.
• Worksheet Considerations for Businesses and Not-for-Profits : If your business or nonprofit wants to relocate, filling out these worksheets is a little more straightforward. Much of the information concerning your annual expenses is readily available in your annual financial reports.

If you need help with calculating your expenses, speak to an accountant. See the resources in Chapter 4: Professional Services for information on locating accounting services.

Space Expenses:

Rent and mortgage payments are just two types of expenses associated with occupying a space. You must also consider the cost of insurance, property taxes, moving expenses, utilities, etc.

Your real estate agent or the current property owner should provide you with accurate dollar figures for most of these costs. Be sure that any bills or statements shown to you are recent (especially the property tax bill, if applicable). Also, Chapters 16-21 provide resources and advice on how to locate information on property taxes, utility charges and insurance for your space, property and art work.

Keep in mind that a residential lease will typically only include the cost of your rent, utilities, insurance and personal living expenses, which will drastically reduce your expenses. If you have a commercial or industrial lease, your expenses might be as much as they would be if you had purchased the property, especially if you have a net lease.

The remaining worksheets in this chapter will help you to calculate the full cost of your proposed space. Worksheets are divided into two sections - Leasing Information and Buying Information found in appendix E. As you complete the worksheet, consider:

• Your annual totals for bills. Many bills, including property taxes and utilities, are levied over different periods of time. Some might cover a two-month period, while others are monthly or yearly. Heating bills fluctuate on a seasonal basis. To estimate the cost of your monthly bills, add an entire year's worth of bills together, and then divide by 12. The remaining figure represents an average cost of the bill over the year. Factor in increases in utility charges and property taxes over the next five years. To get a better idea of both your leasing and buying options, complete both sets of worksheets.

Before completing the worksheets, also consider the cost of moving. See the next section, Moving Costs for additional information on this subject.

Moving Costs

Moving costs can run high due to the many associated costs: packing supplies, rental trucks, hired hands, gas, insurance, etc. There are two primary ways to accomplish the task:

• Do it yourself
• Hire someone else

Moving Yourself

The most costly aspect of moving yourself is the truck rental. Shop around for price breaks -- often given to those who rent trucks at certain times of the day or week -- and rental packages.

Pay special attention to any penalties associated with dropping the truck off late, accident liability, etc, and how you will be charged for mileage. Some companies' fees run as high as $0.45 per mile!

Key things to consider when moving yourself:

• Does your personal property insurance cover items broken during the move?
• Do you need to take out additional vehicle insurance, or does your personal insurance policy (vehicle, property, etc.) cover you for the truck rental?
• If you are an artist working with heavy or bulky equipment, can your assistants handle the load?

If you use a credit card to rent the truck, does the card provide insurance coverage for the truck rental?

Some common truck rental companies include:

• U-Haul
• Budget Truck Rental
• Penske Truck Rental

Hiring a Mover

You can hire a company to move you -- across town, across the country, or even overseas. Movers will pack and move all of your belongings, or just handle one part of the process. Some companies allow you to pack the truck before they drive your items to your destination (these services are usually used when moving cross-country).

When you speak to a moving company, ask about the range of services offered; nail down a final price, than comparison-shop. Many moving companies provide free estimates; keep in mind that the actual move might cost more or less. After hiring the company, give them a contract that specifically spells out your hourly fee and covered services.

Include the name of your mover's company in the contract; some companies outsource jobs to other firms. It is also important that your contract details charges associated with traffic delays, late arrivals, broken items, etc.

Before you hire a moving company, ask these questions:

• Who will move your belongings?
• Are the movers insured, and, if so, what are the maximums and minimums? Will they cover boxes you've packed?
• How will the company determine your fee?
• Are there hidden charges -- for example, if the movers must climb flights of steps, or if more than one person must move an object?
• Do you need a mover that specializes in offices, art, etc.?

Write out all agreements and conditions in the contract before you sign.

Additional Costs

In addition to the actual cost of moving your belongings, you must consider indirect costs such as renovations and potential productivity losses. Renovations constitute a type of moving cost in that you will incur them simply to adapt your new space to suit your needs. For example, if you relocate to a warehouse and convert it to a live/work space, you might have to erect walls, upgrade kitchen and bath facilities, and replace flooring -- or even install a specialized ventilation system. Seriously consider the long-term benefits of renovating a leased space before signing any contracts.

If changing the space is necessary, allot sufficient funds to cover these expenses -- especially if you have some form of net lease or are in a commercial or industrial space. Chapter 7: Commercial and Industrial Leases discusses how to factor renovation costs into your lease agreement.

It can be difficult to gauge how much your move will negatively affect your productivity. Measure lost creative or productive time by counting how many hours you have spent searching for space and packing, moving and resettling in the new environment.

As you prepare to move, transfer your utility services, change your address, enroll your children in different schools (if applicable), and switch your commuting schedule. These activities often come with a price tag: Not changing your mailing address, for example, might end up costing you late fees in bills because documents did not arrive at your new location in time. And transferring existing utility services to a new location will include connection fees and/or security deposits

Final Considerations:

Moving requires planning. Start preparing at least three months before moving day by nailing down the logistics of packing, rerouting mail, looking at schools, and finding insurance. Give yourself at least six
months or more to actually find a space.
The following Websites provide information on movers (some move art), truck rentals, and resources for relocating to new cities and neighborhoods. Some of these websites also provide free quotes from moving companies.

• Artech: Professional fine art transportation
• Moving.com
• 50 States: Comprehensive listing of U.S. newspapers in all 50 states
• Sterling Best Places: Provides neighborhood profiles and other information about relocation
• Find Your Spot: Tailored reports that compare your interests and needs to the best places for you to live
• Salary.com: Provides comparison information on cost of living

Now that you are thinking about moving expenses, review the next two sections, Leasing Information and Buying Information, and complete the worksheets.

Leasing Information

Remember that when you rent a work-only or live/work space, you must carefully review the draft lease to determine whether the price is for a gross lease or a net lease.

• Gross Lease: Under a gross lease, you pay a monthly fixed rent to the landlord, who then pays all operating expenses such as real estate taxes, insurance, repair costs and common area maintenance costs (CAM). Common areas include lobbies, shared bathrooms, and elevators. Some landlords cover utilities, but many do not. (Most residential leases are gross leases, while commercial and industrials leases can be either a gross or net lease.)
• Net Lease: Under a net lease, you pay rent plus a portion of the operating expenses -- which might include CAM, insurance costs and real estate taxes. These are sometimes described as a square-foot price. For example, your rent quote might state that $1.25 of the rent covers the CAM costs, which may or may not be included your portion of the property taxes. Both a double net lease (a.k.a. net-net) and triple net lease (a.k.a. net-net-net) are forms of a net lease.

Taxes and utilities can add up to hundreds or even thousands of dollars to your monthly rent, making that "cheap" space too much for your budget. If the lease is unclear, ask the landlord if additional charges will be levied; write his/her response into the lease in clear language before you sign. If you are working with a real estate agent, ensure that he/she helps you to identify any additional costs associated with the space.

If you have difficulty determining these costs, Chapters 16-21 provide the necessary information, resources and questions to ask when assessing a space. Once you have gathered all of the cost information, complete the worksheet.

Purchasing Space:

Purchasing property is one of the largest investments you will ever make.

Keep in mind that these worksheets are only a first step. You must explore other chapters of this manual in order to better assess your purchasing power, and to learn about the many options and assistance programs available to you. Chapters 8-12 offer detailed information on financing real estate purchases and various ownership models.

When thinking about ownership, consider the property's annual operations and maintenance costs. Completing the worksheets for this chapter will help you to estimate these costs, as well as purchasing and moving expenses.

If you have a particular property in mind, use the actual numbers provided by your real estate agent, the property owner or the seller's representative. Chapters 16-21 provide information on the many costs associated with leasing or owning a space.

Leasing vs. Buying

If you have completed the worksheets for Chapter One and for this chapter, you should have a clearer picture of your needs and options, as well as a stronger grasp on the financial aspects associated with either leasing or buying space. For a graphic representation of these comparisons, complete the To Lease or Buy Comparison Chart found above using the totals from your Chapter Two worksheets.

Even after completing the worksheet, you might still be wondering which option - to lease, or to buy? - is best for you. In future chapters, we will discuss the pros and cons of each choice in greater detail. Ultimately, however, the decision is yours, and depends upon your financial abilities and your present and long-term space goals and needs.

Seattle-area property costs vary dramatically, and some neighborhoods are much less affordable than others. Even within neighborhoods, cost differences can be startling. The age and condition of a building, the time of year you are looking to purchase, and the number of open purchasing offers can all affect the final price of a space, as can access to public transportation and the proximity of amenities such as restaurants, other arts organizations and grocery stores.

• What is Credit
• Establishing Credit
• Credit Reports
• Credit Scores
• Your Credit Report and Score
• Good vs. Bad Credit
• Alternative Credit
• If Credit Problems Arise
• Debt Management and Credit Counseling
• Bankruptcy
• Rebuilding Credit
• Avoiding Predatory Practices
• Bank Fees
• Check Cashing Companies
• Credit Cards
• Pay Day Loans
• Predatory Lenders
• Rapid Refund Tax Returns
• Rent-to-Own Companies
• Credit and Your Space Hunt
• Lending
• Credit and Insurance section
• Credit and Identity Protection
• Managing Personal Information
• Protecting Personal Information
• Ch.3 Resources

What is credit, exactly? How do you get it? And what does it mean to you?

Credit means, "buy now, and pay later." It involves a complex system of checks and balances, pros and cons, and points and scores that impact your financial capabilities and life on many levels -- particularly when you wish to buy or lease space.

In this chapter we will discuss the following:

• Credit and credit scores
• The financial impact of credit
• Differences between personal and business credit
• How to repair your credit
• How credit affects your ability to secure space
• How to protect your credit rating.

What is Credit

Student loans, utility bills, mortgages, your rent, your tab at the local pub: These are all forms of credit. In essence, credit involves using someone else's money to pay for things. When you purchase items with someone else's money, you enter into a financial agreement stipulating that you will repay the entire balance of the original amount owed, plus additional fees and interest.

The party that loans you money is called a creditor. This can be a family member, friend, nonprofit organization, bank, business, the government, or another party. Creditors are willing to give you money because they make money when you repay your loan -- through fees and interest. Be aware that credit is a serious matter for businesses, nonprofits and individuals, and impacts you on many, many levels

Establishing Credit

Credit can either positively or negatively affect your personal life and/or business; much depends on how you use it. Potential creditors can review your credit history by looking at your credit report, which details your credit use and payments collected from all of your past creditors. These reports are generated by credit bureaus, which act as the gatekeepers to the world of credit.

Most creditors use information from three credit bureaus: Equifax,Experian and TransUnion Corporation. Each bureau is responsible for a particular region of the country.

While most creditors report information about you to each of the three primary bureaus, some choose to send data only to the bureau collecting in your area, or to smaller credit bureaus. Dun and Bradstreet is the primary source for credit information on businesses and nonprofits.

What do credit reports, credit bureaus and credit history mean to you? New creditors, as well as potential landlords and business partners, use these reports to help determine whether they will trust you to repay them.

A credit report tells potential creditors:

• How much money you already owe to other creditors. If you owe more money than you earn, you might not be able to keep up with payments for a new account.
• How often you borrow. Borrowing frequently might suggest to creditors that you can not meet your present debt responsibilities, or consistently seek new funding sources to cover your debts. Some creditors regard opening new credit cards as borrowing.
• How many open accounts you have. Even if accounts have a zero balance, if you have "too much" available credit, creditors might view this as a risk that you can max out these accounts and go into debt.
• If you pay your bills on time. Even occasional late payments might be a sign of cash flow problems.
• If you operate or live within your means. Credit cards and lines of credit that are maxed-out are a definite sign that you have problems meeting your debts.

Credit reports do not tell creditors the reasons why you can not pay your bills, or why you have defaulted on a loan. They just present the facts and figures in black and white.

Credit Reports

Although each credit bureau organizes its reports differently, all credit reports contain the following information:

• Your name
• Current address (provided by creditors)
• Your social security number
• Creditor's name and contact information
• Account number
• Type of account (auto loan, credit card, student loan, etc.)
• Date account was opened
• Credit limit or loan amount
• Account balance
• Information detailing the status of the account (i.e. pays on time, past due, closed, etc.)
• Number and type of your inquiries
• Number and type of inquiries by others such as auto companies, credit cards, employers, and insurance companies
• Public record accounts such as collections, bankruptcies, liens, etc.

Credit reports do not provide information on:

• Age
• Race
• Religion
• Gender
• National origin
• Marital status
• Income
• Employment

The following links will provide examples of a credit report:

• Personal Report (Experian)
• Commercial Report

In addition to the above information, your report includes a credit score generated by the credit bureau. For more information about credit scores, view the next section, Credit Scores.

Credit Scores

Besides providing a detailed record of your debt management practices, credit reports also include your credit score: a snapshot of your credit risk at a given moment. Your score indicates the likelihood that you will pay off a debt as compared to other borrowers nationwide. You receive or lose points for certain types of credit items and practices. For example:

• Have your creditors given you high ratings?
• How many accounts are 30 days or more past due?
• Do you have unpaid accounts and collections?
• Have you recently paid off any loans or other debts?
• Do you have low balances on your open accounts?
• Are there liens against your property?
• Have you filed for bankruptcy?

The list goes on and on. Added together, these points generate your credit score.

It can take three months or more to see a rise in your credit score after you have taken a positive action, while negative practices can impact your score immediately. Scores are affected by late payments, paying off of collection accounts, and closing or opening of new accounts. Depending on the scoring method used, scores range from 0-999 points. The most popular systems use scores that fall between 300-900 points.

Creditors typically view higher scores as evidence of the borrower's stability and reliability. Scores of 620 or higher are considered "good" -- i.e., creditors believe that you will repay them. Scores lower than 620 are considered riskier. We discuss "good" scores in the section, Good vs. Bad Credit.

Creditors have their own levels of risk they will accept. Keep in mind that your score is not the sole component of your application that a lender will use when determining whether or not to extend credit to you.

In addition to the credit bureaus' scores is the FICO score. Developed by the Fair Issac Corporation, it is the most widely used credit score, and is different from other scoring methods in that it factors in all the information contained in your entire credit record: information from the "big three" credit bureaus, as well as information from smaller bureaus that the "big three" might not report.

FICO scores are based on five factors, weighted in importance accordingly:

• 35% - Payment history
• 30% - Amount of debt owed
• 15% - Length of time you have had open accounts with creditors
• 10% - Inquiries into your report
• 10% - Types of credit accounts you have open

The credit score you receive in credit reports issued by a "big three" bureau will not be a bona fide FICO Score, which will range from 0-850. To receive a copy of your FICO score, contact Fair Issac directly through its FICO Website.

The Fair Issac Website offers a simulation game that enables you to learn more about how certain actions -- for example, paying a past due debt, or being late with a payment -- affect your credit score

Your Credit Report and Score

By law, you have the right to obtain a copy of your credit report and dispute any inaccurate information it contains. Reports cost between $9 and $12, and include a detailed history of your credit practices for the last 7-10 years and a credit score. Reports also include information and tips on how to improve your credit rating.

Legally, you are allowed to have a free copy of your report if you have been denied credit, a job, insurance, etc. within the last 30 days due to information your report contains. Directly contact the credit bureau that issued the erroneous report.

You are also legally allowed to obtain a free copy of your report from each of the "big three" reporting agencies each year. Contact one or all of the following primary credit bureaus:

Equifax
P.O. Box 740241
Atlanta, GA 30374
(800) 685-1111

Experian
955 American Lane
Schaumburg, IL 60173
(847) 517-5600
(888) 397-3742

TransUnion
P.O. Box 2000
Chester, PA 19022
(800) 916-8800

Dun and Bradstreet
The D&B Corporation
103 JFK Parkway
Short Hills, NJ 07078
(800) 234-3867
Provides business and nonprofit credit reports only.

Or, you can visit www.annualcreditreport.com to easily apply for your free annual report.

Because your creditors might not report information to each "big three" bureau, obtain reports from all of them in order to get the most accurate assessment of your credit rating.

Your report will explain how to interpret its contents. For additional assistance, call the issuing credit bureau, or a nonprofit organization that specializes in credit counseling/debt management or home-buying, or offers accounting services.

Good vs. Bad Credit

Creditors categorize certain practices and items on your report as either "good" or "bad," then rank them from "good" to "great," or "bad" to "worse." For creditors, the ratio of positive to negative practices listed on your report paints a picture of you as either a good credit risk or a bad credit risk. Having "good" credit means that creditors believe they can count on you to repay them. Creditors hesitate in lending to individuals or organizations with bad credit records out of concern that they will not be repaid in a consistent and timely fashion.

Good credit often translates into lower interest rates, fewer fees and more options. Bad credit means high interest rates, more fees, and greater restrictions on lending options, employment opportunities and other life necessities. Bad credit can close the door to banks and other lending institutions.

The two main methods of establishing good credit are:

1. To pay your bills on time; and
2. Keep your debt to a minimum.

Some practices and items that creditors view as negative marks on your report (rated from "bad" to "worst") include:

• Credit inquiries
• Credit rejections
• Late payments
• Past due and unpaid accounts/payments
• Court judgments
• Collections
• Loan defaults (includes student loans)
• Repossessions
• Foreclosures
• Bankruptcy

Alternative Credit

Using and obtaining credit is a necessary evil in today's marketplace. If you normally pay cash for most things, and do not use credit cards, then your credit history is probably quite limited. Not using credit might seem like a good thing, as it limits your risk of falling into debt. However, it can become problematic when you apply for a loan or other type of credit to purchase a big-ticket item such as a house or vehicle, or even try to rent a car (most rental companies require borrowers to make reservations using a credit card).

If your credit history is limited, you can start building a record by creating your own alternative credit history. Items to include:

• Statements from utility bills. These statements show how long you have had accounts, and how you have handled paying your bills. You can also ask your utility providers to write recommendation letters for you.
• A recommendation letter from your landlord. If you have been a good tenant, and have paid rent on time, this will indicate that you will also pay your new landlord or mortgage on time.
• Bank statements. Monthly checking and saving statements reveal how you handle your money. Bounced checks indicate cash flow problems, while bills paid on time show sound debt management.
• Copies of cancelled checks or money orders. These show how you have handled paying your bills.

Some lenders and creditors will also provide you with a list of additional information they are willing to accept in lieu of a traditional credit report. You might also want to consider opening a credit card account to begin establishing a credit history.

If you choose to open a credit card, do some research to find one that best fits your needs, and maintain a low balance. Using a credit card wisely will help put you on the credit map with creditors. Consumer information websites such as e-wizdom.com can provide information and interest rate comparisons on credit cards

If Credit Problems Arise

There might come a day when you can not pay your bills. Unemployment, illness, a denied grant, low ticket sales or any number of unexpected events can force you into debt, which could drag down your credit score.

No one intentionally establishes bad credit. Reestablishing a good credit rating is an arduous task, but not an impossible one. Helpful options include entering a debt management/credit counseling program and filing for bankruptcy.

Debt Management and Credit Counseling

Some nonprofit organizations offer Debt Management or Credit Counseling programs to help reestablish you in good standing with creditors and to develop positive financial management skills. These programs speak with creditors on your behalf, and help you to create a budget and to set up repayment arrangements. Programs often charge a small fee, but many organizations will provide a free analysis of your financial situation.

If you enter these programs, many creditors will eliminate late fees and other penalties, lower your monthly payments, and lower your interest rates - especially on credit cards. Unfortunately, participation usually requires closing all of your open accounts, which could negatively impact your credit rating. In addition, participation is voluntary by both you and your creditors; all of your creditors might not participate or agree to the program's guidelines. These programs can take up to 5-7 years to complete, after which your debt balance will be zero.

To find a credible debt management/credit counseling program, look for an affiliate of the National Foundation for Credit Counseling. In addition, you should also check with the Washington State Department of Financial Institutions, the government agency that regulates these organizations in the State of Washington. DFI can provide you with a list of debt management/credit counseling agencies approved to practice in the state. For more information, contact DFI at (877) 746-4334 or through their website: www.dfi.wa.gov.

If you are considering debt management assistance, steer clear of "credit repair" companies, which charge inflated fees for help that you can get elsewhere for a nominal price or for free. Also, if you predict trouble, you can contact your creditors directly and attempt to make your own debt management arrangements.

Bankruptcy

Bankruptcy Disclaimer: This chapter includes information about the law. This is general information and is not legal advice that applies to your specific situation. Additionally, laws change, and the City of Seattle and contributors to this manual do not guarantee that representations of the law are complete and up-to-date. If you need legal advice - information that applies to your specific situation - you should consult a lawyer. See Chapter 4 for information additional information on when to hire a lawyer.

Bankruptcy is a legal process that allows you to pay off your debts at a rate significantly reduced from what you would normally pay. Unlike debt management programs, bankruptcy is a legal decision, and both you and the creditors must abide by the court's ruling. Bankruptcy can seriously damage your credit, and will appear on your credit report for up to 10 years after it is reported. It is also a complex legal matter that an attorney must handle for you. For more information on Bankruptcy you can access free legal information through the University of Washington School of Law library website at: lib.law.washington.edu/ref/legalinfo

Individuals and businesses use two primary forms of bankruptcy: Chapter 13 and Chapter 7. Chapter 13 allows you to pay off your creditors over a set period of time (usually 3-5 years), while Chapter 7 requires you to liquidate your assets such as your house, car, bank accounts, etc. to pay off your debts.
Although you will start with a clean slate after filing for bankruptcy, the consequences can tarnish your financial opportunities for many years. However, if you truly cannot pay off your debts and feel that bankruptcy is the correct route, secure counsel from a bankruptcy attorney. See Chapter 4: Professional Services for information and resources on locating an attorney.

Federal bankruptcy laws in effect since October 2005 have limited the number of individuals who can file for Chapter 7 bankruptcy. Under the 2005 laws, individual filers must pass an income-based test in order to qualify. The court will consider whether:

1. You can pay 25% of your income to debt after subtracting food, rent, utilities, etc.
2. Your income is below the state median income.

If you meet these burdens, the court still has discretionary power to require you to file under Chapter 13, in which case it will set-up a payment plan based on living standards guidelines established by the IRS.

The following links provide more in-depth explanations of the 2005 bankruptcy laws:
http://www.npr.org/templates/story/story.php?storyId=4600645
http://www.personal-bankruptcy-chapters-7-13-filing-laws.com
http://money.cnn.com/2005/04/20/pf/bankruptcy_bill/

Rebuilding Credit

Rebuilding your credit requires time and patience. Once you are in a financially secure and stable position, take the following steps:

• Start paying your bills on time. This includes utility bills, credit cards, car payments, rent -- basically, anyone to whom you owe a monthly payment.
• Pay off any past due accounts and delinquent debts.
• Open a checking or savings account. Lenders and some landlords review your bank statements when making credit decisions.
• Open a credit card account. You do not have to use the card, but having one does put you back on the credit map. If you have problems obtaining a conventional credit card, try to obtain a secured credit card, under which you deposit a certain amount of funds that are used to set the limit on your credit card. For example, if the bank gives you a $300 limit for a secured credit card, you must provide a $300 security deposit.
• Save. A rainy day fund will come in handy when unexpected expenses and costs arise.
• Give yourself time. Once you've gotten back on track, allow three months to a year to pass before expecting any increases in your credit score and rating. As your score increases, so will your ability to access more credit opportunities.

Once you develop a reliable payment history and undergo constructive debt management, bad credit items will diminish in importance. Positive practices such as paying off student loans and paying your car payment or other bills on time stay on your report indefinitely.

Most bad items can legally remain on your report only seven years after the creditor reports them; the credit bureau must then remove the item from your report. When these items come off, your credit score will typically increase in a few months. However, some credit items (bankruptcies, for instance) can stay on your report for up to 10 years. If an outdated item is not removed from your report, contact the credit bureau immediately for an explanation and/or to get the item removed.

Avoiding Predatory Practices

Steer clear of "creditor predators": organizations, companies and practices that charge high fees and rates. Participating in these programs will cost you more money in the long run, and could even contribute to your cash flow problems. The remainder of this section will discuss common predatory practices

Bank Fees

Overdraft protection plans and bounced check fees can be very, very expensive. Avoid bouncing checks. If you don't have sufficient funds to cover a check, secure the funds you need by selling your art, borrowing from family and friends, or putting the amount on a credit card. Fees range between $20-40 per incident, and some institutions even impose daily charges until the amount is paid in full.

In addition, a vendor might run the check several times before returning it to you, which means that a $20 bounced check for a new leotard can quickly turn into $70 worth of bounced check fees, which in turn could negatively affect other checks you have written. Delayed gratification and a late charge might be a more suitable option than lots of bounced check fees.

Mistakes do happen. When you are looking to open a bank account, choose the bank that charges the fewest fees.

Check Cashing Companies

These companies make money by charging extremely high fees (sometimes in the triple digits) for providing bank-like services. Avoid them by having your own checking and/or savings account. Many banks, trusts and credit unions offer a variety of account options. If past credit issues make opening your own account difficult, then try to cash your check at the bank where the account originates, or try local grocery stores or pharmacies that provide affordable check-cashing services.

Past credit problems do not automatically exclude you from opening your own savings or checking account with a local bank. Meet with a banking representative and explain your circumstances. Also, try smaller community banks and credit unions, which often have less stringent requirements than larger institutions. Organizations and lending institutions with a community-based initiative might also help you.

Credit Cards

As you build or rebuild your financial history, do your research and choose wisely when opening new credit card accounts. Steer clear of high-interest credit cards, programs with high fees, low introductory offers that balloon into double-digit interest rates after a few months, and other catches. Find a card with low interest rates, and look for the hidden costs of escalation charges -- for example, interest rate increases that kick into action after just one late payment.

Also, be mindful of companies that check your credit report periodically and that reserve the right to raise your interest rates based solely on your report.

If you are considering getting a credit card, review Websites such as e-wisdom.com that provides information and interest rate comparisons on credit cards.

Pay Day Loans

These companies offer advances on a certain amount of money until you get paid, and charge fees associated with particular amounts. You secure this loan by writing a post-dated check drawn off a checking account, which is deposited on the said date. A typical $250 loan can include a fee as high as $45. So, you end up writing a $295 check to cover a $250 loan. Normally, the loan matures in two weeks, at which time you are expected to pay the loan and fee in full.

If you cannot pay the required amount, then you can pay the fee ($45) and roll the original loan amount ($250) over for another two weeks. Then, again you can either pay the entire $295, or just the fee, and roll the loan for another two weeks. If you roll the loan over just once, you pay a $90 fee to borrow $250!

Borrow from friends and family, or even a bank or credit union, if you are strapped for cash. Or better yet, sell your art! Whatever you do, stay away from these organizations.

Predatory Lenders

Predatory lenders come in all shapes and sizes. They sell mortgages, cars, loans, and many other items. Predatory lending practices include offering loans with extremely high interest rates, charging high pre-payment penalties, and slipping in hidden clauses that can rob you of your assets. Stay away from lenders who practice such tactics, and seek out other alternatives such as family and friends, nonprofit programs and traditional lending institutions like banks or credit unions. If it sounds too good to be true, then it probably is.

Rapid Refund Tax Returns

Similar to "pay day loan" companies, these businesses charge a fee to provide your tax refund faster and up-front. The fee comes out of your refund, and can run as much as 20-30% of the total amount. If you file your taxes correctly and on time through traditional routes, you will receive your refund in just a few weeks. Be patient and wait: The money is coming! By staying away from these companies, your return will be greater.

Rent-to-Own Companies

These institutions charge high fees and interest rates, and their contracts often include alarming loopholes. Some customers end up paying nearly double an item's worth after renting from these organizations. If you are in a bind and need furniture, thrift and resale shops offer an inexpensive alternative to rent-to-own companies. You can also do without and save until you can purchase the desired items.

Credit and Your Space Hunt

Now that you understand how credit works, it is time to explore the role it plays in your ability to secure space.

Money is only one part of the equation when leasing or financing the purchase of a property. As mentioned previously, your credit history can dramatically affect your options. If you are buying, good credit can mean lower interest rates, fewer fees and more choices between lenders, while bad credit can translate into high interest rates, more fees, greater restrictions on your options and closed doors. High scores mean you pay less over the life of the loan, while low scores mean you might pay premium rates. High scores might also qualify you for special programs and incentives closed to those with lower scores. If you are leasing, good credit can mean favorable lease terms and conditions, and determine whether you get a space at all.

Personal credit is not always separate from your business credit -- especially when creditors deal with start-up businesses or fledgling nonprofits. In these situations, until the business or organization has existed long enough to establish a solid financial track record and its own credit history (which could take years), your personal credit history and score might be the only basis for creditors' decisions regarding your new enterprise.

If more than one person owns the company or sits on the board of directors, then the credit and finances of everyone involved might be considered. This can be advantageous in securing more opportunities (unless, of course, the co-owners or board members have bad credit and finances) because creditors will regard the risk as shared -- i.e., they will have more people from whom to request repayment if problems ensue.

The next section, lending criteria discusses in greater detail the credit items and issues lenders and creditors consider when providing loans and other types of credit.

Lending

Lenders typically use five criteria when evaluating your credit history to determine whether they will lend to you. The "Five C's of Credit" are: Capacity, Capital, Collateral Credit, and Character.

Capacity

According to the creditor's standards, are you qualified to receive the line of credit or loan that you want? Do you have the background, history, experience and expertise to continue with the project? Does your track record in business or in paying your bills indicate that you will come through?

Your employment also plays a factor. How long have you been employed at your job, and what type of job do you have? For creditors, certain types of employment are viewed more favorably than others. Most occupations fall into these categories, and are viewed from most desirable to least:

• Professional (doctor, lawyer, tenured college professor, head of company)
• Managerial
• Self-employed (artists)
• Clerical
• Manual labor.

Capital

Have you contributed or committed enough of your own resources to the venture to ensure you will see the endeavor through? Have you put down a sufficient down payment on the property? Are you willing to put up the equity in your own home to cover a business loan?

Collateral

Lenders want to know what tangible assets you have (job, money in the bank, house, car, etc.). If you receive a loan, these assets will secure the loan. In other words, the lender can claim ownership of your assets in the event that you default on the loan. Your home or building becomes the collateral, with mortgages, and will be sold if you default. For other types of credit, such as credit cards or auto loans, your job is used to indicate your ability to pay back the lender.

Credit

Here, the lender reviews your credit reports and track record in borrowing and repaying debts. If you have had problems, be upfront about them, and prepare explanations. Creditors might request a letter and supporting documentation that explains how you have remedied credit issues.

Character

This is where the creditor's subjectivity plays a role in their decision-making, and where you must sell yourself. Impress the lender, and you might receive more than your credit, collateral and capital would otherwise warrant. If the lender finds you questionable, you might lose the loan altogether.

Creditors will evaluate your present situation and decide if you can make mortgage payments on a timely basis, even if you've got a history of financial instability. The creditor's confidence in your organization's ability to sell your products (sculptures, musical scores, theater tickets, etc.) and/or accomplish its mission is very important. Can you demonstrate that, despite past hardships, you have always handled yourself responsibly, and with integrity and professionalism?

Getting Credit Ready

If you hope to purchase a property or obtain a new lease, start reviewing your credit at least six months to a year in advance. Start by pulling a credit report from the three primary bureaus, which will give you sufficient time to correct mistakes and to rectify any problems. Being proactive and "cleaning" up your report will also help to increase your score.

Credit and Insurance

In Washington State, it is illegal for insurance providers to base their decisions on whether to provide insurance to you, or renew and/or cancel an already existing policy, solely on your credit history. Additionally, insurers are not allowed to cancel or non-renew policies based upon:

• The absence of credit history
• The number of credit inquiries
• Collection accounts identified as medical bills
• The initial purchase or finance of a vehicle or house that adds a new loan to the consumer's existing credit history
• The use of a particular type of credit card, debit card or charge card
• The total available line of credit held by the consumer

For detailed information about laws concerning insurance and credit, contact the Washington State Office of the Insurance Commissioner at www.insurance.wa.gov or 1 (800) 562-6900 or for more information about insurance visit the website of insurance for small business and non-profits at www.insureuonline.org.

Credit and Identity Protection

In today's "Information Age," personal information is often just one mouse-click away. The upshot: We're all becoming increasingly interconnected. The downside: an increase in Identity Theft.

Identity Theft occurs when someone uses your persona to gain access to your personal information. These thieves often destroy your finances and credit rating by opening new accounts and making purchases under your name. No one is completely immune to such criminals. However, you can take steps to protect your personal information, identity, finances and credit rating. Organizations such as theElectronic Privacy Information Center and the Privacy Clearinghouse help protect your privacy and personal information.

The remainder of this section discusses how you can protect yourself from Identity Theft.

Managing Personal Information

When handling your identity and credit:

• Check your credit report at least once a year to make sure that no one has opened a new account in your name, and that no unusual inquiries or other activities have occurred. This helps you to spot problems early.
• Keep in mind that, although any creditor can put information on your credit report as long as it is considered valid and they have your social security number, only legitimate businesses can actually access your report -- and they must receive your permission to do so. Only existing creditors can access your records without your permission. If an unauthorized inquiry appears on your report, follow up with the credit bureau immediately to find out who has accessed your information.
• Look for inaccurate information on your report. The Fair Credit Reporting Act, which regulates creditors and credit bureaus, requires the bureau to investigate your claim. If your claim is found to be valid, the information on your report must either be removed or corrected.
• You can install a fraud alert system on your credit report for a period of seven years. This means that any time someone (including you!) tries to open up an account in your name (mortgage, car loan, credit card, etc.), you will immediately receive notification for verification to approve the application. It will require effort on your part to keep your contact information updated with the credit bureaus, but the reward of added safety may be worth it. Contact the three primary credit bureaus to add this request to your reports.
• Credit bureaus often sell pre-screened lists to potential creditors. These lists only contain your name and address, but result in tons of junk mail with offers for new credit cards, home or car refinancing, and other services. You can request removal from the pre-approved offers list for a period of five years by contacting the credit bureaus directly. You might also want to shred all pre-approval forms, as some identity thieves have used them to open new accounts

Protecting Personal Information

Steps to protect your credit:

• Check your credit report at least once a year to make sure that no new accounts have been opened in your name. Also, check to see if any unusual inquiries or other activities have occurred. Spot problems early.
• Just as you would with your credit report, check your savings and checking accounts for unusual activity each month.
• Avoid unwanted phone calls and mailings. Recent federal legislation has made it easy for you to stop unwanted phone calls and tons of junk mail. By signing up on the National Do Not Call Registry, telemarketers must stop contacting you by law. Your registration lasts for five years, after which you must reapply. Sign-up on the list here, or call (888) 382-1222.

For additional information, contact the Washington State Office of the Attorney General at (800) 551-4636 or www.atg.wa.gov

When telemarketers call your home, it is your right to tell them to immediately stop calling and remove your name from their lists. They must comply. If you continue to receive calls, you can file a complaint with the Federal Trade Commission. To stop unwanted solicitations via the mail, send your name and address with a note to remove your name from the list to:

Mail Preference Service
P.O. Box 9008
Farmingdale, NY 11735-9008

For both services, any time you change your mailing address or phone number, you will need to update your information with the appropriate organization.

When your creditors send you Privacy Notices, read them thoroughly to understand how they will use your sensitive information. Opt-out to prevent them from sharing your information with other organizations.

Shred vital information that contains your social security number (SS) or Tax I.D. number (for businesses and nonprofits) and other sensitive information. Your SS and I.D. numbers are direct gateways to all of your vital records and credit information.

Make sure you know how businesses, banks, organizations and others use your personal/business information. Do they sell your information to other organizations? Are they destroying sensitive material? While you are being careful, others might be careless. Request that businesses and organizations do not use your Social Security or Tax I.D. number as your customer identification number.

Again, the Information Age has made getting into your house and information easier via the web and email systems. Install firewalls on your computer.

Do not store sensitive personal or financial information on your cell phone or pager. If you lose these items, someone can gain instant access to your sensitive information. Keep this type of information privately secured in your home.

Keep abreast of new legislation and business practices that attack your right to privacy and/or make access to your personal information easier. Many nonprofit organizations such as the Electronic Privacy Information Center, Privacy Clearinghouse and Identity Theft.org provide information and resources to help you maintain and protect your sensitive information and privacy, which in effect protects your credit.

TIP: If you are planning to purchase or obtain a new lease, pull a credit report from the three primary bureaus ( Equifax , Experian and TransUnion ) at least six months to a year beforehand. This will allow you adequate time to correct any mistakes on the report and to clear up any blemishes.

TIP: Shred or remove your name from pre-approval credit card and loan applications. Some identity thieves have gained access to individuals' information by changing the return address on these forms and then opening the new account in the individual's name.

TIP: Steer clear of "credit repair" companies, which charge astronomical fees for help that is often available for free.

Resources

Center for Responsible Lending
Educates the public about predatory lending practices and prevents this type of financial abuse.

Credit Smart
A service of Freddie Mac, Credit Smart is a consumer guide to rebuilding credit.

DebtAdvice.Org
Designed to help consumers understand the wise use of credit and locate a caring, certified counselor if they are in need of assistance.

Dun and Bradstreet
Provides global business information, business tools, and business and nonprofit credit reports.

Electronic Privacy Information Center (EPIC)
A public interest research center in Washington, D.C. that focuses on civil liberties issues and how to protect one's privacy.

Equifax
Credit counseling and other resources for those interested in maintaining good credit or repairing credit.

FCC: Federal Communications Commission
Regulates interstate and international communications by radio, television, wire, satellite, and cable.

Federal Trade Commission (FTC)
Monitors credit bureaus and telemarketers, enforces credit-related laws, and offers free information about credit organizations.

Federal Trade Commission (FTC) Consumer Protection Information
This section of the FTC's Website provides publications that feature advice on avoiding scams and rip-offs, as well as tips on other consumer topics.

National Credit Union Administration (NCUA)
The federal agency that charters and supervises federal credit unions and insures savings in federal and most state-chartered credit unions.

National Foundation for Credit Counseling
Provides credit counseling and debt management services. Member organizations work with consumers to settle debts with their creditors and provide information on debt management issues.

Office of the Comptroller of the Currency (OCC)
Charters, regulates, and supervises national banks. (National banks contain the word national or N.A. in their title -- i.e., National City Bank or First National.)

Office of Thrift Supervision
The primary regulator of all federally chartered and many state-chartered thrift institutions, which include savings banks and savings and loan associations. These banks have FSB or FA as part of their name.

Privacy Clearing House
Dedicated to raising the public's awareness about technology's impact on personal privacy.

Suze Orman's Financial Planning and Management Resources
Offers links and information on financial and personal planning resources such as debt management and insurance quotes.

TransUnion Credit counseling and other resources for those interested in maintaining good credit or repairing their credit.

UP Bankruptcy
Offers articles about bankruptcy issues.

• Guidelines for Hiring Professionals
• Lawyers
• Accountants
• Accounting Services
• Finding an Accountant
• Accounting Costs
• Mortgage Brokers
• Broker Costs
• Building Inspectors
• Hiring an Inspector
• Inspection Costs
• Real Estate Agents
• Finding an Agent
• Buyer Agents vs. Seller Agents
• Dual Agency
• Hiring an Agent
• Agent Fees

This chapter focuses on the roles of professionals you might encounter during your space hunt, including attorneys, accountants, mortgage brokers, building inspectors, and real estate agents. You will also find tips and resources on hiring and locating such professionals.

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Guidelines for Hiring Professionals

Start your search with referrals from colleagues, family members and friends. Even if you accept a referral, be prepared to do some leg work to make sure the professional meets your needs and is in good professional standing.

Basic questions to consider when hiring professionals include:

• How long has s/he been in business?
• Does s/he have the required license(s) to practice in Washington? The Washington State Department of Licensing (DOL) has links to all professional licenses at www.dol.wa.gov/listof licenses.html.
• Does s/he have experience working with artists, nonprofits, theatres, etc.?
• Which services does he/she provide?
• What can you expect for your fee?
• How will they handle conflicts of interest?
• What type of insurance does s/he carry (if applicable)?
• If you require a specialized service (for example, an accountant who specializes in nonprofits, or an architect who specializes in designing commercial conversions to residential spaces), make sure the professional's past clients had needs similar to your own.

There are good and bad professionals in every field. Be vigilant in your search process so that you find trustworthy, cooperative professionals. Real estate transactions involve substantial amounts of your money, so be your own advocate.

Lawyers

When planning to rent space, artists frequently ask, "Do I need a lawyer?" The answer depends on your specific needs and circumstances. The Washington State Bar Association has a free consumer pamphlet that describes common circumstances for when to hire a lawyer and provides helpful information to think about when making your decision. You may obtain that information on-line at http://www.wsba.org/media/publications/pamphlets/lawyers.htm or by phoning the Washington State Bar Association at 800-945-WSBA or 443-WSBA. Additionally, Washington Lawyers for the Arts
offers arts legal clinics several times per month in various locations. You can learn more at their web-site at www.thewla.org or call (206) 328-7053.

For free legal information, visit the University of Washington, school of law library for links to answers to basic legal questions at lib.law.washington.edu/ref/legalinfo.
If you have never used a lawyer's services before, you might be anxious about what to expect. Don't be intimidated: Lawyers are important members of your real estate team.

Lawyers will ensure that the lease or purchasing agreement you sign says exactly what you agreed upon with your landlord, and that your mortgage and other documents are recorded. Your lawyer is one of the few professionals in the purchasing or leasing process who works for you and only you. For this reason, it is extremely important that you find one who understands your needs and who meets your requirements.

Accountants

In real estate transactions, accountants:

1. Assist you in analyzing your cash flow to determine what you can afford (See Chapter 2: Costs of Space for worksheets to help you get started examining your financial picture); and
2. Address your tax concerns by highlighting the pros and cons of purchasing vs. leasing, and the impact the decision will have on your personal and business tax responsibilities.

In addition, an accountant can advise you on how to set up your financial records so that the financial information you need to take tax deductions is readily at hand, and you won't have to plough through a year's worth of receipts, invoices, bills and other documentation at the end of the year. Alternatively, if your financial needs are relatively simple, you can set up your own books and calculate your workspace deductions.

Accounting Services

Accountants work in a variety of positions at all levels of the private and public sectors. They can be vital members of your financial team, and can help you to develop a clearly defined picture of your resources and capabilities.

There are six basic types of accounting services that you might encounter:

• Bookkeeper: Bookkeepers represent the first level of accounting services. They might or might not be an accountant. Bookkeepers maintain the books of original entry, such as journals for cash receipts, cash disbursements, sales or accounts payable. While a bookkeeper can be helpful, you also can set up your own bookkeeping system to keep track of your expenses. It helps if your needs are simple. If you have extensive or complicated accounting requirements, then consider using a professional bookkeeper.
• Accountant: These individuals have usually earned a bachelors degree in accounting, and might specialize in certain areas of accounting in large corporations and organizations. In addition, they might also be in charge of preparing financial statements for businesses and organizations.
• Auditor: An auditor is an accountant who specializes in reviewing and verifying records and financial statements drafted by other accountants.
• Certified Public Accountant (CPA): CPAs must have at least a bachelor's degree in accounting or a related field and have passed a licensing examination developed by the American Institute of Certified Public Accountants. Before they can take the licensing examination, potential CPAs must have at least five years of education and at least two years of work experience. Legally, CPAs can audit and report on the accuracy of financial statements and represent you before the Internal Revenue Service (IRS). In Washington, CPAs are regulated by the Board of Accountancy. Their website offers various resources such as finding a CPA, reporting complaints, and regulatory policies, www.cpaboard.wa.gov .
• Enrolled Agents: These are tax preparation specialists authorized by the federal government through the Internal Revenue Service (IRS). EAs are very knowledgeable about tax law, and like CPAs can represent taxpayers before the IRS. They are required to pass an examination in order to practice.
• Government Accountant: These accountants are often CPAs employed by government agencies such as the IRS.

Finding an Accountant

The best way to find an accountant who suits your needs is through the referral of colleagues, family or friends. In addition, your lawyer should be able to help you with a referral. Find an accountant who specializes in assisting the self-employed, small businesses or nonprofit organizations with their accounting needs.

Make sure that your accountant has some experience with artists, arts industry or arts organizations. Informed questions during the interviewing process can help you determine if an accountant has the skill level and background to meet your needs.

Accounting Costs

Accountants set their own rates, which can vary widely. While most charge an hourly rate, some accountants charge a flat rate fee for specific services such as filing a standard Form 1040 tax return for you. Usually an accountant can give you an estimate of the average cost of the services you require. Ask them how to minimize your fee: For example, perhaps you can use the accountant's tax organizer or a particular software program to complete some of the tasks yourself.

TIP: An accountant can help you to calculate tax deductions for work-related expenses, and set up a simple system for keeping track of your financial records on both a monthly and an annual basis.

TIP: Talk to an accountant about how to deduct workspace expenses from your income.

Mortgage Brokers

A mortgage broker is a go-between who helps to arrange your mortgage financing with lenders. Their services can become crucial if you are denied financing from a traditional lending institution, such as a bank or credit union. In Washington, mortgage brokers are regulated by the Washington State Department of Financial Institutions.

The broker's role is to assess the credit risk you pose, and to match you up with a lender who has the tolerance for that risk. Mortgage brokers have access to banks, private investors and other lending institutions -- all of whom have different lending criteria and risk-tolerance levels.

Brokers do not have access to all lenders; they can only place loans with lenders with whom they have a pre-existing contractual relationship. However, many mortgage brokers have extensive contracts with a variety of lenders, and will usually be able to find you a loan.

Broker Costs

If your mortgage broker arranges financing from a major financial institution, their fee might be paid by the lending institution, or included in your loan as an additional fee. However, should the broker secure funding from a funding source other than a traditional lending institution, you might have to pay a fee for their services. Brokers' fees vary, so discuss payment arrangements at your first meeting.

Some brokers might want all or part of the fee paid by the lender through what is typically called a yield-spread premium. Be cautious of these fee arrangements, as they involve a hidden increase in your mortgage loan's interest rate that might cost you more in the long run than paying a broker's fee up-front. If you decide to pay a yield-spread premium, \do so only after the broker explains it to you in detail and tells you exactly how much it will cost you in interest and monthly payments.

You can access a list of mortgage brokers licensed to practice in Washington State on the Department of Financial Institutions website.

There are good mortgage brokers and bad ones. If you do not do some of your own homework on current interest rates, you will not know if your broker has given you a fair deal. Real estate and financial related Websites such ashttp://www.realtor.com or http://www.bankrate.com list current mortgage loan rates. You can also check with lending institutions, or read the real estate and financial sections of newspapers such as Seattle Times, USA Today, or New York Times.

Building Inspectors

A home or building inspector should be a key component of your real estate team. An inspector provides an objective visual examination of a property's physical structure, condition and systems, from the foundation to the roof and all the components in between. Their observations are crucial in helping you to determine any repairs needs that need to be made.

Usually you hire an inspector for a property you are thinking of purchasing, but they can also be useful -- even necessary -- when considering a long-term or expensive commercial lease. An inspector's help can be especially crucial if your lease stipulates that you are responsible for property maintenance and repairs.

In Washington, home and building inspectors are regulated by the Washington State Department of Licensing. Inspectors must be licensed and are required to pass an examination in order to practice. Insist on reviewing the inspector's license before proceeding. You can either ask the inspector directly, or -- for a more subtle approach -- contact the state for a list of Washington certified inspectors.

For more information about the licensing requirements for the real estate industry, visit WADOL Website or contact them at 360-664-6487.

No one can complete an official home or building inspection in Washington other than those licensed to do so. Architects, engineers, municipal inspectors and general contractors can assess properties, but their results are not considered an official inspection.

Please see Chapter 17: Inspections for additional information on the home and building inspection process, and what to expect when working with an inspector.

Hiring an Inspector

Using an inspector's services is a worthwhile investment. Take your time to find one who meets your needs. Many professional organizations provide lists local inspectors.

Find an inspector who specializes in certain types of spaces. For example, an inspector who has assessed spaces for gallery use might be able to determine whether the walls can support large and heavy paintings. An inspector familiar with examining performing arts spaces can point out specific issues with the floor that could affect performances.

Some inspectors are better versed in old buildings, while others are more familiar with newer construction. When dealing with an older property, look for veteran inspectors who have at least five or more years of experience.

Beginning September 1, 2009 Washington State's home inspector license requirement goes into effect. To ensure that your inspector is licensed ask for their three digit license number, verify that your inspector is listed as "active" on the "licensed home inspector" in the Washington State Department of Licensing System at http://www.dol.wa.gov/business/checkstatus.html. Under the new law home inspectors may elect to drop their Structural Pest Inspector license make sure to ask your inspector if they have maintained their SPI license.

There are no special licensing requirements for commercial property inspection in Washington State. The American Standard of Testing and Materials (ASTM International) provides a standard of practice for commercial property inspection. To ensure the highest quality of commercial property inspection request for your inspection to adhere to these standards as they are voluntary.
When choosing someone to inspect a commercial property, make sure that they have at least five years of experience and have inspected at least 50 or more commercial buildings. If you are considering a commercial space, ask a residential inspector (preferably one whose work you are familiar with) for a referral for a commercial inspector.

Additional questions to ask when hiring an inspector:

• How many years have they been in business?
• Do you adhere to the ASTM standard of practice for building standards?
• How many buildings have they inspected in the past two years?
• Are they allowed to practice in the state of Washington?
• Will they provide pricing regarding repairs? (This can be crucial. It will give you an idea of what repairs need to be made to the space, and what additional funds are required to bring the property up to par before you move in.)
• Will they provide information on the urgency of particular repairs? (This will give you an idea of how much it will cost to bring the building up to appropriate standards)
• Will they point out potential environmental risks, such as carbon monoxide, asbestos, etc.?
• Are they fully insured?
• What percentage of their inspection work deals with older buildings?
• Have they inspected the type of space you are considering?
• Can they provide referrals with contact information? As for information on their 3-5 most recent clients and/or those who have spaces similar to your own.
• How soon can they complete the inspection report?
• What type of inspection report do they provide: checklists, or written reports?

Inspection Costs

The cost of a home or building inspection varies widely, and can be influenced by the type and size of property, the time of year, and other factors. The average cost of an inspection for the Chicago area can be as little as $250 for single-family homes, and might cost upwards of $2,000 -4,000 for commercial properties.

Because the price of an inspection is normally based on the cost per square foot, be cautious in choosing an inspector. Many newly licensed inspectors must respond to market pressure when they first start out by keeping their prices low. Cheaper does not mean better.

A good inspection company is usually booked 3-5 days in advance, and charges more than the minimum. Most single-family home inspection prices start at about $350 when inspected by qualified professionals. Prices vary more drastically for commercial spaces. Make sure to ask for references for inspectors and ask for the cost of the inspection, what is included in the inspection and the format of the inspection report in advance. An inaccurate inspection can ruin your ability to utilize your new space so it is important to ensure that you receive a high quality comprehensive inspection.

Real Estate Agents

Real estate agents are professionals who deal with the buying, selling and leasing of real estate. Besides doing lots of legwork, agents offer access to resources and assist with space-planning, dealing with zoning and building regulations, locating financing and other real-life issues associated with the leasing and purchasing of property. If they don't know the answers, they can usually direct you to experts who do.

Real estate professionals in Washington are regulated by the Washington State Department of Licensing.

Washington State Department of licensed two types of real estate professionals - Salespersons and Real Estate Brokers:

• Salespersons/Real Estate Agents : Must have 60 hours of state-approved real estate fundamentals classes and pass a licensing exam. Agents normally assist with the buying and selling of property, and must work for a real estate broker.
• Real Estate Broker : Must have a High School diploma, be at least 18 years old, and have two years of full time experience as a real estate salesperson in Washington State or another jurisdiction with similar requirement. Additionally, real estate brokers are required to complete 120 hours of state-approved real estate classes and pass a licensing exam. Brokers can run a real estate office and employ real estate salespersons/agents.

** Note the real estate licensing requirements will change for both salespersons and brokers on June 30, 2010. Ensure your salesperson or broker's license is valid at: http://www.dol.wa.gov/business/checkstatus.html

For the remainder of this chapter, we use the term "agent" to refer to all licensed real estate professionals.

Chapter 5: Finding Space provides additional information about working with real estate agents to find property.

Finding an Agent

Your agent is the professional you will probably work with and rely upon the most during your space search. For this reason, be very strategic in your selection process. Because you might be unfamiliar with how the real estate market works, you will probably rely heavily on your agent's expertise, resources and referrals.

If you are a first-time buyer, or are seeking an unusual or specific type of space, it is often wise to work with an agent. Start your search with recommendations from family, friends or colleagues who have had productive working relationships with agents familiar with the type of space you are looking. If you are looking for a property in a specific area, the neighborhood chamber of commerce or other community development organizations can connect you with agents representing space in the community.

You can also directly contact businesses and organizations that have spaces you like, and find out who assisted them in locating the property. Or, you can contact an agent who is advertising a space that interests you, and have them search for similar properties for you.

Professional trade organizations often list real estate agents. The National Association of REALTORS® (NAR) is the main national professional organization for real estate agents. The Washington Association of REALTORS® is the local chapter of NAR. Both sites offer information and resources on finding and selecting a real estate agent, as well as a database of agents. The Washington State Department of licensing provides information on the licensing status and disciplinary histories (if applicable) of specific agents.

Specialty organizations such as the Washington Commercial Association of REALTORS, Certified Commercial Investment Member Institute and the Commercial Real Estate Network provide information and databases of real estate agents who specialize in commercial and industrial spaces.

Buyer Agents vs. Seller Agents

During your search, you will encounter two types of real estate representation - Buyer Agents and Seller Agents. A Buyer Agent represents the buyer's interest in any transaction, ensuring that the buyer gets the space for the best price possible, on the best terms possible.

A Seller's Agent, also known as a listing agent, represents the seller and seeks the best price and terms for the seller.

One of the biggest differences between these two types of agents is that a Seller Agent's office lists properties for sale, while a Buyer Agent's office does not.

Dual Agency

Some real estate agents participate in dual agency, which must be disclosed to you. In a dual agency arrangement, a real estate agent represents both parties - the buyer and the seller - in a real estate transaction.

In most cases, dual agency is not recommended. Unless you are very savvy with real estate contracts and negotiations, in a dual agency arrangement the agent can act only as an administrative go-between for the parties involved in the transaction. The agent cannot assist with the negotiation process, nor can they advise either party on the terms of the sale.

For example, if the seller is asking $150,000 for a space, your buyer's agent might tell you to offer only $135,000. If you were in a dual agency relationship, your agent could not suggest that you lower the offer.

By law, real estate agents participating in dual agency are required to inform both parties of the situation before performing any actions as a dual agent. In addition, both the buyer and the seller must agree in writing to this arrangement by signing a Dual Agency Consent Form. RCW 18.86.030. Additionally, the Washington State Legislature passed the Real Estate Brokerage Relationships Act, which states that a real estate agent who works with a buyer is presumed to be the buyer's agent unless there is a written agreement to the contrary. This effectively reduces the danger of inadvertent undisclosed dual agency since there is a natural assumption of buyers that the licensee the buyer is working with is acting as his or her agent.

One way to avoid dual agency is to discuss your concerns with your agent as early as possible. Find out how the agent will handle a dual agency situation, were one to arise. Another option is to work with a real estate office exclusively for buyers. These offices do not list properties, and thus negate the chance of dual agency. There are a small number of buyer brokerage offices in Washington.

The National Association of Exclusive Buyer Agents and the Real Estate Buyer's Council are national organizations that represent buyer agents. Their websites provide listings of local real estate offices that specialize in buyers' needs.

Hiring an Agent

Agents have many different work styles and habits. Some will email property listings for you to consider, or call you with updates, while others might take you on tours to visit their favorite properties or areas. Some are client-directed, while other agents are very sales-oriented and aggressive. Finding an agent whose style and personality compliments your own will enable you to develop a productive work relationship.

Whatever their working style and personality, a good agent will know the Seattle market. Before beginning a search for properties, s/he will discuss what you need and can afford. When you have identified a potential space, the agent can provide you with information and sales data so that you can compare the property to others that have sold in the area. This comparison will help you during negotiations.

If you are leasing, agents can provide information on current rental rates and, to some extent, help you to decipher the complex language of leases and contracts. Ultimately, the right agent can make your space search run a little more smoothly.

Once you have a list of several agents you want to interview, ask the following questions:

• How many years have they been in business?
• How many sales have they made in the past two years?
• Are they licensed to practice in the State of Washington?
• Does the agent have a specialty? Certain neighborhoods, types of properties, types of clients (artists, senior citizens, north side, south side, galleries, industrial spaces, etc.)?
• Which services do they provide? Do they send emails with listings daily; or show properties during the evenings on weekdays and on weekends? How late do they show properties? Etc.
• How often will you hear from them? Frequently, or only when they have a property in mind for you?
• How accessible are they? Do they use email or cell phones? Will you be able to contact them at home, or only on their office line? What is the turnaround time for them to return your phone calls?
• Have they previously worked with artists, businesses and organizations with needs similar to your own? If so, can they provide at least contact information on 3-5 of their more recent clients?
• Are they experienced in finding properties like the one you need?
• Are they familiar with the community in which you hope to purchase?
• What resources can they offer in helping you through the purchasing or leasing process? Can they find attorneys, financing, etc.? If so, which firms and/or individuals do they work with, and why?
• How do they expect to be compensated?
• How will they handle dual agency or conflicts of interest?

Agent Fees

There are a variety of ways to pay real estate agents. In Seattle, the most common method involves the property seller paying a commission to their listing agent, who in turn splits the commission with the buyer's real estate office. In the Seattle area, a commission based on 4-7% of the property's selling price is customary. In other words, if you purchase a space for $150,000, and the commission is a 50-50 split on a 5% commission, then your agent's office earns $3,750 on the sale [($150,000 x 0.05)/2]. If you pursue for-sale-by-owner or other non-listed properties, you might have to pay your agent's commission out-of-pocket.

If you were leasing a commercial space, then the agent's commission might be based on the amount of rent over the term of the initial lease. However, leasing of commercial property is complex, and commission arrangements might vary drastically from situation to situation.

Other leasing arrangements might include a flat-fee for service, or an hourly rate. If you are working on a fee-based system, stipulate that payment is contingent upon the agent locating and putting you into a space. If you pay by the hour, obtain an agreement (preferably written) that explains how the agent will charge you for their time. Ensure that the agreement specifies what you get for the fee.

Some real estate agents might ask you to sign a buyer contract, which often stipulates how the agent will be paid, how they will handle dual agency and conflicts of interest, and what you can expect from them in terms of time, research, etc. As with any contract, the terms of an agent contract are negotiable. Review, discuss and amend its terms thoroughly before you sign.

Consider having your attorney review the contract, especially if you are looking for space for a business or organization or purchasing or leasing an expensive property.

TIP: Information about working with a real estate agent to find property is discussed in greater detail in Chapter 5: Finding a Space

• Finding Space on Your Own
• Finding Space with a Real Estate Agent
• Working with an Agent
• Ch.5 Resources

After you have found a neighborhood that is appropriate for your work- or live/work space, you can either hunt for a space on your own, or use the services of a real estate agent. Be prepared! Finding a good space can be a long, tedious process, filled with frustration and dead ends. With persistence and a little research, however, you can find a space that best meets your needs.

Finding Space on Your Own

You can search for spaces in a number of ways. Walking around a neighborhood, looking for "For Rent" or "For Sale" signs, and talking to people is the most straightforward method. Asking friends and art contacts is also useful. Check out area and local neighborhood newspapers, especially The Stranger's Space section. Look for advertisements for space on billboards, and check online real estate sites. Residential properties are listed on the Multiple Listing Service (MLS) and commercial properties are listed on the Commercial Investment Multiple Listing Service (CIMLS). Additional online property resources include:www.realtor.com, www.owners.com, and Craigslist.

Many property owners and managers advertise specific types of spaces in professional and trade publications and at local art specific businesses. For example, if you are looking for a dance rehearsal space, try searching for dance-focused newspapers and periodicals, and look for postings in dance equipment stores and other related businesses. You can also contact arts-based businesses and organizations directly to ask if they know of any space opportunities. Also The Stranger and The Seattle Weekly often have postings for available space especially for individual artists. You may also try and network within the arts community at the Space Space, an online forum for the discussion of local cultural space issues. Additionally Seattle's Office of Arts & Culture, and 4 Culture are both government organizations dedicated to arts funding and may have resources for finding space. Finally, non-profits such as the Shunpike and Historic Seattle may also have contacts or leads which may be helpful in your search for space.

Neighborhood organizations are often eager to help artists move to their communities, as artists usually bring life and excitement to their areas. Contact the neighborhood chambers of commerce, Neighborhood centers or area community development organizations for assistance. In addition, see the Neighborhood Prolife section of Chapter 15: Seattle's Neighborhoods for a list of Seattle community and neighborhood development organizations. Again, business owners and other organizations in a particular community may have information on available space in the area.

Another successful tactic involves printing business cards, postcards or flyers with your contact information and information regarding your intentions and plans for the space. While walking through neighborhoods, post these "classified ads" at area communal meeting places (coffee houses, bookstores, grocery stores, etc.) and neighborhood organizations. You can also advertise your needs and requirements on Craigslist, in neighborhood newspapers and other publications, as well as in trade-specific periodicals. Many individuals have found properties this way.

Various area businesses, developers and organizations provide work or live/work space for lease to artists. Space availability can fluctuate, so check listings frequently. An additional resource is Artspace www.artspace.org on their site you search for available properties in Seattle as well in other areas around the country.

Finding Space with a Real Estate Agent

If you don't have the time, energy or resources to look for space on your own, your solution might be to work with a real estate agent -- a professional who deals with the buying, selling and leasing of real estate.

Besides doing legwork, agents enjoy access to additional resources and assist with space-planning, addressing zoning and building regulations, locating financing and addressing other real life issues associated with the leasing and purchasing of property. If they don't know the answers, they can usually help you in finding experts who do. For more information about hiring a real estate agent, review Chapter 4: Professional Services.

Working with an Agent

If you decide to use a real estate agent, realize that you can work with just one agent, or a team of them. Both choices have their pros and cons.

Working with many agents can be advantageous, in that one agent might know of properties the others do not, or might specialize in a particular type of property or area of the city. Although most agents use the same databases with the same listings of properties, many of them are specialists. Those who regularly sell residential spaces might not understand the commercial and industrial property market.

Searching for space is time-consuming, and requires a lot of work. You will probably get better results if you direct your time and energy toward carefully choosing an agent who understands your needs and space requirements.

Whatever route you choose, when you find a space, your agent will help you:

In General

• Find other professionals key to your real estate transaction, such as an inspector, lawyer or lender. However, it's a good idea to have these professionals lined up before you start your search -- or at least have an idea of who you would like to work with, so that when you find a property, you don't have to search for professional assistance.

Purchase-only

• Pull a Comparative Market Analysis Report (CMA), which will list information about the space you have in mind, as well as listed properties -- both sold and unsold - and their asking and selling prices. This information will assist you in writing an offer. See Chapter 16: When you Find a Property for more information.
• Write an offer based on the CMA, and negotiate the price and terms of the offer.
• Have your financing secured before you start looking for property. See Chapter 8: Buying Real Estate for more information on how to buy space.
• Work with you to define the terms of the sale, including which appliances or equipment will remain with the property, repairs the current owner will make, when you will take possession, etc.

Lease Only

• The agent will help you find properties and assist you with negotiating the terms and conditions of the lease.

Be careful of agents who:

• Do not listen to your needs.
• Consistently show you properties that do not meet your requirements -- an indication that they do not understand your space needs.
• Consistently show you properties listed only with their home real estate office or a colleague. While the agent might be personally familiar with these properties, you might end up missing out on properties that better suit your needs. You want an agent who goes the extra mile.
• Pressure you into accepting a deal that makes you uncomfortable. If you are not comfortable about a deal, then you need to decide whether to proceed or back off.
• Is not familiar with the community that interests you, because they will not be able to provide valuable information regarding neighborhood life and character.
• Is not familiar with the type of space you are looking for. Even the best-intentioned agent may have difficulty meeting your space requirements if s/he is simply unfamiliar with the type of space you desire. In these situations, you'll need to allow the agent a learning curve, or simply find one who specializes in the type of space you want.
• Immediately requires you to sign a buyer contract before spending time talking to you to assess your needs.

If you find a space you're interested in before you find an agent, you might have to commit to dual agency. Washington State law stipulates that if you do not have an agent at the time you view a property, then the agent who shows you the space can legally represent both you and the seller in the real estate transaction. However, the agent must disclose in writing that s/he is working as a dual agent.

If you are uncomfortable with a dual agency arrangement, seek other real estate representation, or be prepared to handle the transaction on your own. Proceed without representation only if you feel confident that you can personally handle the transaction with your attorney's help. For more information about dual agency, see Dual Agency in Chapter 4: Professional Services

Resources

American Association of Commercial Real Estate (ACRE)
A nonprofit professional association that promotes working relationships and professionalism within the Sacramento commercial real estate community.

American Land Title Association (ALTA)
National trade association and voice of the abstract and title insurance industry. ALTA members search, review,and insure land titles to protect home buyers and mortgage lenders who invest in real estate. ALTA is headquartered in Washington, DC.

American Real Estate and Urban Economics Association (AREUEA)
Built in the need of more information and analysis in real estate development, planning, and economics.

American Real Estate Society (ARES)
Dedicated to producing and disseminating knowledge related to real estate decision-making and the functioning of real estate markets.

Association of Foreign Investors in Real Estate (AFIRE)
The only nonprofit association for the foreign real estate investment community.

Building Owners and Managers Association (BOMA)
The BOMA International Foundation is dedicated to advancing real estate performance and public understanding of the commercial real estate industry through research, education and the dissemination of information.

Building Owners and Managers Institute (BOMI)
Nonprofit education institute dedicated to educating professionals who operate, manage and maintain properties, and facilities.

Commercial Forum
Provides a searchable of database of commercial properties. Including information on real estate professionals, cost of space and types of space available (mixed-use property, vacant land, office property, etc.).

Cyberhomes.com
Connects to many of the Multiple List Serves (MLS) from around the country that are maintained and used by local realtors.

eHome.com
Consists of online real estate offices and companies.

ForSaleByOwner.com
Lists property for sale by owners. Also offers additional information about neighborhoods such as school report cards, crime statistics, etc.

Home Advisor
Provides information and resources about purchasing a home, as well as a searchable database of properties and design tips on decorating your space.

Homebuilder.com
Provides information and resources on purchasing newly built and manufactured residential properties, as well as resources for finding a builder.

Homefox.com
Links to real estate offices and companies.

Homes.com
Offers listings of residential property and lots/land for sale. Also offers a utility sign-up and insurance finder, as well as information and resources about an area's real estate market.

MIPIM International Property Market
The leading international real estate forum, with information for buyers, governments, etc.

National Association of Real Estate Investment Managers (NAREIM)
Professional organization dedicated to providing knowledge and insight in the rapidly changing real estate industry.

National Association of Real Estate Investment Trusts (NAREIT)
The representative voice for U.S. REITs and publicly traded real estate companies worldwide.

National Association of Realtors (NAR)
A searchable database of area realtors and properties (residential and commercial) available for lease and/or purchase, and links to various realtors and real estate supporting organizations.

National Auctioneers Association (NAA)
Offers auction and auctioneer searches relating to housing and space.

National Multi Housing Council (NMHC)
A national association representing the interests of the nation's larger and more prominent apartment firms.

National Property Management Association (NPMA)
The leading membership association for personal property and fixed-asset professionals.

National Real Estate Investors Association (NaREIA)
A federation made up of U.S. local associations and investment clubs that represents local investor associations, property owner associations, apartment associations, and landlord associations on a national scale.

NewHomeNetwork.com
Links to online real estate offices and companies.

Owners.com
Lists links to sites with real estate and other property for sale by owners.

Real Estate Investors Association (REIA)
REIA's membership encompasses real estate investors and professionals.

Real Estate Research Institute (RERI)
Nonprofit organization created to stimulate high quality research on real estate investment performance and market fundamentals that will elevate the quality of real estate decision-making.

Realtor.com
Online search engine providing a database of primarily residential properties and additional information about the home buying process, relocation, neighborhood comparisons, etc.

REALTORS Land Institute (RLI)
Focuses on the sale of land and other land transactions.

Society of Industrial and Office Realtors (SIOR)
The SIOR Educational Foundation's mission is to promote, sponsor and support education research initiatives that advance professionalism in the commercial real estate industry.

Urban Land Institute (ULI)
Provides reasonable leadership in the use of land to enhance the total environment.

ZipRealty.com
Links to real estate offices and companies.

• Residential Landlord and Tenant Act
• Security Deposits and Prepaid Rent
• Lockouts and Retaliation
• Late Rent section
• Assignments and Sublets
• Renewing the Lease
• Landlord's Responsibilities section
• Making Art in Residential Spaces
• Eviction
• Tenants' Rights Resources

Disclaimer: This chapter includes information about the law. This is general information and is not legal advice that applies to your specific situation. Additionally, laws change, and the City of Seattle and contributors to this manual do not guarantee that representations of the law are complete and up-to-date. If you need legal advice -- information that applies to your specific situation -- you should consult a lawyer. See Chapter 4 for information additional information on when to hire a lawyer. Additionally, the following organizations provide free or low cost legal assistance for landlord tenant matters:

King County Bar Association Housing Justice Poject 
http://www.kcba.org/legalhelp/hjp/clients.aspx
(206) 267-7090

The Northwest Justice Project at 
http://www.nwjustice.org

This chapter primarily focuses on the ins and outs of residential leases. A lease is a legally binding contract between a landlord and/or property owner and a tenant for a specific period of time. Leases define the rights and responsibilities of both parties, and include information such as rent fees and restrictions on use of space.

In Washington State, the Residential Landlord and Tenant Act is the primary law governing relationships between residential landlords and tenants. This chapter is not meant to serve as a substitute for legal advice, but to raise fundamental points about signing a lease. The Washington State Bar Association website is an excellent resource to determine the law and if and when to seek legal council. www.wsba.org.

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Residential Landlord and Tenant Act

Residential Landlord and Tenant Act defines the rights and obligations of both landlord and tenant in a residential lease. The ordinance covers issues such as security deposits, maintenance, subleases and evictions and it applies to both written and oral leases. On the City of Seattle Department of Planning and Development website there is a comprehensive document which outlines the Landlord -Tenant laws for both Washington State and for the City of Seattle.

It is in tenants' best interest to obtain a written lease. While some oral leases are enforceable in Washington (such as a month to month lease), certain leases must be in writing to be enforceable (for example, a lease with a term of greater than one year, including options to extend). Additionally, written leases are crucial in court disputes over lease terms. Beware of landlords who refuse to enter into a written lease.

In addition, keep in mind that the Landlord - Tenant Act does not apply to all leases, for example

a commercial or industrial lease, or occupancy under an agreement to purchase. For a list of leases exempted from the Landlord - Tenant Act, see http://apps.leg.wa.gov/rcw/default.aspx?cite=59.18.040.

TIP: Always demand a written lease!

Key Statute Components

This section discusses key components of the Washington State Landlord-Tenant Act.

• Security Deposits and Pre-paid rent
• Lockouts and Retaliation
• Late Rent
• Maintenance and Repairs
• Assignments and Sublets
• Renewing the Lease
• Landlord's Responsibilities

Security Deposits and Prepaid Rent

Tenants pay security deposits to landlords in order to cover the costs of repairs and/or any unpaid rent. The amount varies, depending on the circumstances. Ordinarily, a residential landlord will ask for a deposit equal to one or 1.5 months' rent although in Washington State landlords are able to specify any amount they deem appropriate for a deposit. On occasion, landlords charge more -- for example, if the tenant represents an increased risk due to a history of unstable employment, past rental problems (i.e. consistently late payments) or bad credit. In Washington State, a landlord may not collect a deposit unless the rental agreement is in writing and includes terms and conditions under which the landlord may withhold all or part of the deposit. If a fee is collected that is non-refundable it must be stated in writing in the lease agreement.

Basics:

• Landlords must give tenants a receipt for a security deposit that includes the owner's name, the date it was received and a description of the unit. The landlord or person collecting the deposit on behalf of the landlord must sign the receipt.
• A checklist or statement describing the condition of the unit must be filled out. The landlord and the tenant must sign it and the tenant must be given a copy.
• The deposit must be placed in a trust account or in a bank or escrow company. The tenant must be informed in writing where the deposits are being kept.
• If any amount is deducted from the security deposit prior to its return, the landlord must provide a written, itemized statement of the deduction amounts within 14 days of vacancy. If your landlord does not provide a written statement of deductions within 14 days of your move-out, s/he cannot take any deductions.
• A security deposit must be delivered to you personally or placed in the mail to your last known address within 14 days of your move-out. If the landlord intentionally refuses to refund the security deposit, you can sue for twice the amount of the deposit and any legal fees or other costs incurred while trying to secure the return of your deposit funds.
• If you damage the apartment and your security deposit does not cover the cost of the repairs, the landlord can sue you for additional monies to cover the balance of the repair costs. The landlord may not withhold your deposit for normal wear and tear to the rental property.
• Landlords are also at liberty to request first and last month's rent, charge a non-refundable cleaning fee , however, all of these charges must be stipulated in the lease in writing. A landlord may charge a prospective tenant for the customary or actual costs of a screening or background check, however the charges must be agreed to in writing and the landlord must advise the prospective about the nature of the screening and the person's right to dispute the result.

Lockouts and Retaliation

In Seattle, lockouts are illegal in any type of residential rental unit. No exceptions to this law apply. Key information about lockouts and retaliation:

• Changing locks and removing doors to a residential rental unit are prohibited.
• Cutting off heat, utilities or water service is considered to be a lockout. This does not include interruptions to utility service caused by the tenant's failure to pay bills or by the utility company's inability to provide service due to blackouts, water main breaks, etc.
• Removing windows, fuse box, furniture or other fixtures.
• Removing a tenant from the premises except through the formal court eviction process.
• Evicting, increasing rent, or threatening a tenant for reporting code violations to DPD or the Seattle Police Department.
• Entering the tenant's unit without the tenant's consent , except in an emergency. Landlord should give at least two days notice of a specific time for entering for repairs, services or inspection, or a one day notice when showing the unit to prospective purchasers or tenants.
• Prohibiting a tenant or a tenant's authorized agent accompanied by the tenant from distributing information in the building, posting information on bulletin boards in accordance with building rules, contacting other tenants, assisting tenants to organize and hold meetings in community rooms or common areas.

In addition, a tenant is prohibited from:

• Changing or adding locks to unit doors.
• Removing owner supplied fixtures, furniture, or services.
• Willfully or negligently damaging the building or rental unit.

Late Rent

If you can't pay your rent on time, contact your landlord immediately to discuss your situation and alternative payment arrangements. This might prevent your landlord from taking further action If non-payment persists, your landlord may commence the eviction process.

In Washington State, your lease agreement states the due date of your rent payment and unless written into the agreement does not allow for a grace period. Additionally the law does not specifically address late fees, landlords can assess them and can set the amount, however the law states that they must be "reasonable". There is a bit of fine print here, however, in Washington State terms of a lease cannot be changed during the term of the lease, so if the assessment of late fees is not outlined in the lease, the landlord cannot assess them. Changes to the lease must be mutually agreed upon between landlord and tenant in writing.

If you are renting without a contract/lease (month to month) landlords cannot assess late fees without putting the rule in writing and delivering it to the tenant 30 days before the next rent check is due. In cases of month to month rental situations the City of Seattle has a Just Cause Eviction Ordinance which specifies the only reason for which a tenant may be required to move and requires owners to state the reason in writing for ending the tenancy when giving a termination notice. Good reasons include:

• The tenant fails to pay rent within three days of a notice to pay rent or vacate.
• The owner has notified the tenant in writing of overdue rent at least 4 times in a 12 month period.

Maintenance and Repairs

The law requires landlords to provide a safe and healthy living environment compliant with the Seattle Building Code. Tenants are responsible for any property damage as a result of their and their guests' activities. If your landlord does not abide by his/her maintenance and repairs duties, consider the following actions:

• Request in writing that the landlord make repairs within a specified period of time.
• State in the notice that if the landlord fails to make the repairs within 14 days, you will contact either the City of Seattle Department of Planning and Development or the Seattle Police Department to file a complaint.
• After providing the landlord with written notice of the need for repairs, pay for the repairs yourself and deduct from your rent; HOWEVER, you MUST follow certain procedures to do this. See RCW 59.18.100 or the City of Seattle Department of Planning and Development memo.

Assignments and Sublets

If you must move out of the unit before the lease expires, you ordinarily may assign or sublet the apartment to another person. Although an assignment is different from a sublease, both typically require the landlord's consent. You must review your written lease to determine the specific requirements.

Subletting means granting occupancy of the unit to another person or subtenant. You act as a pseudo-landlord to the new tenant, but remain obligated to your landlord - legally and financially - until the lease expires or is terminated.

Assigning a lease involves assigning your rights and obligations to another person: the assignee tenant. Upon the effective date of the assignment, you are no longer obligated under the lease, legally or financially.

Residential leases usually provide that the landlord must approve of any proposed subtenant, and that the tenant must still meet the rental standards of the apartment. For example, if the landlord requires a certain amount of monthly income to rent the unit, the subtenant must also meet those standards.

Renewing the Lease

At the end of your lease term, you can either renew the term for a specified period of time or stay on as a month-to-month tenant with the landlord's consent. As a month-to-month tenant, the terms and conditions of the original lease still apply; the only difference is that the lease term is legitimate only one month at a time.

Typically, if a tenant is holding over in a month-to-month tenancy, the monthly rent will be increased by an amount specified in the initial lease. A month-to-month tenancy is still fully covered by the Ordinance. In addition, both tenant and landlord are still responsible for providing the other party with at least a 30-day notice to terminate the lease.

Landlord's Responsibilities

The Ordinance outlines landlords' responsibilities and rules to follow. Key points:

• Landlords cannot force tenants to renew a lease agreement more than 90 days before the existing agreement terminates.
• Landlords must provide at least 30 days' written notice of his/her intention not to renew a rental agreement. If the landlord fails to give the required written notice, you may remain in the dwelling unit for 60 days under the same terms and conditions as the last month of the existing agreement.
• Leases can not include prohibitive provisions such as, "no artists allowed."

Making Art in Residential Spaces

Artists' living spaces often serve a dual live/work purpose. Key points for those who work in a rented residential space include:

• In 2003, the Seattle Council approved artist live/work spaces in residential-commercial and commercial zones. For more information on artist work/live space from the Department of Planning and Development see Client Assistance Memo (CAM) 114 "Establishing an Artist's Studio/Dwelling in an Existing Building."
• Your landlord can prohibit certain types of activities, and failure to abide by the lease may result in your eviction.
• The Zoning Ordinance and Building Code prohibits certain types of art production in a residential space. See Chapter 13: Important Information from the Department of Planning and Development for more information on the ins and outs of creating art in residential spaces.
• Ensure that your renter's insurance policy covers your art and/or business activities. See Chapter 19: Insurance

Eviction

If problems or disagreements between you and your landlord arise, s/he might seek to evict you. Eviction, also called an unlawful detainer action, is a legal proceeding that, if successful, terminates your right to live in the rental property. If you receive a summons/complaint for unlawful detainer, you should contact an attorney promptly. The law gives you specific timelines to respond and take actions to protect your interests, and you must act quickly. If you are not able to afford a lawyer, contact the King County Bar Association Housing Justice Poject, (206) 267-7090 or the Northwest Justice Project.

The following is some general information about the law of eviction, but is not intended to be legal advice. By law, landlords must follow a series of procedures before removing tenants. Causes for eviction include:

• Non-payment of rent;
• Violating the lease;
• Damaging the apartment beyond normal wear and tear;
• The building is damaged, destroyed, or foreclosed;

Before a landlord can sue for eviction, regardless of whether or not you have a written lease, the landlord must serve you with a written notice (a "summons") stating that s/he is commencing eviction proceedings. This is the first step in a legal eviction. The landlord must follow specific requirements for serving you with the summons. Notification can be accomplished by:

• The landlord must deliver the notice to you in person if you are home. If you are not home a copy can be given to an adult or person with reasonable discretion, who also resides there, and a second copy must be mailed to you at your usual mailing address that is not your workplace or a p.o. box. If the property is empty a notice can be posted in a conspicuous place on the property and a second copy mailed to you.

Landlords must provide notice of how much money is owed, if applicable, and provide a specific timeframe for payment. The following are the legal timeframes landlords must abide by for eviction notice periods:

• 3 day notice to pay rent or move out.
• 3 day notice to move out for destroying property or creating a nuisance including drug related activity, gang related activity or unlawful use of a firearm or other deadly weapon that endangers others in or near the premises and that results in an arrest.
• 3 day notice for trespassers
• 10 day notice to comply with terms of rental agreement or move out.

Seattle's Just Cause Eviction Ordinance provides for additional notice periods:

• 20 day notice to terminate your tenancy with a "just cause" in Seattle and only if other notice is not required.
• 90 day notice to convert to a condominium.
• 90 day notice for major renovation, rehabilitation, or change of use.
• 60 day notice for sale of a single family home.
• Once the eviction process begins, you can be sued for either possession of the apartment, payment of rent, or both. You can also be sued for court costs and attorney fees.

Your landlord cannot remove you or your belongings from the property without a court order. However, only a King County Sheriff can physically remove your belongings from the premises. If the landlord attempts to personally remove your belongings, even if you have stayed beyond the move-out date, call the police immediately.

If you are served with a complaint through a forcible entry or detainer (i.e. an eviction notice) you should immediately consult an attorney. If you cannot afford an attorney, the resources in Chapter 4: Professional Services, as well as those found in earlier in this section on eviction, point you to organizations that offer reduced cost and/or free legal counsel.

Tenants' Rights Resources

Tenants' rights organizations can help you to understand your rights and responsibilities as a tenant. Review the law resources in Chapter 4: Professional Services and turn to Chapter 24: When Disputes Arrive to learn how to handle disputes without resorting to the legal system.

If you are facing an eviction, The Tenants Union of Washington State provides resources for avoiding being evicted: http://tenantsunion.org/rights/27/JustCauseEvictionOrdinance.

• Residential vs. Commercial/Industrial Leases
• Commercial/Industrial Lease Components
• Calculating SF
• Calculating CAM
• Lease Terms
  • Assuming Occupancy
  • Repairs and Maintenance
  • Rent Increases
  • Late Rent
  • Key Lease Clauses
  • Security Deposits
  • Utilities
  • Insurance
  • CAM Charges
  • Property Taxes section
  • Property Improvements
  • Use and Repairs
  • Defaults and Remedies
  • Dispute Resolutions and Legal Fees
  • Subletting and Assignments
  • Holdover
• Negotiating a Lease
• Key Questions
• Alternative Lease Arrangements
• Landlord's Responsibilities
• Know Your Landlord and Building Staff
• Collective Action
• Eviction or Lease Termination
  • Failure to Pay Rent
  • Breach of the Lease
  • Foreclosure, Sale, Damage or Condemnation
  • If You Face Eviction

Depending on your needs, a commercial or industrial lease might be preferable to a residential lease or property purchase. A lease is a legally binding contract between a landlord and/or property owner and a tenant that defines the rights and responsibilities of both parties, and includes information on duration, rent, use restrictions and other matters.

DISCLAIMER: Commercial and industrial leases are much more complex than residential leases, and should involve a lawyer's assistance. If you need legal advice - information that applies to your specific situation - you should consult a lawyer. See Chapter 4 for information additional information on when to hire a lawyer. This chapter is not a substitute for legal advice, but raises fundamental points to consider when entering into a commercial or industrial lease. The City of Seattle and contributors to this Chapter do not guarantee that the information is complete and up to date.

While previewing different properties is a must, actually making comparisons between spaces can be difficult. A space that seems reasonably priced at first glance might become very expensive when you add additional costs for property taxes, monthly utility fees, common area maintenance and other associated expenses.

Hidden costs of commercial and industrial leases are often found in the type of lease available. They include:

• Gross Lease: The tenant pays a monthly fixed rent to the landlord, and the landlord pays all operating expenses such as real estate taxes, insurance costs, repair costs, common area maintenance costs (CAM), and -- sometimes -- utilities. This is the primary lease type for residential properties.
• Net Lease: The tenant pays rent for the space plus a percentage of the operating expenses -- such as CAM, insurance costs and real estate taxes -- as well as utilities. CAM costs can include maintenance fees for common areas such as lobbies, bathrooms and elevators. Also known as double net (a.k.a. net-net) or triple net (a.k.a. net-net-net) leases, with the primary difference being how much of the operating expenses charged to the tenant. This chapter uses the broader term "net lease" to refer to all models and variations of net leases. (Note: In Seattle, these leases are almost always referred to as "Triple Net," written as "nnn.)

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Residential vs. Commercial/Industrial Leases

Laws governing commercial and industrial leases treat landlords and tenants as business equals. Both parties are considered capable of freely negotiating their respective rights and obligations, and are responsible for protecting themselves from unfair business practices.

In the eyes of the law, the landlord and tenant have read, understood and agreed to every word contained in a signed lease, which is viewed simply as a contract. For this reason, and unlike residential tenants, commercial tenants are provided few special protections from landlords.

The rights, responsibilities and obligations outlined in the Residential-Landlord Tenant Act do not apply to tenants with commercial or industrial leases. For more information about the Ordinance, review Chapter 6: Residential Leases

Commercial/Industrial Lease Components

Commercial and industrial leases differ from residential leases in several key respects. Understanding these differences will help you protect your interests and negotiate the best possible lease terms.

Lease Rates

Commercial and industrial lease rates are typically quoted in terms of annual rent per square foot. A 500 square-foot studio at $15 per square foot translates to an annual rent of $7,500, or $625 per month.

Find out whether the rent covers a gross or net lease. As mentioned previously, under a gross lease you are only responsible for your rent. Under a net lease, however, you will be responsible for your rent plus additional operating expenses -- for examples, utilities, real estate taxes, insurance expenses and CAM. These charges may be referred to in your lease as "TMI" (taxes, maintenance and insurance), or "additional charges."

Discuss potential additional charges with your landlord. Also, ensure the lease accurately spells out which expenses will be your responsibility, and which expenses your landlord will pay. In a net lease, these costs typically fluctuate on a monthly basis.

Ask the landlord for estimates (usually determined through back statements and bills) of the costs, in order to more accurately determine your total monthly financial commitment and responsibilities.

Calculating SF

When reviewing properties, pay attention to how the landlord calculated square footage. Landlords sometimes include the thickness of the walls (interior and exterior) in the final calculation.

For example, a warehouse advertised as 3000 square feet might have dimensions of 75 x 40 ft. To calculate the space, the landlord includes the six-inch thick exterior walls, which reduces the usable interior space to 74 x 39 ft or 2,886 square feet. If the cost per square foot was set at $5.50 on an annual basis for this space, you would pay an additional $627 annually for space you cannot use (i.e. the walls).

Using the warehouse example again, say the space was already divided into three studios separated by two six-inch walls, each with its own doorway. The 74 x 39 ft space has now been reduced by an additional 12 inches of wall thickness (6 inches x 2 walls) to 73 ft. x 39 ft. This reduced square footage (down to 2,847 sq. ft) translates into a cost of approximately $841.50 annually for the non-usable space.

Discuss with the landlord how s/he has measured the space, and then take your own measurements.

Calculating CAM

The landlord recoups the cost of maintaining corridors, restrooms, elevators, and other common areas through the common area maintenance charge (CAM). The CAM is calculated through either a loss or load factor. In the loss factor, tenants pay for more space than they actually get. In the load factor, tenants get the number of square feet advertised, but the space is more expensive.

For example, you rent a 750 square-foot studio space advertised at $10 per square foot. Under a loss factor, you might end up with only 700 square feet of usable space, with the additional 50 feet allocated as part of the common areas. Under a load factor, your usable space would be 750 square feet, but you would pay a higher rent to cover the 50 additional square feet of common area.

Say the 50 square feet of common space represents 15% of the overall common space. To cover this cost, you could expect the rent for the same space in a load scenario to be 15% higher, or more than if the cost had been based on a loss factor.

Normally, the square footage and cost per square foot advertised by landlords includes the loss or load factor. Every building has a different factor, depending upon design and layout and which method the landlord applies. The wider the corridors, and the larger the lobbies, the greater the impact the loss or load factor will have on your lease rate.

Ask your real estate professional or the landlord how the space is being measured, and the exact size of the offered space. Also, measure the actual space yourself.

TIP: Square footage can include the rented space plus a portion of the common area. Ask how much usable square footage you will be getting, and how much space you will be paying for.

TIP: For more information on commercial and industrial leasing, visit www. Nolo.com .

Lease Terms

The length of the lease term should reflect your current needs and future plans. Try to predict your space needs one, three and five years from now, and look for a lease that gives you flexibility to move, expand or reduce your space accordingly.

Your needs today might be drastically different tomorrow. For that reason, pay careful attention to lease clauses that relate to your right to sublet or assign your lease. Industrial and commercial leases are for multi-year terms. If you find the perfect space, you might want a long lease to provide you with stability and security. A long lease term has other benefits, especially in a hot market. For examples:

• You know what your rent will be for the next few years, and can plan accordingly.
• It will protect you from market rent increases. When negotiating the lease, ask for caps on automatic rental increases during the lease lifespan. Under a net lease, however, you are still subject to increases in the additional monthly charges to cover rising CAM costs, property taxes and insurance.
• It will permit you to spread out renovation costs over several years. For example: The landlord makes $5,000 in improvements before your move-in. Under a one-year lease, s/he might expect the full $5,000 before the end of the lease, costing about $416 extra per month. Under a five-year lease, this cost could be stretched out over the five-year term, or approximately $83 in additional charges per month.
• In an unstable market, rent might be lower than for a shorter lease term, as the landlord will want the assurance of steady income.

Realistically, your long-term lease security is dependent upon the landlord's financial stability and interest in retaining ownership of the building. If you hope to stay in a location for a considerable length of time, find out what the landlord's long-term interest is in the property, and if s/he wants to sell.

In the event of a sale, lease terms transfer to the new owner and are up for renegotiation at the end of the lease -- as long as the property does not go into foreclosure. However, if the building is sold due to foreclosure or condemnation, the lease terms can be forfeited depending on when you started the lease. You will find more information on evictions and lease terminations later in this section.

Although a long lease can provide stability and predictability, a shorter lease gives you flexibility should your space needs change drastically, or if the space doesn't work for you. When signing a shorter lease, include a renewal clause; try to negotiate these terms.

One solution: Negotiate for a short-term initial lease with a renewal option for a longer time period. For example, you can sign a lease for 1-2 years initially, with an option to renew the lease for an additional 3-4 years. The downside to this strategy is that the landlord might want a higher rent for the shorter lease. Also, you run the risk of a rent increase on the new contract if you haven't negotiated the rent for the renewal term.

Assuming Occupancy

Various time frames for assuming responsibility of a commercial space can apply. If you are moving into a simple studio space, you might be able to walk in and set up shop immediately, with very few obstacles. However, if you are setting up a space that requires build-outs such as erecting walls, computer connectivity, ADA compliance or other additional space features, then you do not want to be responsible for the space on the same day that you sign the lease.

Key dates of the lease include:

• When can you officially move in?
• When must your insurance coverage start?
• When can your designer or contractor begin working in the space?
• When will the landlord's contractor begin working?
• When must your business/organization open for business?
• Will there be rent abatement (full or partial) during the build-out period, if you -- not the landlord -- are paying for the work?
• Will the landlord provide some type of abatement if s/he is paying for the build-out work?

Beware of date clauses that begin with "As of this date." This vague statement can make you immediately responsible for a space that you may be weeks or months away from actually inhabiting. A date set by this phrase becomes especially troublesome when it is the only date in the contract. The phrase "takes possession of" also needs to clearly identify which rights you have on that particular day.

Make sure the lease defines when start dates take effect, and the remedies and consequences that result from missed deadlines.

Repairs and Maintenance

Commercial leases often impose repair costs on tenants. When viewing a building for the first time, pay attention to its condition and the state of repairs.

If you sense that the property is poorly maintained, ask other tenants about maintenance. You can also ask the City of Seattle Department of Planning and Development(DPD) about code violations.. A landlord who hesitates in answering questions might be hiding serious problems with his/her space.

A certified building inspector who specializes in commercial or industrial spaces can provide valuable insight into the condition of the property. In Washington State there is not a specific license for commercial property inspectors, so make sure the inspector you choose has experience with the type of property you are having inspected. For more information and tips about building inspection, see Chapter 4: Professional Services and Chapter 17: Inspections.

Rent Increases

Most leases include terms for rent increases. If your annual rent increases are based upon market rates, or a publicly available index (indicators and formulas used in the financial market), try to negotiate for a cap on the amount of each increase, or try to delay the initial increase for as long as possible.

Develop a fair understanding of market rents in the community where you want to lease. This will put you in a better position to negotiate lease rates and other terms. A real estate agent can be very helpful in this regard.

You can also review on-line real estate services such as Commercial Forum or CCIM to get an idea of advertised rental rates in a community.

Late Rent

In Washington State leases must stipulate if the tenant must pay an additional fee if rent is late. Make sure your lease includes a "grace period" allowing for a specific number of days before a late fee applies, otherwise, according to Washington State law, your landlord is not required to allow for a grace period and your rent is due on the date specified in the lease. In addition, make sure your lease includes procedures to address how you will be charged and penalized, if it is fines and procedures are not specified in the lease the landlord is not legally able to impose fines for late payment.

Key Lease Clauses

All clauses in commercial and industrial leases are negotiable whether you have a gross or net lease. Understanding these clauses and how they affect your financial commitment to the space will help you protect your interests and negotiate the best possible terms.

If you are leasing commercial or industrial space, the landlord will typically prepare the lease and present it to you for approval and signature. Most landlords use a standard-form commercial lease, which includes a number of benchmark clauses in addition to stipulations specific to the building and unit.

The lease will outline:

• Your obligations as a tenant
• Your rent and additional charges
• Rent Due Date including grace periods as well as fines and procedures for late rent.
• Responsibilities for maintenance and repairs
• Subleasing and assignment rights
• Permitted and prohibited uses
• The landlord's right to terminate the lease
• Your rights to terminate the lease.

Typically, the lease is prepared by the landlord's lawyer, and will often favor the landlord. Read the lease carefully, and question any hazy or ambiguous sections. You are entitled to request changes, deletions and additions before you sign.

Also, have a real estate attorney or your real estate agent assist in negotiating the terms of the lease from the very beginning, especially if you are entering into a long-term or expensive lease. Seek assistance in signing a net lease to ensure that agreements made between you and the landlord are clarified.

If you are unable to pay an attorney's fee, some nonprofit organizations have reduced cost and/or free legal services. See Chapter 4: Professional Services for information.

The remainder of this section is devoted to discussing the key clauses to look for in a commercial or industrial lease.

Security Deposits

Unlike residential leases, under which landlords must return security deposits within 30 days of the tenant's vacating the premises (as detailed in the Seattle Landlord-Tenant Ordinance), there are no defined legal time limits for the return of a security deposit in a commercial or industrial lease. Security deposits can be any amount agreed upon by you and the landlord. Therefore, stipulate the exact amount of time post-expiration or termination of the lease that the landlord has to return your deposit.

The landlord may withhold part of the security deposit to cover unpaid rent, reasonable costs to repair damage caused by the tenant, or interest. Specify the conditions under which the landlord can keep the deposit or apply it towards unpaid rent.

Commercial tenant usually must maintain a certain amount of funds in deposit throughout the tenure of the lease. If the landlord uses your deposit money to cover unpaid rent, you will have to replenish the funds within a specified period of time after its use.

Limit what the landlord can do with your deposited funds. Insist on the inclusion of language that requires the landlord to notify you, and provide a specified and reasonable amount of time to respond if s/he attempts to apply the deposit to back rents or other costs (CAM, property taxes, etc.).

Your landlord may also apply the deposit against move-out damages, maintenance or other operating costs you have created. In the lease, require the landlord to provide a detailed list of which charges were deducted, and always maintain your right to challenge the deductions.

Utilities

When negotiating utilities ensure that your lease details exactly how you will be charged. If you must pay utilities, make sure that your meters for electric, gas and water are separate from those of other tenants so that you pay exactly for what you use.

Typically, utilities that are not separately metered will be divided by percentage of space. For example, if you rent 10% of the space, you might be expected to pay 10% of the utility bills. This can become problematic if you do not use particular services as much as other tenants do.

Insurance

You might have to directly pay a portion of the insurance, especially if you have a net lease. Review a copy of the landlord's insurance policy to adjust your own as necessary. Issues to consider:

• Does the landlord's policy cover your use of the space and activities?
• What are the limits to the amount of insurance carried by the landlord?
• Will you be notified if the landlord's policy lapses?
• Does the landlord's policy cover other properties as well? If so, does this affect how claims are made?
• Are there caps on the number of incidents that will be paid each year by the landlord's insurance provider? If so, how does this affect your space if the policy has reached its yearly maximum and an incident occurs? Who pays?

As with utilities, insurance charges may be based on the percentage of your space, or the landlord might use another method to divide insurance costs among tenants. This is fine if the entire establishment is rented by similarly-sized spaces or uses, such as all one-person studios. However, this can become problematic if leased spaces vary widely in size and use.

For example, what if your studio is in a mixed-use building in which the first floor contains two galleries, an arts gift shop and a restaurant, while the top two floors consist of artist live/work spaces? Although the top floors have little contact with the public, the foot traffic created by the restaurant and gift shop increases the liability insurance of the overall building. While these businesses are generally required to carry additional insurance to cover their activities, your rent could be impacted.

In a net lease, costs could be passed on to you directly by high insurance fees or -- if you have a gross lease -- higher rents. Again, negotiate for other cost-reducing clauses to ensure you don't overpay for use of your space. For more information about insurance issues, see Chapter 19: Insurance

CAM Charges

Common Area Maintenance Charges (CAM) covers maintenance of elevators, lobbies, restrooms and other shared spaces. Make sure the lease states how these charges will be determined and allocated.

In a net lease, CAM charges are payable directly by the tenant as additional rent. If possible, try to get a very specific list of charges you can expect, and include lease language that either caps these costs or requires notification when they increase dramatically.

Property Taxes

Tenants under a net lease are probably expected to pay a portion of the taxes along with rent. As with utilities and insurance, ensure that your portion of the tax bill is reflective of your space size. See Chapter 15: Property Taxes for more information on property tax issues for commercial tenants.

Property Improvements

If the landlord agreed to complete improvements before you moved in, have a list of these improvements, and dates of completion, noted in the lease or included as an attachment. Also make sure that guidelines for dealing with delays are addressed.

The landlord might argue that refurbishing the front entrance or other remodeling efforts contribute to the overall appeal of the building and benefit all tenants. Include a lease clause prohibiting the landlord from remodeling the building at the tenant's expense, and limiting your responsibility for rehabbing.

Use and Repairs

This clause describes how you can legally use the premises. While adhering to the zoning laws is essential, make sure your landlord understands and agrees to your use of the space. Failure to use the space in the manner set forth in the lease may result in an eviction or lease termination. Ensure that the lease clearly explains who is in charge of identifying and taking care of needed repairs.

Defaults and Remedies

This section of the lease is one of the most important, as it covers what happens when either you or the landlord breaches. Build into the lease a system of checks and balances and guidelines that provide you ample time to resolve issues with the landlord, guide you in handling potential disputes, and settle the issue without legal action.

Address:

• The use of notices when one party fails to meet lease obligations;
• Specific amounts of time to cure lease defaults;
• What happens if you make a repair for which the landlord was responsible; and
• What happens if you fail to pay your rent.

Dispute Resolutions and Legal Fees

Unfortunately, disputes may arise between you and your landlord that cannot be settled amicably. Your lease should provide procedures for resolving these conflicts, and might contain language stating that both parties must accept mediation or arbitration as a first step before heading to court.

The primary concern of dispute-resolution clauses is ensuring that both parties participate in selecting the arbitrator. You will also find an Attorneys' Fees clause, which basically covers who will pay legal costs and expenses if the dispute leads to a lawsuit. Beware of clauses obligating the tenant to pay the landlord's legal costs.

If you are renting the space with friends or colleagues, make sure that everyone's name is on the lease, and that all have signed. Each person who has signed will individually be responsible for the space, payment of rent and other obligations. Do not accept responsibility for others unless you have the ability and intention to cover their portion of the rent should they move out or fail to pay.

When signing a lease with others, also make sure that the lease covers in detail how the landlord will respond if someone is unable to pay their portion of the rent. Include language that outlines the penalties and cure period for making the payment before the landlord begins the eviction process. For more information on dealing with disputes, see Chapter 24: When Disputes Arise.

Subletting and Assignments

Two common ways to end a lease are subletting and assignments. In both cases, your landlord usually will insist on maintaining the right to certify that prospective tenants meet income minimums and other specific requirements.

Sublets allow you to rent all or part of your space to another person or organization. You act as the landlord to the new "subtenant." However, subleasing does not release you from the legal and financial obligations of the original lease. You remain ultimately responsible under the original lease until it either ends or is terminated.

Assignments allow you to relinquish the lease and all the responsibilities of the contract to another party. The primary concerns:

1. Ensure you have a subletting and assignment clause in your lease; and
2. Make sure your landlord does not have arbitrary power to decline potential candidates.

Ensure that the assignment clause also includes language releasing you from financial and legal responsibility once you assign the lease.

Holdover

Include lease language that stipulates what happens in the event you remain in the space beyond the expiration of the term. Will your lease automatically be renewed? Will the landlord allow you to go on a month-to-month lease?

Many landlords require you to pay increased rent if you hold over your tenancy. Because you cannot predict what your needs will be at the end of your lease, it is wise to negotiate the terms of a holdover at the beginning of the lease.

Many leases will include language that financially compensates the landlord for any costs s/he incurs due to your holdover. For example, if you holdover two additional weeks, and the landlord's new tenants sues him or her for not being able to take over the space immediately, the landlord might try to get reimbursement from you.

When negotiating the holdover clause, try to limit the landlord's compensation for your holdover to a per-day amount based upon the rent at the time of the expiration of the term.

TIP: Never sign the lease until you have taken time to read it carefully. Ask questions and request changes, deletions and additions before you sign.

Negotiating a Lease

Once the landlord has presented you with a draft lease, let the negotiations begin. Take it home, read it, ask questions, and request changes, deletions or additions before you sign. Only after reviewing the lease in its entirety will you know what you are being asked to agree to and what amendments you might want to make. Never sign unless you have read and understand the full lease.

As mentioned previously, the law considers landlords and tenants engaged in a commercial or industrial lease as business equals. This means you have fewer legal protections compared to a residential leasee.

List priorities and terms on which you are flexible in order to get the best possible deal. Each clause has an associated value, and some will be more valuable to you than others. If you want a gross lease because you need to know your monthly expenses in advance, and the landlord is willing to give you one, be prepared to make concessions in other areas. Paying a higher rent or signing a longer lease are points you can use as leverage during negotiations.

Your real estate agent or attorney will be very helpful in the negotiation process. If you have undertaken a thorough search and know market values, you will recognize a fair deal.

Unfortunately, not all lease negotiations work out. If you cannot reach an agreement within your budget, or with clauses that meet your needs, you must be prepared to walk away from the space. Have an alternative, back-up space; this will give you more confidence during your negotiations.

The following links provide samples of commercial or industrial leases (these links are for educational purposes only and are not legal advice ):

• http://www.alllaw.com/forms/leases_and_tenancies/commercial_lease_agreement/
• http://www.lectlaw.com/forms/f166.htm

Pay attention to the organization and language of these leases to get a better idea of what to expect when assessing your commercial or industrial lease.

If possible, ask a real estate attorney to assist with negotiations of the lease terms. If money is an object, try to have an attorney review the lease before you sign. Many nonprofit organizations have reduced cost and/or free legal services. See the Resource section of Chapter 4: Professional Services for more information.

Key Questions

This section discusses key questions to ask your potential landlord when reviewing a space and draft lease. Ensure that the landlord's answers to your questions are consistent with what is written in the lease. Consider asking your attorney or real estate agent to assist you in negotiations.

• Allowed uses: If the landlord doesn't want sound to disturb other tenants, and you are a pianist, consider whether the space is appropriate for your use. Likewise, if you are considering living in the space and the landlord specifies no residential use, keep on looking.
• Who is obligated to maintain the premises and repair any damage? If you are responsible, an inspection may be warranted, especially for a considerably long or expensive lease. You don't want to be responsible for any damage caused prior to your tenancy.
• Financial questions to ask:
  • What is the rent?
  • Is this a gross or net figure?
  • Who is responsible for property taxes, utilities and other charges? If it is the tenant, what are the additional charges above and beyond the rent?
  • If this is a net lease, what are the property taxes in the area?
  • What portion of the common areas are you paying for, and what activities are allowed/prohibited?
• During which hours will utilities and services be provided? Many commercial leases specify that electricity, heat, water and elevator service will be provided during business hours only. You may need these services 24 hours a day, seven days a week. Make sure if you are working during these "off" hours that needed services are available.
• For how many years is the landlord willing to rent the premises? Usually, the longer the lease, the greater your stability. In addition, longer leases may provide you with more leverage in negotiations.
• What will rent increases in each year of the lease be? Will there also be increases in the additional charges (CAM, property taxes, insurance, etc.)?
• How will additional charges (CAM, property taxes, insurance, etc.) be divided between tenants?
• Will the landlord grant the option to renew when the term expires? This option is advantageous and should be included in the lease. If possible, negotiate a price cap on the renewal lease's rent -- for example, the rent does not increase more than 10% if you renew by a specific date.
• Are you allowed to sublet or assign the lease to another party?
  • If you sublet your space to another party, you are still responsible to the landlord for rent and all other charges should your tenant leave without paying.
    
    In an assignment, you transfer your rights and obligations under the lease to a new tenant and are released from these responsibilities - legally and financially. The lease should give you the right to do either of the above, and deny the landlord the arbitrary power to withhold consent for a replacement tenant
• What other options are open to you should you need to terminate the lease and are not interested in subleasing or assigning the space? You might want to include a clause that stipulates that, with a certain number of days' notice and possibly a termination payment, you will be allowed to end the lease. Make sure any agreement you make is clearly described in the lease.
• If you are leasing the space as a business or nonprofit, does the landlord expect you to guarantee the lease personally? If you co-sign individually for the lease, you become personally and financially responsible for it if the business or organization doesn't fulfill its obligations. Although this can be risky, this practice is not uncommon, especially for start-up businesses and new nonprofits.

TIP: Always negotiate the rent. The landlord expects you to, and not doing so could result in you paying more for the space than necessary.

Alternative Lease Arrangements

Month-to-Month
A month-to-month tenancy may occur when no written lease agreement exists between the tenant and the landlord; when a lease has expired without a written agreement extending the term; or when the lease specifically provides for a month-to-month term. The tenant may legally occupy the premises for the month in which rent has been paid. This arrangement continues until either the landlord gives the tenant notice that s/he must vacate the premises, or until the tenant gives the landlord notice of their election to end the tenancy. In either case, a 30-day notice must be given.

Sublease
To sublease a space from another party you MUST get a copy of the original lease, which will detail the terms of the tenancy. As mentioned earlier in this section, in a sublease arrangement you pay the original tenant, who then pays the landlord.

For your protection, negotiate and sign a written sublease between you and the original tenant. As with any other lease, the sublease should clearly state the length of your tenancy, amount of rent and expenses you must pay, and the remedies available in the event of a breach by either party.

Most leases include a clause that gives the landlord the right to approve any subtenants. Therefore, when subleasing space, eliminate potential problems with the primary landlord by getting a letter or other written document from the landlord approving your sublease of the space.

This might seem unnecessary if you are renting from a friend or colleague, but it protects both your interests should a problem arise with the lease or the landlord. A sublease does not release the original tenant from his or her obligations under the original lease, nor does it provide you extensive protection should issues between the original tenant and the landlord lead to an eviction or lease termination.

Assignment
An assignment takes place when an existing landlord or tenant assigns their lease to another party. If you are the assignee, you assume full responsibility of the original tenant's interest in the lease and thereby agree to all the terms and conditions.

Read the lease carefully before agreeing to an assignment, as usually you cannot renegotiate its terms and conditions. Be aware that an assignment of a lease must be approved in writing by all parties involved: you, the original tenant and the landlord. From the effective date of the assignment, you will be legally and financially liable for all obligations outlined in the lease.

Landlord's Responsibilities

In a standard commercial lease, the landlord is obligated to grant you exclusive possession and quiet enjoyment of the premises, as well as provide heat, water and any other services agreed to in the lease. If the landlord fails to fulfill any of these obligations, do not under any circumstances withhold rent. Doing so will provide the landlord with grounds to evict you.

If your landlord fails to meet any of his or her lease obligations, your first course of action should be to speak to them. Try to reach an agreement. If you have a good relationship with the landlord, s/he may be receptive to your concerns and work with you.

After you have spoken to the landlord and an agreement is reached, put it in writing, send a copy to the landlord for signature and keep a copy for your records. If you are unable to speak to the landlord directly, write down your concerns (and possible solutions) and mail them to the landlord. If possible, send the letter certified mail and/or request a signature. Always keep a signed and dated copy of all correspondence in your files. You can also try sending an email to your landlord and copying the message to yourself.

Another option is to have your documents notarized (a.k.a. notary public.) Notaries are legally authorized to witness a signature and certify a document's validity. They are often available free of charge at banks or may charge as little as $1 per document.

Check your lease for a provision on handling disputes with your landlord, and follow its course of action. When drafting the lease, set standards for mediation. For example, require that both parties agree to use a specific mediator, or that mediation occur before any legal action can be taken.

Mediation can be effective if the landlord interferes with your use of the premises, or refuses to take action against another tenant who is interfering with your use. See Chapter 24: When Disputes Arise

If your dispute escalates, your final recourse is to seek legal assistance. An attorney can advise you on the best course of action, costs, and possible outcomes. If necessary, you can go to court to coerce the landlord to fulfill his or her obligations. For more information on hiring an attorney, review Chapter 4: Professional Services.

Know Your Landlord and Building Staff

Whether you are leasing a workspace or a live/work space, know your landlord. Ask other tenants about their experiences with the landlord, or obtain a profile from a real estate agent. If the landlord occupies a portion of the building, you can be somewhat confident that problems will be dealt with quickly and effectively, and that the building will be adequately maintained.

Locate information about potential landlords and management companies by contacting:

• The King County Superior Court - Check for lawsuits filed against the landlord, building owner, or management company.
• The Seattle Branch of the Better Business Bureau (BBB), which compiles data and complaints on business owners across the U.S. and Canada. With nearly 2 million Reliability Reports, which highlight a company's service record, the Seattle BBB may be able to provide information about the track record of building owners and landlords (residential and commercial). For more information

The local chambers of commerce and other community development organizations may also know which building owners are problematic. See the Community Profiles section of Chapter 14: Seattle's Neighborhoods for area-specific chambers of commerce and community development organizations.

A variety of individuals and companies will likely maintain the premises. Get to know your property management company, building superintendent manager and maintenance and cleaning staff so that you know exactly where to turn in the case of problems.

Maintaining a good relationship with your landlord may also mean your problems get resolved more quickly. A good relationship will help when it is time to renegotiate your lease. If you have been a cooperative and responsible tenant, the landlord will want you to stay on to save the marketing costs of releasing the space and potential lost revenue if the space sits vacant.

Collective Action

If you and other tenants of your building are experiencing a common problem, you will strengthen your voice by approaching the landlord as a united group. A landlord who has ignored complaints expressed by one tenant is likely to start paying attention when multiple tenants voice their concerns and present solutions.

Organizing a group of tenants takes hard work, but collective action might be the only way to remedy certain problems. If you decide to go this route, review the legal resources in Chapter 4: Professional Services, and the mediation services in Chapter 24: When Dispute Arise.

In addition, many nonprofit legal organizations might be able to assist you or at least provide direction. Again, see the resource section of Chapter 4: Professional Services for more information

Eviction or Lease Termination

By signing a lease, landlord and tenant each agree to a number of responsibilities and obligations. Failure to meet them will entitle the landlord to enforce certain penalties. This section discusses common causes for eviction and lease termination for commercial and industrial leases. (The information contained here is not a substitute for legal advice.)

Because commercial and industrial leases can be very complicated, there are often many points of contention that can lead to the eviction of the tenant or termination of the lease. Contact your attorney immediately if you are served with an eviction notice.

In the eyes of the law, landlords and tenants in commercial lease arrangements are viewed as business equals. As such, commercial and industrial tenants have fewer protections under the law than residential tenants.

Regardless of the grounds for eviction or termination of the lease, the first step in a legal eviction is for the landlord to serve the tenant with written notice stating that s/he is commencing eviction proceedings. The requirements for proper service differ based on whether you are leasing property as a business or as an individual. Service on an individual can be accomplished by personally delivering notice to the person. Statutes describe who may receive notice on behalf of a corporation, limited liability company or partnership. Under certain circumstances, service may be by mail or notice. You must ask an attorney to be certain whether service of notice was sufficient in your individual case.You can be evicted for three primary reasons:

1. Failure to Pay Rent
2. Breach of Lease Terms
3. Foreclosure, Damage or Condemnation of Property

Failure to Pay Rent

Unless the lease specifically states otherwise, a tenant has the entire day on which the rent is due to make payment of the rent, as well as any lease-negotiated grace period. If you know in advance of the due date that you are unable to pay your rent on time, contact your landlord immediately.

You may be able to avoid a breach of the lease if the landlord allows you to pay by a mutually agreed-upon date after the due date. Your landlord might be reasonable about a short delay as long as you are open with him/her from the beginning.

However, keep in mind that the landlord is under no legal obligation to wait before s/he takes action against you, unless the lease provides for set procedures and cure times when you are late with the rent. If your landlord chooses not to continue the lease, then s/he must file a complaint against you in court and seek to have the court issue an order declaring that your lease and occupancy of the space are terminated.

Breach of the Lease

A commercial lease is like any other legally binding contract. Failure to follow the stipulations can be considered a violation or breach. Most leases outline actions the non-breaching party may take when breach has occurred.

Examples of breach include the tenant's failure to use the premises in the manner outlined in the lease, failure to pay common area maintenance charges (net leases), and failure to maintain the level of insurance the lease requires.

Foreclosure, Sale, Damage or Condemnation

Your lease might contain several clauses that affect your rights to the building. These issues are often addressed under Foreclosure, Sale and Damage or Condemnation of Building clauses, and are designed to protect the landlord's interest.

These clauses stipulate that your rights as a tenant are subordinate to the rights of other persons and/or organizations with an interest in the property, such as a mortgage lender. This clause might also demand that the landlord has the right to assign your lease to a new owner in the event the building is sold. Your rights under the lease can also be terminated if the building is condemned, heavily damaged (fire, natural disaster, etc.) or foreclosed.

These are general, standard provisions of commercial and industrial leases, and it is difficult to get landlords to remove or modify them. However, if you have a long-term lease for a major portion of the building, you might want to negotiate for a share of any condemnation award on the theory that you will suffer substantial monetary loss if such a situation arises.

A condemnation award might include insurance money if the building is damaged, or money from a sale, if the property is sold due to an eminent domain purchase. An eminent domain sale occurs when the government (local, state or federal) seizes private property for public use such as a library, highway, new school, etc. In these situations, the government buys the land and/or building from the owner at market value.

If You Face Eviction

If the court upholds an eviction and you are forced to move, keep in mind that your landlord cannot remove your belongings from the property. However, if you are not fully moved out of the space by the close of business on the required date, the landlord can have your personal property removed.

Only a King County Sheriff can physically remove your belongings from the premises. If the landlord attempts to personally remove your belongings, even if it is beyond the move-out date, call the police immediately.

• Pros and Cons
• Banking Terms section
• Primary Costs
• Finance Options
• Commercial Mortgage
• Line of Credit
• Mixed-Use Space
• Locating Financing
• Tips for Easier Financing
• Residential Mortgage Assistance
• Residential Down Payment Assistance
• Commercial Property Assistance
• Nonprofit and Small Business Assistance
• Mortgage Insurance
• Defaulting on Your Mortgage
• Ch. 8 Resources

Whether you are an individual, collective or nonprofit arts organization, do not write off purchasing a space as unrealistic. Owning your own space is an important option to consider, as it will provide you with security, stability and a financial foothold in an ever-changing real estate market.

Disclaimer: Some parts of this chapter include information about the law, but the City of Seattle and constributors to this manual do not guarantee that all information is complete and up-to-date. This information is not intended to be a substitute for legal advice that applies to your specific situation. See Chapter 4 for information on hiring a lawyer.

This chapter examines:

• Costs associated with purchasing a space;
• Financing logistics;
• Borrowing from lending institutions and others;
• Tips to make financing easier; and
• Consequences of failing to pay your mortgage.

If you are serious about purchasing, then read this chapter carefully: It gives you the tools to navigate the purchasing process and to make an informed decision that best fits your needs and resources.

Pros and Cons

Whether you need a live/work or work-only space, gallery space, or a performing space there are many reasons to consider purchasing. Property ownership often requires a significant commitment of time, effort and cash, but for most people the rewards justify the investment. Reasons you might consider buying include:

• Stability of Tenure: You won't have to move just because the landlord sells the property or raises the rent so high that you are forced to relocate.
• Professional Freedom: You are the master of your space. You can work as you wish, whenever you wish, and do what you wish with the space, as long as you follow applicable zoning laws and building codes.
• Financial Investment: Historically, real estate has been a sound financial investment, especially over the long term. There are peaks and valleys, as with any investment, but if you are not forced to sell at the wrong time, you will see a financial return, build up financial equity in the property, and reduce your mortgage debt. Property, as an asset, should increase your borrowing power, as lenders view property owners as less of a financial risk. As a property owner, you can also deduct a portion of the mortgage interest and real estate taxes you have paid on your Federal Income Tax Returns.

However, ownership is not for everyone, and there are risks. Ownership issues to consider:

• Decline in Property Value: There is no guarantee that your property's value will increase. Depending on where you purchase, it might even decrease.
• Maintenance: Routine maintenance is a necessary evil of property ownership. Besides the daily requirements of caring for your space, you also need to be prepared for the inevitable replacement of big-ticket items such as the roof and windows.
• Reduced Flexibility: It's not as easy to take off for a 12-month residency or go abroad for extended periods of time when your mortgage payments are due and you must address property maintenance needs. Trying to sell too quickly means that you might not maximize the property's value. A large mortgage payment could also make it difficult to put money towards other important investments such as additional art-related expenses, savings plans, health insurance and vacations.

Banking Terms

Some key words you will need to know for this chapter include:

• Amortization: The elimination of mortgage debt through regular payments over a specific length of time. Payments must be large enough to cover both principal and interest.
• Debt Ratio: A comparison between your total assets (gross income, money in the bank, equity in property, etc.) and total debts (credit cards, student loans, car loans, etc.).
• Deed: The legal document that transfers title of the property to the buyer.
• Earnest Money: The funds you (the buyer) deposit with the seller to indicate serious interest in purchasing the space.
• Escrow: An account set up for you by the lender that holds funds for your insurance and property taxes until payment is required. The lender typically makes the payments for these expenses from this account.
• Equity: This represents the difference between what you owe on the property (the mortgage) and what the property is actually worth. For example, five years after you purchase a home for $115,000, the property's value increases to $125,000, but you still owe $75,000 on your mortgage. The difference between the value of the property and the mortgage amount you owe is $50,000 ($125,000 - $75,000). So, you have $50,000 in equity in the property.
• Interest Rate: The amount of money you are charged for using the lender's money to purchase the property. Based on the risk of the loan and prevailing market rates.
• Lien: A legal claim against the property. Liens are used to secure loans, and must be paid first if the building is sold. Other types of liens that may be put on your property include property taxes, from the Internal Revenue Service, court-ordered, etc.
• Mortgage: A type of loan specifically used to finance the purchase of real estate. Several types are available.
• Mortgagee: The bank, credit union or other financial institution that loans you money to purchase real estate property.
• Mortgagor: The borrower who accepts the loan from the lender (i.e., you).
• Principal: The original amount of money you borrow for the mortgage. Does not include your interest rate.
• Term: The length of time the borrower has to pay back the principal with interest. Depending on type of loan, the longest mortgage term for residential properties is typically 30 years.
• Title: The legal document that denotes ownership of real estate.

Other terms and their definitions will also appear in the text and will be defined as we go along.

More investment and financing market terms are accessible at Dictionary.com, Investor Words, Global Investor Glossary, MortgageLoan's Financial Glossory or ADVFN Financial Glossary.

For real estate terminology view the House and Home glossary or the Real Estate Agent.com glossary.

Primary Costs

Purchasers-to-be must consider the financial costs involved. This section examines the primary costs associated with purchasing and owning a space, in addition to the mortgage loan.

Down Payment

Lenders usually require potential buyers of residential or commercial property to make a down payment -- i.e., contribute funds, normally in cash, toward the purchase. The lender feels more secure giving a loan to a buyer when s/he has invested some of his or her own money in the property.

The remaining balance of the purchase price is usually paid through a mortgage or another form of loan. It is often beneficial to make as large a down payment as possible; the larger the down payment, the smaller the loan you have to take out, which translates into a lower monthly mortgage payment.

With a conventional loan for residential property, lenders typically ask you to put at least 5-10% of the property's value down; some may require as much as 20%, or as little as 3-5%. Some require no down payment. Some loans and nonprofit programs partially cover or help you to reduce the down payment.

Lenders are more cautious in dealing with commercial real estate, and will often require a down payment of as much as 30% of the property's value. In addition, lenders are not as lenient with commercial requirements, and will likely not reduce the down payment amount. If you cannot afford the down payment for a commercial space, buying a residential space is fine as long as your work is conducive to living and working in a residential area and conforms to the zoning regulations.

If you are buying for the first time, and will live in the space, you might be able to use funds from your retirement savings plans (for example, an Individual Retirement Account) or employer sponsored savings program/401k. Review your plan's terms of repayment, and look for penalties and fees associated with accessing these funds. Your accountant will also be able to advise you on possibly leveraging your current assets or borrowing to come up with the down payment.

Down payment gift assistance programs can cover the cost of the down payment and closing costs. Unfortunately, these programs are almost always limited to residential purchases.

Other funding options: Making legal arrangements to borrow money from family or friends; timing lump sum payments from work to add them to your down payment; and loan products that accept this type of gift assistance.

Closing Costs

In addition to the down payment are "closing costs," the amount of which varies depending on the lender and type of financing you choose.

The most common fees are:

• Attorney fees
• Credit report
• Phase I Environmental Report, which tells you how the property has been used. Typically required for commercial spaces only.
• Homeowner's insurance
• Mortgage insurance
• Property appraisal
• Title search and insurance
• Up-front interest
• Inspection
• Bank recording fees

The Real Estate Settlement Procedures Act (RESPA) requires that you receive certain types of information on closing costs, the relationship between professionals, etc. throughout the purchasing process, and outlaws kickbacks. The Act covers 1-4 unit family residential properties.

Make sure your lender discusses closing costs you will be expected to pay, and provides you with an estimate, before you decide to purchase a specific property or use a certain type of mortgage.

Property Taxes and Insurance

Property taxes, homeowner's insurance and private mortgage insurance (if applicable) are other costs involved with owning a space. Your lender might require, or you might choose, to have these additional costs included in your monthly mortgage payment. While this allows for easier budgeting, it also increases your monthly payments by several hundred dollars or more. In cases where you put down less than a 20% down payment, your lender might require you to include these costs in your monthly mortgage payment.

If you get paid in lump sums throughout the year, setting aside a portion of your payments to pay these costs separately might be easier than including them in your monthly mortgage payment. Additional information on types of mortgage insurance is provided later in this chapter.

If you put down less than a 20% down payment, you lender will require you to have private mortgage insurance (PMI), which protects the lender in the event you default on the loan.

Finance Options

Unless you can purchase the property outright, you will need a loan or mortgage to cover the remaining balance. The most common method for financing a real estate purchase is through a residential or commercial mortgage. Nonprofit organizations can fundraise in order to acquire the necessary monies.

Residential Mortgage

A mortgage is the most common way to finance a residential property. A financial institution (the mortgagee) lends money to you (the mortgagor) for a specific period of time (the term). You are responsible for paying off both the principal (the original amount you borrow) and the agreed-upon interest (the extra amount of money you agree to pay) on this loan over a specified period of time (the amortization).

The interest rate you receive on your loan is influenced by a number of factors, including:

• Term of the mortgage loan (length of time you pay it back).
• Whether the interest rate is fixed for the life of the loan or is adjustable.
• The level of risk the investor perceives you to be, based on your credit history.

When you purchase your property, the lender's mortgage is officially recorded on the title to protect the lender's interest. If you run into financial difficulty and must sell the property, the lender will be paid off from the proceeds of the sale before you or any other creditors receive any funds. The only other authority that would be paid before the lender is the municipality (King County) or the federal government. After you pay off the mortgage, remove the lender's name as soon as possible from the property title and replace it with your own.

You have several options for obtaining a mortgage, including traditional lending institutions such as banks, trust companies, credit unions and savings and loans. You can also work with a mortgage broker. Check with your accountant or lawyer, as they may know of other sources of funds. Shop around for a mortgage, as interest rates and loan products vary from institution to institution.

Many conventional lenders will give you a first mortgage valued at up to 95% of the appraised value of the property on a residential mortgage. In these cases, you would only need a 5% down payment. In cases where you do not have the money to cover the remainder of the purchase price, there are three ways you can obtain these funds:

1. Secure a second mortgage to cover the remaining balance. The interest rate on this second mortgage is typically higher because it is considered to be riskier.
2. Apply for a high-ratio mortgage, also known as an insured mortgage, which will cover as much as 100% or more of the property's appraised value. You will not have to come up with a down payment. Because the lender assumes greater risk through this mortgage, the interest rate is typically higher, and you will have to pay insurance premiums.
3. Receive a grant from a down payment assistance program.

For additional information on mortgage loans, review Chapter 9: Types of Mortgages.

Commercial Mortgage

Applying for and obtaining a commercial mortgage takes more time than a residential one -- sometimes weeks longer. Even if you are applying to a lending institution familiar with you, your business or your organization, expect the process to be more complicated.

Lenders consider commercial mortgages riskier than residential ones. One major issue is that the secondary market for commercial mortgages is almost nonexistent. The secondary money market is comprised of the U.S. government (Fannie Mae or Freddie Mac), as well as other companies and organizations that specialize in purchasing mortgages from the original lender.

This secondary money market is very large for residential mortgages, and allows lenders to make loans they otherwise would not. Lenders make these loans because the probability that they will be bought is very high. Because the vast majority of lenders will own a commercial mortgage for the life of its term, they are more stringent in their approval processes.

Commercial mortgages typically carry a higher interest rate and have shorter terms. The maximum term you can expect for a conventional commercial mortgage is 15 years, but five- to 10-year terms are more common. In addition, lenders usually only lend between 70-80% of the appraised value of the property, and rarely compromise on the down payment requirements, which can range between 20% or more.

The U.S. Small Business Administration and other organizations provide commercial mortgages that require smaller down payments, have longer terms and may provide more than 80% financing. These programs often have more restrictions placed on the mortgage, and are usually only available for small businesses and nonprofit organizations. Each lender has its own guidelines.

If you are serious about purchasing a commercial property, research the types of loans available. Many lenders customize commercial loans specifically to fit the borrower's needs, and have in-house programs and deals that are not readily advertised. These types of loans are known as portfolio loans.

Have a qualified accountant look over your finances, business plan and financial statements. Ask for feedback, confirm your financial viability to repay the loan, and get your paperwork in order to apply for the loan. If you do this before approaching the bank, you will be better-prepared and the approval process should progress more smoothly.

When you apply for a loan, the lender will want you and any other purchasers to complete full credit applications, detailing both your personal and business assets. If you are purchasing as a business or nonprofit, you will be asked for:

• Your business plan and/or nonprofit charter.
• Financial statements for the past 2-3 years that include your assets, liabilities and collateral.
• At least three years of tax returns; and
• Projected income and expenses for the life of the loan, or, at minimum, the next 2-3 years.

The bank will review all this material and assess the nature of the risk that they would take by lending to you, your business or organization. In addition, the bank will run a personal credit history on the person(s) applying for the loan and/or any others who will guarantee the loan. The amount of money you are offered, and the interest rate, will reflect this assessment.

All business partners and owners (especially start-ups) might be required to provide full personal guarantees of the loan. If the company cannot pay the mortgage, the lenders are coming to you personally to make good on the loan. This may also be the case for the board members and executive director of a newly formed nonprofit.

Nonprofits and businesses must apply for a commercial mortgage, even when they seek to purchase a residential property.

Buying a commercial property is a significant financial investment and requires more patience on your part. If the first lender turns you down, keep trying.

Line of Credit

A line of credit is a type of loan that allows you to borrow a predetermined amount of money from your lending institution whenever you want, throughout the loan's term. When you establish a line of credit, the lending institution will give you a credit limit, which is the maximum amount you can borrow at any one time. As long as you have not reached your limit, you can keep borrowing money from the loan as you wish.

As with any other loan, the total amount on your line of credit and the interest rate you are charged is determined by your needs, the assets and collateral you have, and the lender's assessment of you as a credit risk. It pays to shop around for a line of credit, as interest rates vary between lenders. Generally, the interest rate will be based upon the current prime rate (the best rate you can get) plus an additional percentage. The percentage you are charged will reflect your personal financial position as evaluated by the lender and the collateral you offer.

Lines of credit are typically used by self-employed workers, businesses and nonprofits as a means to help with cash flow problems. They are meant to finance short-term financial hiccups, not long term goals.

For example, if your grant is a couple of months late, a line of credit will allow you to pay the organization's operating expenses, rent, employees and other financial obligations until the grant comes through. Or, say it will be few weeks before you are paid for a commission, and you need an influx of funds immediately to cover your expenses. In both scenarios, you pay down the loan when you receive your payments.

Although not common, a line of credit can be used to purchase property. This can be a risky endeavor. Many lines of credit have extremely short terms compared to the 15- and 30-year terms you can obtain with a mortgage. Some even require your loan to be reevaluated on an annual basis, which may lead to problems if your line is revoked or the maximum limit reduced and you are forced to come up with a large sum of money immediately.

If you pursue this method of financing, thoroughly evaluate your ability to make the payments. Also, assess the terms and conditions of the loan so you can find the one that best fits your needs and financial capabilities.

Fundraising

We will not cover in detail the ins and outs of fundraising in this manual. But if you are a nonprofit organization, we encourage you to explore fundraising when seeking to purchase your own space. Many arts organizations have successfully managed a capital campaign to purchase space. Speaking you're your colleagues who have experience with capital campaigns may provide valuable information to you.

The Philanthropy Northwest and the Foundation Center provide many resources on grants and other strategies for fundraising. Organizations such as The Shunpike offer assistance with fundraising. Additionally the University of Washington offers a certificate program in fundraising.

Mixed-Use Space

In mortgage terms, mixed-use space is defined as property used for both residential and commercial purposes. The building's physical elements, use and zoning are all factors in determining whether you qualify for a commercial or residential mortgage.

If you haven't realized it yet, residential mortgages are easier to obtain and easier on the pocket than commercial mortgages. Obtaining a residential loan for an unusual living space is ideal.

This doesn't mean that if you purchase a three flat and rent out a unit that you will be charged for a commercial space just because you are making a profit renting a unit. In this scenario, despite your profit motives, the building is still being used for residential purposes. However, it does mean that if you purchase a storefront building and use the storefront as an extension of your residential space, or as your residential space only, you might be able to secure a residential loan rather than a commercial one. This also includes if you use your storefront space for a personal work space, such as a home-based studio.

Why? In either instance the use of the space is still primarily for residential and personal purposes; business activities (i.e. store or office hours, etc.) are not taking place on the premises. However, if you were to take the same storefront property, live in an upstairs residential unit and run a commercial art gallery, dance studio, art-based business, or nonprofit out of the storefront space, then you will more than likely need a commercial mortgage.

If you are concerned that you can't afford a mixed-use space, don't be. Just make sure that when you start looking to purchase a mixed-use space, you discuss your needs, wants and options with your lender early in the conversation. If possible, find a lender or broker who is familiar with the financing issues associated with mixed-use space.

Much of what determines the type of loan you can get depends on two things:

1. How much of the space is dedicated to commercial vs. residential uses; and
2. Whether or not the space meets Fannie Mae's guidelines for residential space use in order to qualify for a residential mortgage.

Lenders are more willing to finance residential mortgages than commercial ones, because they can sell residential mortgages to the secondary market. Fannie Mae and Freddie Mac are the government-sponsored investors that purchase the majority of these loans. For lenders to sell residential loans to either organization, they must follow specific guidelines. Simply put, Fannie Mae and Freddie Mac have the last word.

Fannie Mae sets the following guidelines for mixed-use properties to qualify for a residential mortgage:

Mixed-Use Properties
Although we (Fannie Mae) will purchase or securitize mortgages that are secured by properties that have a business use in addition to their residential use-such as a property with space set aside for a day care facility, a beauty or barber shop, a doctor's office, a small neighborhood grocery or specialty store, etc.-we have special eligibility criteria for them. Therefore, the appraiser must provide an adequate description of the mixed-use characteristics of the subject property in the appraisal report and the lender must make sure that it considers these criteria and adequately addresses them.

Specifically, for a mixed-use property to be acceptable, the following criteria must be met:

• The property must be a one-family dwelling that the borrower occupies as a principal residence.
• The mixed use of the property must represent a legal, permissible use of the property under the local zoning requirements.
• The borrower must be both the owner and the operator of the business.
• The property must be primarily residential in nature.
• The market value of the property must be primarily a function of its residential characteristics, rather than of the business use or any special business-use modifications that were made.

For more information about Fannie Mae's guidelines:

• Single family properties: https://www.efanniemae.com/sf/guides/ssg/index.jsp
• Multifamily properties: https://www.efanniemae.com/mf/guidesforms/

What does this mean to you? It means that, when you begin to seek a loan for a mixed-use property, the type of financing you are able to secure, how much money you will need to put down, and length of time you have to pay off the loan will all come down to the property's use and its adherence to Fannie Mae's guidelines.

Locating Financing

Ready to buy? You can either pay cash, or use the services of traditional financial institutions or a mortgage broker.

Traditional Financial Institutions

Start your search for financing with your current bank, trust company or credit union. They will be familiar with you, your banking history, and the nature of your business or organization. Find out what they can do for you, then shop around!

The banking business is highly competitive. You might obtain financing on better terms, or at better rates, with a different institution. You can always go back to your own institution with a better quote and ask them to match it.

By nature, traditional lending institutions are risk-averse. They often seek personal guarantees for every dollar they lend, and have strict guidelines for loan approval. Depending on your financial situation, securing a loan from a traditional financial institution might be more difficult. If this is the case, you may want to consider using a mortgage broker.

Mortgage Brokers

If your financial institution won't lend you money, or cannot give you as much as you need, do not despair. A mortgage broker might be able to help you. Mortgage brokers act as go-betweens in arranging mortgages for you with lenders. In Washington, mortgage brokers are regulated by the Washington State Department of Financial Institutions. http://dfi.wa.gov/cs/mortgage-apply-license.htm.

Brokers assess the risk you pose and match you up with lenders who can tolerate that risk. They have access to banks, lending institutions and private investors -- but not all lenders. They can only place loans with those lenders with whom they have preexisting contractual relationships. Working with a broker can be more beneficial than working with a lending institution because a lender can only provide you loan products offered by their organization.

Recently, mortgage brokerage services have become available on-line. Ditech,E-Loan and The Lending Tree are examples of on-line mortgage brokers that bid out your loan to lenders and give you a response in record time. Lenders pay these companies to be linked to their Websites, so the number of providers might be limited. In addition, lenders might be from different states and unfamiliar with the Seattle area real estate market. Access to customer service and other assistance could be problematic.

As with any other professional advisor, use a trustworthy mortgage broker. Family and friends, or your attorney, account or real estate agent can be good resources for referrals, if they have had positive experiences with a particular broker. The Washington State Department of Financial Institutions has a list of mortgage brokers licensed to practice in Washington on its Website.

Do some of your own homework on current interest rates to ensure that your broker has given you a fair deal. Compare the loan packages being offered by various brokers.

Broker Costs

If your mortgage broker arranges financing from a financial institution, the broker's fee might be paid by the lending institution or included in your loan as additional points. However, should the broker secure funding from an alternate funding source, you might have to pay the fee. Discuss fees at your first meeting with a mortgage broker to know exactly what charges you may or may not incur, and how the broker will be paid.

A broker might propose to have part or all of his/her fee paid by the lender through a yield spread premium (YSP). Beware of these, as they are actually funded by an increase in your interest rate. Say you qualify for a loan at 5%, but the broker encourages you to take a loan at 6.5% that has lower down-payment and closing costs. The lender pays the broker for getting you to take the higher loan; that payment is the YSP. Your broker must disclose this arrangement to you.

Pay the YSP only after you understand how it works and what it will cost you in interest and monthly payments in the long run. It might be cheaper to pay a broker fee up front. The following is a link for more information on YSP: http://www.bankrate.com/brm/news/mortgages/20030717a2.asp

Tips for Easier Financing

After reading the first part of this chapter, you might be feeling overwhelmed and discouraged about financing a property. Don't be: You can prepare yourself for the purchasing process by reading this manual and locating resources to assist you. This section offers tips on making purchasing and financing easier.

First-Time Home Buyers
Many programs such as First-time Homebuyers (FHA) loans are geared toward first time homebuyers. Plan on completing the paperwork and requirements before you start looking at properties, as they can take several weeks.

Homebuyer Counseling
Some mortgage programs offer lower down payments and other advantages to homebuyers. In order to access some of these programs, you might be required to attend a Homebuyer Counseling program, which will cover financial responsibilities of buying a home, credit repair issues and budgeting. Even if counseling is not a requirement for the loan you choose, you might benefit from the experience. .

Low and Moderate Income Earners
As with first-time buyers, many programs also serve low- and moderate-income earners; many artists fit into this category. These programs may take several weeks or months, so complete the program before you start looking at properties.

Pre-Approved Mortgage
Arrange for a "pre-approved mortgage" before you start looking for a property. Pre-approval means exactly that: The lender has reviewed your credit-worthiness and agreed to provide you with financing for a certain amount at an approximate interest rate. Because interest changes on a daily basis, the lender will typically lock-in a rate for you after you've put in a contract on a property. A pre-approved mortgage offer is usually valid for 90 days while you look for a space.

Pre-approval has another benefit: When you find a property, you can make a firm offer to purchase, rather than an offer conditional upon your ability to arrange financing. In a competitive market, especially for affordable live/work space, this will be an advantage. Note, however, that the lender reserves the right to approve the actual property before a final agreement is reached.

Predatory Lending
As you look for financing, beware of predatory loans, which usually have many hidden clauses and penalties, high interest rates and points, etc. These loans ultimately serve to defraud you out of your property. For additional information, contact the City of Seattle Office of Housing for information regarding predatory lending: http://www.seattle.gov/housing/predatorylending/

TIP: Secure your financing before you go looking. This allows you to target your search within your price range and make a firm offer when negotiating. Your real estate professional should be able to help you secure financing.

Residential Mortgage Assistance

If you find it difficult to meet the strict guidelines to qualify for a conventional mortgage, remember that there are many alternatives and programs to assist you in purchasing a space. These special programs offer advantages to eligible buyers, such as lower down payments, lower closing costs, higher income-to-debt ratios and more.

Some of these programs may have income requirements and limits on the purchase price or loan amount. Others require you to participate in home buying workshops, credit counseling or other program-specific requirements. Some programs will finance multi-family and mixed-use buildings, while others may apply to certain areas of the city. In addition to government programs, many community groups and nonprofit organizations also offer financing assistance.

If you are serious about owning your own space, then looking into assistance programs will give you more choices and greater flexibility. It pays to do your homework and thoroughly understand your options. You might be able to combine some programs with an approved down payment assistance program (explained in detail in the next section). Depending on your needs and your desired use of the space, other resources can assist you with rehabbing or developing a space. Also, check out the resources in Chapter 21: Rehabbing Your Space and Chapter 26: Developing a Facility.

Residential Down Payment Assistance

A down payment gift assistance program helps potential homebuyers by providing a down payment. The seller gives money to a nonprofit organization, which manages a down payment gift assistance program. This "gift" is usually in the form of a discount in the home's purchase price. The organization then gives an amount of money equal to the seller's gift to the buyer when the loan closes. The gift is treated as a down payment, and can range from 1-7% of the purchase price or can be a flat amount.

For example, if the seller gives a gift of $2,500 to the organization, the organization will give the buyer about $2,400 towards the down payment. The other $100 is used by the organization to cover administrative fees. The nonprofit must act as a middleman, because lenders do not allow sellers to give down payment money directly to buyers. Under the rules governing FHA loans, borrowers can accept down-payment money from charities.

About these types of programs, the U.S. Department of Housing and Urban Development (HUD) states the following: "HUD does not approve of 'gift' programs administered by charitable organizations and, thus, will not offer a formal approval . . ."

Mortgage lenders are responsible for assuring that the gift to the homebuyer from the charitable organization meets the instructions described in HUD Handbook 4155.1 REV-4, CHG-1 Paragraph 2-10(C) (e.g., no repayment implied, etc.). Charitable organizations that comply with existing regulations and policy guidelines are permitted to give cash gifts to eligible homebuyers and do not need prior FHA approval to do so.

If you are considering an assistance grant, ensure you are not caught at the table on closing day without the proper funds, or end up paying more for a property than it is worth:

• Do research on the organization administering the grant. Avoid companies with questionable financial backgrounds or histories of financial instability.
• Make sure the program provider belongs to the Homeownership Alliance of Nonprofit Down payment Providers (HAND), comprised of many down payment assistance charities. HAND sets standards of ethics and conduct within the industry to protect homebuyers and lenders. Most HGPA member organizations also follow the HUD guidelines for assistance programs.
• Make sure the real estate agent or mortgage broker is not receiving kickbacks for enrolling people in the program. For example, a real estate agent or broker who insists that you only work with a particular program could be a red flag. Real estate agents and mortgage brokers must disclose to you if they are receiving money for a referral.
• Make sure that the seller does not raise the cost of the home after they agree to reduce the cost by participating in the program.
• Ask your lender about loans that qualify for any down payment assistance grants, and make sure the grant the lender suggests follows HUD's guidelines.

U.S. Department of Housing and Urban Development (HUD) Report on Down Payment Assistance Programs: http://www.hud.gov/offices/hsg/comp/rpts/dpassist/conmenu.cfm

Commercial Property Assistance

So a residential space won't work for your needs, but you feel like you can't afford a commercial property? Again, don't fret: A commercial property might not be completely out of your reach. Check with the community development organizations and chambers of commerce in the communities in which you want to purchase.

Many lenders customize loan packages for commercial mortgages, and don't always advertise specific programs. Investigate as many banks and other lending institutions as possible. Also, check with smaller community banks and lending institutions located in the neighborhoods that interest you; they might have less stringent requirements than larger lending institutions, or programs targeted specifically to their immediate surroundings. Resources for developing commercial spaces are often relegated for small businesses and nonprofit organizations looking for space.

If you are planning on rehabbing or developing a space, visit Chapter 21: Rehabbing Your Space and Chapter 26: Developing a Facility. Each program has different requirements for participation.

Nonprofit and Small Business Assistance

Various programs assist nonprofits and small businesses with financing. Check with organizations and lenders with whom you have preexisting relationships, who can direct you to other funders and lenders; and community development organizations and chambers of commerce in the communities in which you want to purchase, who might know which lending institutions and organizations have a special interest in the area.

Smaller community banks and lending institutions located in the neighborhoods that interest you often have less stringent requirements than larger lending institutions. They might offer programs targeted specifically to their immediate community surroundings.

If you plan to rehab or develop a space, check out the resource sections of Chapter 21: Rehabbing Your Space and Chapter 26: Developing a Facility for funding sources. Each program has different requirements for participation.

Mortgage Insurance

As you begin the purchasing process, you might realize that you need or want several types of policies to adequately protect your property. This section discusses basic types of insurance policies available to cover and/or pay off mortgage loans. For a more in-depth explanation of how the insurance process works, review Chapter 19: Insurance.

Required Insurance
When you take out a mortgage, your lender will require you to maintain homeowner's or hazard insurance for the term and (at least) the amount of the loan. This type of policy protects your property against loss due to fire and other hazards. Homeowner's is for residential spaces, while hazard is for commercial and industrial properties.

If your mortgage is $150,000, you must have at least $150,000 in insurance coverage. It is advisable, however, to obtain enough coverage to replace your property and its contents.

If your lender requires (or allows) an escrow account, your homeowner's insurance will be paid from this account by the lender throughout the loan term. Many times the insurance premium for the first year must be paid in full prior to the closing.

Although the insurance payment may be included in your monthly mortgage payments, you are responsible for securing insurance and making sure the coverage is adequate. You can change your insurance company as many times as you like, so long as the policy covers the mortgage.

Some homeowner's or hazard policies might not protect your artwork and equipment, home-based studio or business. Read policies carefully and ask about options for additional coverage or if a separate policy is required.

Accidental Death and Dismemberment
This policy may pay all or a portion of your mortgage if your death, or loss of limb or sight is the result of an accident.

Disability Insurance
This type of policy will cover scheduled mortgage payments in the event you are unable to make payments due to illness or injury. Fully understand the terms of these policies before purchasing them; many provide coverage for only 1-3 years.

Flood Insurance
This type of policy protects your property against floods, but is only required in flood plains. While Seattle is not in a flood plain, there are portions of King County that are located in the flood plain. Here is a link to flood plain maps as well as other helpful information: http://www.kingcounty.gov/environment/waterandland/flooding/maps.aspx. You might want to discuss obtaining flood insurance if you are purchasing in a community that has a history of flooding. This insurance covers rising water associated with flooding, not water issues related to sewage problems, burst pipes from freezing, etc.

Mortgage Life Insurance
This type of policy will pay off the entire amount or a portion of the debt remaining on the property mortgage in the event of your death. You might be able to obtain a better deal with a standard life insurance policy instead of a mortgage life policy.

Private Mortgage Insurance (PMI)
Also known as PMI, lenders require this insurance if you put less than a 20% down payment on the property. This insurance protects the lender in the event that you default on the loan and the property goes into foreclosure. This policy typically is required for residential purchases.

Title Insurance
Title insurance protects against claims made by people who believe they have an ownership right to the property. While these claims are usually discovered during the title search, there is no guarantee that all claims will be uncovered. The lender will purchase this insurance to protect its interest in the property. Consider this type of policy if you have concerns about the title (for example, because you purchased the property through foreclosure or at auction).

Warranty Insurance
This type of policy, typically for residential properties, protects you against defects in the property that arise post-closing. If the property is new, the builder will usually carry a one-year warranty that fully insures you against defects. You can purchase policies that extend this warranty for up to 10 years.

Although this insurance often applies to new constructions only, ask your lender or insurer if it is available in your area for pre-owned homes and/or those that have been rehabbed.

Defaulting on Your Mortgage

Your mortgage contract will clearly outline the consequences should you default on your loan. Default is usually associated with failure to make your mortgage payments. While this is the most frequent cause of default, other common causes include:

• Failure to pay property taxes;
• Failure to insure or sufficiently insure the property;
• Failure to obey local, state or federal law as it relates to the premises;
• Deliberately damaging the property that secures the mortgage; and
• Leaving the property vacant for an extended period of time (i.e. abandonment).

If you encounter financial difficulty and cannot make your mortgage payments, speak to your lender immediately. If this is a short-term situation, perhaps due to illness or cash-flow problems, some lenders may waive payments for a short period or allow you to make partial payments. Alternatively, the lender may suggest that you defer the debt and make new payment arrangements. This usually will entail lengthening your mortgage by the number of months you were unable to make the full payments.

If these solutions are inappropriate or unacceptable to the lender, seek the advice of your lawyer immediately. Other options may be available to you, such as selling the property to pay off the mortgage loan and any outstanding payments. In addition, if you have a residential mortgage, contact the City of Seattle's Office of Housing Foreclosure Home Ownership Preservation Program at http://www.seattle.gov/housing/buying/ForeclosurePrevention.htm or (206) 684-3340.

What is Foreclosure?

If you default on your loan, the lender exercises the rights contained in the mortgage agreement to seize your property and sell it. This process is known as foreclosure, and requires approval by the court.

Washington State has two types of foreclosure:

• Judicial Foreclosure: The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.
• Non-Judicial Foreclosure: The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

Power of Sale Foreclosure Guidelines

DISCLAIMER: This section provides information about the law, but the City of Seattle and contributors to this manual do not guarantee that the information is complete and up-to-date. You should consult an attorney for legal advice applicable to your specific situation. For information and resources on hiring an attorney, see Chapter 4.

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

1. The notice of sale must be transmitted both by regular mail and by certified mail, return receipt requested, to the borrower at their last known address, and by regular mail to the attorney of record for the borrower, if any, not less than thirty (30) days prior to the day of sale.
2. The sheriff must publish a notice of the sale once a week, consecutively, for four (4) weeks, in any daily or weekly legal newspaper of general circulation published in the county in which the property is located. Additionally, the sheriff must also post the notice in two public places, one of which must be the courthouse door, in the county where the sale is to take place for a period of not less than four weeks prior to the day of sale.
3. Said notice must contain the time and place of the foreclosure sale, the names of the parties to the deed, the date of the deed, recording information, a property description, the terms of the sale, and the borrowers rights (or lack of) redemption.
4. The borrower has up to eleven (11) days before the sale stop the foreclosure process by paying the past due payments, plus expenses, including trustee and attorney fees.
5. The sale must be made by auction between 9:00 am in the morning and 4:00 am in the afternoon at the courthouse door on Friday unless Friday is a legal holiday and then the sale must be held on the next following regular business day. The sale may not be conducted less than 190 days from the date of default and the highest bidder will receive a certificate of sale.
6. The sheriff may postpone the sale (not exceeding one (1) week next after the day appointed) by giving notice and by posting written notices of the adjournment under the notices of sale originally posted.

Unless redemption rights have been precluded, the borrower may, within eight (8) months after the date of the sale, redeem the property by paying the amount of the highest bid at the foreclosure, plus interest.

If the non-judicial foreclosure process is used by the lender, then it cannot sue for a deficiency judgment. On judicial foreclosure sales, the borrower can be sued for a deficiency, unless the property is found to be abandoned for six (6) months before the decree of foreclosure.

For more information on Washington State Foreclosure laws visit:http://mrsc.org/

Resources

AmeriDream
Nonprofit organization that offers gift assistance programs to buyers of single-family homes valued up to $322,700, and multi-family homes up to $620,500.

ArtSpace USA
America's leading nonprofit real estate developer for the arts. Creates, fosters and preserves affordable space for artists and arts organizations.

Association for Enterprise Opportunity
National organization of micro enterprise lenders, whose membership provides micro loans to small businesses.

CDS Grants
Provides home buyers with assistance through a private gift trust fund.

Dream Maker Program
Sponsored by International Housing Programs. Helps cash-strapped buyers with free gift money for down payments and closing costs.

Fannie Mae
Requires the seller to pay the amount of the gift plus 7.5 percent, based on the sales price of the house after settlement. Buyers must be approved by lenders who allow gift assistance.

Golden Feather Realty
Specializes in the management and disposition of single-family homes.

Habitat for Humanity
Provides no-interest mortgages to qualified individuals who can make a $1,000 down payment and invest a required number of sweat-equity hours in building their spaces.

HomeGrantsUSA.org
Sponsored by the New Home Gallery, this is a traditional down payment assistance program.

Homes for All Program
No geographic restrictions or limits on buyers' income or assets. As with other gift assistance programs, the home buyer does not repay the funds, and the seller pays in the amount of the gift plus a processing fee.

Jewish Council on Community Affairs
Provides loans for affordable housing and economic development projects.

Local Initiatives Support Group (LISC)
Provides loans for the development of affordable housing and facilities.

Location Efficient Mortgage (LEM)
A mortgage that helps people become homeowners in location-efficient communities.

Lumity a Nonprofit Resource Service
Consulting group that catalyzes the nonprofit community to do more good work by increasing the capacity of charitable organizations to more effectively fulfill their missions.

NAREB Housing America Fund
ATruCharitySM down payment assistance gift fund program that complies with FHA guidelines.

National Community Capital Association
Invests in small businesses, quality affordable housing, and vital community services that benefit economically disadvantaged people and communities.

National Congress for Community Economic Development
An organization of more than 700 community development corporations and groups that participate in community development activities, including lending.

National Equity Fund, Inc.
Provides loans for affordable housing development.

National Federation of Community Development Credit Unions
Dedicated to community development.

Nehemiah Program
One of the oldest organizations offering down payment gift assistance to home buyers. Rules and restrictions are similar to other down payment gift programs. Follows HUD's guidelines.

Neighborhood Assistance Corporation of America (NACA)
A nonprofit organization that provides loans to low- and moderate-income people and sub-prime borrowers. Also provides workshops on homeownership and credit counseling.

Neighborhood Gold Down payment Assistance Program
Provider of down payment assistance grants from The Buyer's Fund. Its grants can be used on any home, and with conventional or sub-prime loans.

Nonprofit Finance Fund
Serves nonprofit organizations through financing and advisory services.

Purchasing Space: Information from ArtistLink
From the Massachusetts based Website. Some informative pages about purchasing your own space.

RealtyAmerica.org
A nonprofit that collects the gift amount from sellers plus a 7.5 percent fee that goes into a pool of funds from which gifts are paid.

Self Help Credit Union
A community development lender that has provided over $3.9 billion in financing to individual, under-served home buyers, small businesses and nonprofits nationwide.

Seniors Real Estate Specialists
These real estate agents have received special training to assist seniors in finding spaces that meet their unique lifestyle choices, housing issues and needs.

Teacher Next Door Program (TND)
Designed to further the goals of HUD by encouraging teachers to buy homes in low- and moderate-income neighborhoods.

U.S. Department of Housing and Urban Development (HUD)
Creates, rehabilitates and maintains the nation's affordable housing, enforces the nation's fair-housing laws, helps the homeless, and helps local communities meet their development needs.

U.S. Small Business Administration
Free resources and advice for starting and growing a small business.

Women's Self-Employment Project
Provides micro loans to women-owned businesses, as well as professional development workshops. Also provides free assistance with tax preparation.

• Banking Terms
• Fixed-Rate Mortgages
• Adjustable-Rate Mortgages
• Interest Rates

Once you are ready to secure a loan, you must decide what type of mortgage is right for you. Consider the following:

• Type of down payment you make;
• Amount of time to pay the loan back, also known as the loan term;
• How long you plan to stay in the space;
• Interest rate you want to pay; and
• Other factors specific to your situation.

Although you'll be presented with a smorgasbord of choices, most mortgages fall into two primary categories:

• Fixed-Rate Mortgages: Locks in your interest rate for the loan's lifespan. Your monthly payment is allocated to both the principal and interest, and usually remains constant. At the beginning of the loan, most of your monthly payment will go towards the interest. With each payment, more and more funds go to the principal. For residential properties, loans are readily available in 15 and 30-year terms. Loans for commercial spaces usually do not exceed 15-year terms; five- and 10-year terms are common.
• Adjustable-Rate Mortgages (ARM): The main difference between fixed-rate and ARMs involves paying interest on the loan. Interest rates for ARMs generally start lower than on fixed-rate loans, so borrowers may qualify for a higher mortgage amount. Because interest rates on ARMs fluctuate throughout the life of the loan based on financial market indicators, your monthly mortgage payment will also increase and decrease on a regular cycle. ARM loans are also available in loan terms as short as 15 years or as long as 30 years.

There are two basic ways mortgage lenders charge you for using their money: through interest charges you pay each month over the life of the loan, and points.

Points are an upfront fee based on a percentage of the loan. One point represents 1% of the mortgage. For example, for a $150,000 mortgage, one point would be $1,500, or 1% of the mortgage; two points represents 2% of the mortgage, or $3,000; and so on.

Points can be paid as part of closing costs, or the lender will reduce the available loan proceeds by the amount of the points. Some loans will not charge points, but will have a higher interest rate. In Washington State, most residential mortgages do not charge points.

When reviewing different mortgage products, compare their interest rates, points amounts and other fees to get a clearer picture of how much you will pay. The remainder of this chapter will discuss available loans.

Banking Terms

Key words for this chapter include:

• Amortization: The elimination of mortgage debt through regular payments over a specific length of time. Payments must be large enough to cover the principal and interest.
• Debt Ratio: A comparison between your total assets (gross income, money in the bank, equity in property, etc.) and total debts (credit cards, student loans, car loans, etc.).
• Deed: The legal document that transfers title of the property to the lender.
• Earnest Money: The funds you (the buyer) deposit with the seller to indicate serious interest in purchasing the space.
• Escrow: An account set up for you by the lender. Funds for your insurance and property taxes are held there until payments are required. The lender typically makes the payments for these expenses from this account.
• Equity: T he difference between what you owe on the property (the mortgage) and what the property is actually worth. For example, you purchase a home for $115,000. Five years later, the property's value increases to $125,000, but you still owe $75,000 on your mortgage. The difference between the value of the property and the mortgage amount you owe is $50,000 ($125,000 - $75,000). You now have $50,000 in equity in the property.
• Interest Rate: The amount of money charged by the lender for using its money to purchase property. Is based on the risk of the loan and prevailing market rates.
• Lien: A legal claim against the property, used to secure loans; they must be paid first if the building is sold. Types of liens: property taxes, Internal Revenue Service-issued, court-ordered, etc.
• Mortgage: A type of loan specifically used to finance the purchase of real estate. Several types are available.
• Mortgagee: The bank, credit union or other financial institution that loans money to purchase real estate.
• Mortgagor: The borrower who accepts the loan from the lender.
• Principal: The original amount of money borrowed for the mortgage. Does not include the interest rate.
• Term: The length of time the borrower has to repay the principal with interest. Depending on the type of loan you choose, the longest mortgage term for residential properties is typically 30 years.
• Title: The legal document that denotes ownership of real estate.

Other terms and definitions will be defined as we go along.

You can access several super-glossaries of terms and definitions from Dictionary.com, Investor Words, Global Investor Glossary or ADVFN Financial Glossary.

For real estate terminology, visit the Real Estate Agent.com glossary.

Fixed-Rate Mortgages

Many options are available to you if you pursue a fixed-rate mortgage. This section defines the characteristics of each mortgage product, and discusses pros and cons.

Conventional Residential

Guidelines for standard conventional loans include:

• Minimum 5% down payment
• Maximum property debt ratio of 28%
• Maximum total debt ratio of 36%
• Private Mortgage Insurance (PMI); required if down payment is less than 20%
• Two months' payment reserves for hazard insurance are typically required if insurance is paid through the lender via an escrow account
• Housing and total debt ratios may be expanded for specialty programs
• PMI can be avoided by taking out a second mortgage or line of credit to cover the down payment. These additional loans will usually have a higher interest.

Long-Term Residential

The most common long-term mortgages last 20 or 30 years.

Pros
The major benefits of these loans are their predictability, stability and length. You know exactly how much interest you will pay over the term, and your monthly payments are allocated to both the principal and interest. In early years, the majority of the payment goes to interest, which is tax-deductible. If the mortgage does not have a prepayment penalty, you can make extra payments to shorten the loan term. By making additional payments against the principal, you ultimately lower the cost by reducing the total amount of interest you are charged.

Cons
Stability comes at a price. Interest rates on fixed-rate loans are usually higher than those starting rates on adjustable-rate loans. Down-payment requirements on conventional, fixed-rate loans can be as high as 10% to 20%. If you opt for a lower down payment, you might have to pay for mortgage insurance, which can cost hundreds of dollars more per month. Mortgage insurance protects the lender in the event you are unable to continue loan payments.

15-year Fixed-Rate

This is a shorter version of the traditional 30-year fixed-rate loan.

Pros
Again, stability and predictability are considerable benefits. In addition, you pay down the principal relatively faster when compared to longer-term loans of 20 or 30 years. The 15-year fixed-rate loan lets you own your space debt-free in half the time, and for less than half the total interest cost of a 30-year fixed-rate loan. Interest rates are usually lower than those offered on 30-year fixed-rate loans. Government-backed loan programs such as the VA Loan may also have 15-year programs.

Cons
Higher monthly payments make these loans more difficult to qualify for than longer-term mortgages. This limits the number (and cost) of properties you can afford to buy. In addition, your monthly payments can be roughly 15-30% higher than payments you would make with a 30-year loan. If you are considering a commercial property, this is the longest loan term you can expect.

Convertible Fixed-Rate

Pros
Sometimes called a Reduction Option Loan (ROL), this loan combines the features and benefits of a fixed-rate mortgage with an adjustable-rate mortgage. ROL loans allow you to pay a fixed payment for a certain amount of years, then revert to an adjustable mortgage payment schedule. The amount of time you are allowed to make fixed payments is outlined in your mortgage contract. If you choose this loan product, include a clause in your mortgage agreement that allows you to convert the loan permanently to a fixed-rate mortgage, especially if interest rates begin climbing. Typically, lenders will allow you to exercise this option between the 13-59th payments (years 2-5), especially if interest rates fall at least two percentage points below the initial interest rate your loan started with during that period.

Cons
The loan agreement might require you to pay an upfront fee to exercise your option to convert the loan permanently to a fixed-rate mortgage. In addition, interest rates for these loans are sometimes higher than on other ARM loans. While these loans give more buying power than a traditional 30-year fixed rate mortgage (i.e., a lower interest rate means you can take out a higher loan amount), if rates increase to a high level and fail to come down, this type of mortgage could end up costing you more in the long run.

Balloon Mortgage

Pros
This is a fixed-rate mortgage with a twist: It has regular monthly payments like a traditional mortgage, but requires large lump-sum payments (the balloon) at regularly scheduled intervals throughout the loan's term. Usually, these lump sum payments are required at the three-, five-, seven-, 10 or 15-year anniversary of the loan. Balloon mortgages typically offer a lower initial interest rate compared to 30-year fixed rate mortgages, so borrowers may qualify for a higher mortgage amount. At the end of the loan period, the borrower must then pay off the remaining balance on the loan or refinance it into another loan product.

Cons
When a lump-sum payment is due, you might have to pay off the remaining balance of the loan all at once. In this scenario, if you have a high loan amount, but a short term, you might have to pay an amount nearly equal to or more than what you have already paid on the loan. If you choose to refinance the remaining balance, you run the risk of not remaining eligible for another loan. Even if you can refinance the remaining balance, the majority of your monthly payments will initially go towards interest, and you will lose any equity you had in the property.

Biweekly Fixed-Rate

Pros
This type of loan shortens the payment term of a 30-year fixed-rate mortgage by making 26 biweekly payments in a year instead of 12 monthly payments. The biweekly payments are usually half the amount you pay when you make monthly payments. For example, if you pay $600 once per month on a monthly payment cycle, your biweekly payments become $300. These extra payments can reduce the length of a 30-year term to 18-22 years. However, if the biweekly payment schedule becomes too much, you can usually convert it to a conventional 30-year fixed-rate loan. Because the term is reduced, you pay less interest over the life of the loan. In order to participate in this program, payments must be automatically withdrawn from your savings or checking accounts.

Cons
While this program has advantages, payments must be deducted from a savings or checking account; this can be problematic if you do not have an account, or if your income is erratic. In addition, the lender may make debit charges to your account. By paying off the loan faster, you lose the benefit of deducting the mortgage interest from your federal taxes for as long as you would for a 30-year fixed-rate loan.

Construction/ Permanent Loans

Loan programs assist borrowers who want to build new properties. Construction loans are available, as well as a combination construction/permanent option that features a single closing.
The loan would be secured by a mortgage on the land and the property, once it is built. The construction loan usually has a short term (12-24 months) to allow time to complete the building, and might then convert to a permanent mortgage on the completed property. With such loans, one has to decide whether to incur the additional risk of building a space.

FHA Mortgage

Pros
The Federal Housing Administration (FHA), established in 1934, is the oldest and largest insurer of residential mortgage loans in the U.S. An FHA loan offers lower down payment loans for qualified borrowers when compared to a conventional loan. Both fixed and adjustable rate mortgage products are available, and usually only require a minimum cash investment of 3%.
FHA loans will also accept funds from gifts, other loans, and grants from select sources to be used for down payments and closing costs. Unlike conventional loans, the maximum property debt ratio is increased to 29% compared to the 28% allowed for conventional loans, and the total debt ratio can be as high as 41% versus 36%. While a conventional loan might require you to have at least a two-month payment reserve (money in the bank to cover the mortgage and/or insurance), this is not a requirement for FHA loans.

Cons
These loans have both income caps and limits on the mortgage amounts. Certain down payment assistance programs paired with government loans might also feature income caps.

40-year Fixed-Rate

Pros
This is a standard fixed-rate loan with a 40-year term. The loan term allows you to have lower monthly payments: For example, $100,000 at 5% interest with $0 down would be $537 with a 30-year fixed-rate loan, versus $482 with a 40-year loan. In addition, it might allow you to secure a higher loan amount and still have a manageable payment. Utilizing the above example, the payment on an $110,000, 40-year loan at 5% would equal $530, which is comparable to the $537/month payment on a $100,000 30-year fixed-rate mortgage at 5%. Another upside to these loans is that because Fannie Mae has begun purchasing them on the secondary market, they are likely to become increasingly available from lenders.

Cons
The longer the term, the more you pay towards interest. Not only are the interest rates on these loans slightly higher, but you'll end up paying nearly twice as much interest over the term compared to what you would pay with a standard 30-year fixed-rate loan. In addition, these loans are not yet readily available as 30-year mortgages.

Interest-Only Mortgage

This is not a type of mortgage, but an option you can add to any mortgage product (if available). With conventional loans, your monthly mortgage payment is allocated to both principal and interest. If you add this option -- let's say, for the first five years -- you pay only interest during this five-year period. In the sixth year of your loan, you begin paying both interest and the principal. Adding this option can be problematic, however, as it will likely increase your monthly payment significantly once you begin paying both interest and principal. For example, say you have a 30-year, fixed-rate mortgage for $100,000. You add an interest-only option for the first five years. At the end of the five years, you start paying back interest and the principal. Because you have only paid interest over the last five years, you end up paying the entire $100,000 principal plus interest in 25 instead of 30 years. Basically, you end up paying a $100,000 mortgage over a 25-year term. Had you paid interest and principal in the beginning, the payment would be $537. With a 25-year term, the payments are $585.

Jumbo Loans

Pros
Jumbo loans are used when the loan amount exceeds guidelines set by Fannie Mae and Freddie Mac. As discussed earlier, Fannie Mae and Freddie Mac are federal government-sponsored investors that purchase loans on the secondary mortgage market. Lenders selling residential mortgage loans to these entities must follow their underwriting guidelines in order to participate.
In 2005, the limit for a one-family, residential loan was set at $359,650 in the continental U.S., and $539,475 in Alaska, Hawaii, Guam and the U.S. Virgin Islands. Any single loan that exceeds Fannie Mae's limits is considered a jumbo loan, and will carry a higher interest rate than a conventional fixed-rate mortgage. This is a good loan if you need more money to secure the space you want and can afford it.

Cons
Interest rates are often higher on these large loans. Thus, the loan may have a higher monthly payment, and will cost more over the long run due to the interest rate. Because jumbo loans are typically considered higher-risk, the criteria for securing these loans is typically very strict, and you will need to have a higher income level to qualify.

Government Loans

Unlike many homebuyer programs, Federal Housing Administration and other government-backed loans and mortgages are not limited to first-time homeowners. Select guidelines for standard government loans include:

• Terms of 15 or 30 years, with either a fixed or ARM loan
• Gift funds from nonprofit organizations, family members or friends can be used for the down payment
• No payment reserves are required for mortgage insurance
• Maximum total debt ratio is 41% (Visit Chapter 8 for more information on property debt ratio)
• Loans are assumable, meaning another party can take over the loan as long as they meet all of the FHA's requirements and qualifications
• Loan amounts are capped

Cons
These loans have both income caps and limits on the mortgage amounts. Government loans also include additional criteria that borrowers must meet to obtain the loan.

Piggyback Mortgages

Pros
Also known as 80-10-10 loans, Piggyback Mortgages eliminate the need for Private Mortgage Insurance (PMI) by allowing borrowers to access equity in the space as the down payment. Basically, a second mortgage is "piggybacked" onto the original mortgage loan. This "piggybacked" loan helps to cover part of the down payment, and has a term length as long as the original mortgage. When compared to PMI, a piggyback mortgage might be a cheaper alternative. For example, if the first loan covers 80% of the home, a piggyback loan would cover an additional 10% of the mortgage; this reduces the down payment to 10%. Equity in the property accumulates faster, because extra payments are made towards the principal, and you can obtain a larger mortgage loan while avoiding a jumbo loan's higher interest rate or monthly PMI payments.

Cons
Not everyone will qualify for a piggyback loan, and the savings aren't guaranteed. Also, you will have to make two separate mortgage payments each month. Tax laws might limit the amount of mortgage interest you can deduct from your taxes. Finally, the interest rate for the second loan might be higher.

VA Loans

Pros
The Department of Veteran Affairs guarantees fixed-rate VA loans for qualified U.S. military veterans. Offered in terms of 15 or 30 years, VA loans usually do not require a down payment, and have less stringent criteria than conventional loans. These loans will also accept funds from gift programs, other loans or grants from certain sources to be used for the down payment (if required) and closing costs. As of December 2004, the maximum loan amount was raised to $359,650. In addition to debt ratios, VA loans use a residual income calculation to assess applications. Say, for example, that a lender allows a debt to income ratio of 30%, and requires a residual (leftover) income of $1,000 per month. Although 30% of the borrower's income goes towards debt each month, after debts are paid, the borrower must have $1,000 remaining to allocate towards property expenses. So, if the borrower had a monthly income of $1,200, and debts of $360/month, s/he could not qualify for the loan. Although the borrower meets the debt ratio requirements ($360 is 30% of $1,200), s/he does not meet the residual income requirement ($1,200-$360 = $840). In this example, the borrower would need to earn at least $1,360 per month to meet both the debt ratio and residual income requirements ($1,360 - $360 = $1000).
Private Mortgage Insurance is not required for VA loans, but is instead replaced by a VA funding fee that varies from 1.25% to 3.3% of the property value. The fee helps to fund program operations by paying claims to lenders who would otherwise lose money by making loans to sub-prime (under-qualified) borrowers who default on their loans. This fee also goes toward paying lenders who normally would not make these loans were if not for the VA funding fee.

Cons
You must be a qualified U.S. veteran to qualify, and can only use the loan for residential property. You must also occupy or intend to occupy the property as a home for yourself within a reasonable period of time after closing the loan -- i.e., the loan cannot be used to purchase rental-only property.

Adjustable-Rate Mortgages

Now that you know more about the range of options available fixed-rate mortgage options, it is time to explore the ins and outs of adjustable-rate mortgages (ARM). The primary difference between fixed-rate and adjustable-rate mortgages is that interest rates for ARM loans fluctuate over the loan's lifespan, which changes your monthly payments throughout the loan term.

As with fixed loans, there are many ARM products to choose from. Different ARM loans share common characteristics:

• Initial or Introductory Rates: The initial interest rate of an ARM loan.
  Starting rates are generally 1-4% below those on conventional 30-year, fixed-rate residential mortgages. Although these low rates may allow you to qualify for a higher mortgage, remember that the interest rate may increase in the future. Borrow a reasonable amount so that you can handle the payments if the interest rate increases.
• Adjustment Intervals: How often the loan's interest rate changes throughout the term.
  Adjustment periods vary depending on which ARM product you choose, and occur throughout the loan's lifespan at regularly scheduled intervals. At the end of an adjustment period, the interest rate change takes effect. The first interest rate change will not occur until a set number of years have passed. For example, with a 3/1 ARM, the first rate change occurs after three years have passed, and will change every year thereafter for the remainder of the loan term. On a 7/1 ARM, the first rate adjustment occurs after seven years, and then on a yearly basis. Other adjustment period choices include yearly and 5/1. The mortgage contract will describe the adjustment period.
• Index: Lenders use the index to determine the new interest rate on your loan for the next adjustment period. The index is a financial market indicator used by lenders to calculate the costs they incur to lend you money. Because index rates continuously rise and fall, your mortgage contract will note the date the index is calculated. The index calculation typically occurs one to two months prior to the anniversary of the loan. How does this affect your loan's interest rate? If the market indicates through the index that it is risky for lenders to loan money to you, you can expect a higher interest rate, or vice versa.
• Adjustment Margin: This is a set percentage amount - the margin - that the lender adds to the index rate. Lenders use this margin to help determine your ARM's interest rate during the adjustment period. The margin amount remains constant over the life of the loan, and is between 1-3 %. The adjustment margin should be outlined in the mortgage contract. When it is time for your loan adjustment, you can "estimate" your new interest rate by adding your loan's margin to the index rate. For example, if you have a margin of 2% and the index is set at 5.5%, you can estimate that your new interest rate will be around 7.5%.

Confused about how interest rates in ARM loans work? Don't be. Just remember:

1. The Index and Adjustment Margin are used to determine your interest rate.
2. Each year, the Adjustment Interval indicates when your "new" interest rate will begin.

And what about the Introductory Rate? Well, it's so low that you will probably not see this rate while you repay your mortgage.

Additional Factors

Let's take a look at other aspects of the ARM loan you need to note when comparing mortgage products:

Interest Caps
These limit how much your interest rate can fluctuate, and protect you from unexpected changes in the rate at adjustment periods and over the loan's lifespan. Caps vary among lenders, but are typically set at 2% and 6%.

There are two types of interest rate caps: lifetime and periodic.

• Lifetime Caps: These limit how much the interest rate can increase over the life of the loan. For example, if your loan had a "5% lifetime cap," your rate can not increase more than five percentage rate points over the initial rate no matter how high the index rate climbs. So, if you started with a 5.5% initial rate, the highest interest rate you could be charged on your loan would be 10.5%. By law, your mortgage contract must include a lifetime cap.
• Periodic Caps: These limit the interest rate increase from one adjustment period to the next. This cap shields the borrower from steep payment hikes from one adjustment period to the next. For example, your mortgage contract could provide that, should the index rate increase four points in one year, your rate could only rise two points.

Payment Caps
This cap limits your monthly mortgage payment throughout the loan term, and requires that -- after an adjustment period -- your new monthly payment can only increase by a certain percentage of the previous payment. Your mortgage contract will detail the increase.

For example, the payment cap might indicate that your adjustment cannot increase more than 20% from your previous payment. If your old monthly payments were $500 per month, then the payment cap would limit the increase in your adjustment to 20% (or less) of $500. This would result in a maximum increase of $100, or a new payment of $600 ($500 x 1.20). The next adjustment could again increase another 20%, but would be based on the previous payment of $600.

Payment caps can result in negative amortization during months when high interest rates require you to pay more than the payment cap allows. During months of negative amortization, the outstanding balance of the loan actually increases. During these months, your payments - due to the cap -- are insufficient to cover the cost of the loan created by a rising interest rate. This results in a monthly payment deficit.

Using our previous example, the payment cap limits the loan increase to 20%. However, a 25% increase would be necessary to cover the costs due to rising interest rates. So, if your payment amount is capped at $600, but you need to pay $625 to cover the interest, each month you would have a $25 payment deficit. In one year's time, you would accumulate an additional $300 towards your loan debt.

At some point during the loan (usually towards the end), you will be required to make monthly payments large enough to pay off the principal and any accumulated interest you owe. When this day arrives, you might face repaying a large portion of the loan principal and accumulated interest in a shorter amount of time. This could translate into extremely large payments until the loan is completely paid off.

Other questions to ask if you are considering an ARM loan include:

1. Conversion: Can you convert the ARM to a fixed-rate mortgage? A convertible ARM might enable you to lock in a lower fixed-rate at a later time.
2. Prepayment Penalties: Will you have to pay a fee or penalty if you refinance or pay off the ARM early?
3. Any other concerns you have.

Pros and Cons

• ARM loans are great, especially if you have limited money to get into the marketplace. Their interest rates are typically lower than conventional fixed-rate residential loans, which allows you to borrow more. This can translate into more purchasing options.
• The downside is that, because the interest rate fluctuates throughout the term, skyrocketing interest rates will lead to skyrocketing monthly payments. Ensure that you can handle the maximum payment requirements if your interest rate rises, and learn how margins, caps and adjustment intervals will affect your monthly payment (as well as how and when each is calculated).

Interest Rates

• After deciding which type of loan is right for you, figure out what an affordable monthly mortgage payment will be. Your payments reflect both the interest and principal of your loan, which in turn affects the loan amount you can obtain. If you have a high interest rate, you might consider taking out a smaller loan. Smaller loans translate into fewer purchasing options, but also mean smaller monthly payments.
• How does interest affect your monthly payments? View one of the following charts to see how your mortgage payment is affected by interest rates. To view the 15-year and 30-year fixed-rate tables, download the attachments.
• To use the tables, find the interest rate for your mortgage at the top, then skim down that column until you find a payment (includes interest and principal) that you can manage. Moving left across the row will give you the loan amount for which you need to qualify.
• Payments do not include private mortgage insurance, property taxes or homeowner's (hazard) insurance. Including these expenses in your monthly mortgage payment will increase your monthly payments by hundreds of dollars each month.

• TIP: To get an idea of how a mortgage will amortize, access The Mortgage Rate Directory
• TIP: Fannie Mae changes it loans limits each year. Find out current loan limits

This chapter explains the types of information and documentation you need when applying for a mortgage. Most of the information that lenders require is the same for individuals, businesses and nonprofits, but the differences warrant separate discussions. Therefore, the remainder of this chapter is divided into three sections:

• Applying as an Individual

• Applying as a Business

• Applying as a Nonprofit

Banking Terms

(this is a duplicate from previous chapters and has been included for ease of reference)

Key terms to know for this chapter include:

• Amortization: The elimination of the mortgage debt through regular payments over a specific length of time. Payments must be large enough to cover both principal and interest.
• Debt Ratio: A comparison between your total assets (gross income, cash, equity in property, etc.) and total debts (credit cards, student loans, car loans, etc.).
• Deed: Legal document that transfers title of the property to the buyer.
• Earnest Money: Funds the buyer deposits with the seller to indicate seriously interest in purchasing the space.
• Escrow: An account set up by the lender where funds for the buyer's insurance and property taxes are held until payments are required. The lender typically makes payments for these expenses from this account.
• Equity: Represents the difference between what you owe on the property (the mortgage) and what the property is actually worth. For example, if the value of a home purchased for $115,000 increases to $125,000 after five years, but the buyer still owes $75,000 on the mortgage, the difference between the property's value and the mortgage amount owed is $50,000 ($125,000 - $75,000). This equals $50,000 in equity in the property.
• Interest Rate: The amount of money you are charged for using the lender's money to purchase the property. Is based on the risk of the loan and prevailing market rates.
• Lien: A legal claim against the property, used to secure loans; they must be paid first if the building is sold. For example, the lender puts a lien against the building when you take out a mortgage to purchase it. Other types of liens include property taxes, from the Internal Revenue Service, court-ordered, etc.
• Mortgage: A type of loan specifically used to finance the purchase of real estate. Several types are available.
• Mortgagee: The bank, credit union or other financial institution that loans money to purchase real estate.
• Mortgagor: This borrower who accepts the loan.
• Principal: The original amount of money borrowed for the mortgage. Does not include the interest rate.
• Term: The length of time the borrower has to pay back the principal with interest. The longest mortgage term for residential properties is typically 30 years.
• Title: The legal document that denotes ownership of real estate.

Other terms and their definitions will also appear in the text and will be defined as we go along.

If you are interested in learning more investment and financing market terms, visit Dictionary.com, Investor Words, Global Investor Glossary or ADVFN Financial Glossary.

For real estate terminology, visit the Real Estate Agent.com glossary.

Individual Application

What is the first step in the buying process? Finding out how much space you can afford! Contact a lender to get a pre-qualification assessment, which is usually free. During the process, a loan officer will look at a variety of factors, including your financial situation, to help you evaluate your financing options. Pre-qualification gives you an idea of how much the lender will give you before you start looking; this allows you to target your search and gives you more negotiating power when you are ready to make an offer on a specific property.

During the pre-qualification process, the loan officer will look at and compare the following:

• Gross Monthly Income: Your total monthly income before taxes. You must list the source and amount of income, and can include money earned from:
  1. A job.
  2. Selling artwork and performances.
  3. Lecturing fees.
  4. Commission work.
  5. Alimony, child support and maintenance income. (Do not include information about these income sources if you do not want them to be considered as funds available to repay the loan).
  6. Dividends.
  7. Rental income on other properties.
• Monthly Debts: Debts you pay each month, including:
  1. Bank, credit union or car loans, student loans, debt consolidation payments.
  2. Credit cards: Lenders will base this amount on your minimum monthly payments per card, or 5% of the outstanding balance.
  3. Co-signed debts.
  4. Alimony, child support, separate maintenance payments (if applicable).
  5. Mortgage payments made for other properties.

Your gross monthly income and debts will then be used to help determine the amount of the loan for which you qualify. Other factors to be considered include:

• Property Debt Ratio: The ratio of your property costs to your income includes:
  1. Mortgage payments.
  2. Property taxes.
  3. Insurance (property and mortgage).
  4. Condominium/association fees, if applicable.

In most cases, this ratio should not exceed 28% of your income for residential properties. For example, if your income is $3,500 per month, then 28% of this would equal $980 ($3,500 x 0.28). This means $980 is the total amount a lending institution will allow you to use to pay the mortgage, property taxes, insurance and condominium/association fees (if applicable).

Because commercial mortgage loans are customized on a case-by-case basis, the requirements for property debt ratio will vary from lender to lender.

• Total Debt Ratio: The ratio of your property costs plus any other fixed monthly debt (student loan payments, credit cards, etc.) you must pay. This debt should not exceed 36% of your income for residential properties. Using our previous example, if your income is $3,500 per month, then 36% of additional debt translates into $1,260 ($3,500 x 0.36). Besides the $980 per month the lending institution will allow you to dedicate to paying your property expenses, you are allowed another $1,260 per month to allocate towards non-property related bills such as utilities, credit card payments, student loans, car payments, etc. Again, the total debt ratio allowed will vary from lender to lender for commercial mortgage loans.

Using the above example, the total amount of funds from your income allowed per month for both your property expenses and other bills would be $2,240.

Depending on the type of loan you use, these maximum ratio guidelines may differ. When you pre-qualify for a mortgage, the loan officer will determine your loan amount by using a calculation similar to the one used in the Mortgage Calculation Worksheet. Requirements and calculations might be different for commercial purchases.

You might want to consider getting a co-borrower, such as a family member, if you do not have enough income to qualify for a mortgage loan. However, the lender will typically want to add that person's name to the title, which will make this individual a co-owner of the property. You should only complete the co-borrower section if another person will be jointly obligated for paying the mortgage, or if you will be relying on the income assets of another person (i.e. your spouse) for repayment of the loan.

Additional Factors

Besides income and debt ratios, the lender will also look at other factors, including:

Employment History: Applicants should meet one or more of the following criteria:

• Two years at the same job
• Two years in related fields
• At least one year in a new field with "logical moves" (or example, you move from teaching art at the high school level to teaching at the college level).
• College degree or advanced education for new participants in the workplace. If you have recently completed a graduate degree, each year you spent in school is counted as one year in the workforce. Two years in school = two years of working.

Income:

• Determined from pay stubs, W-2s, tax returns or other applicable documentation. Child support or alimony income can apply if you have received it for the past 12 months and it will continue for at least three years into the loan period. You do not need to include alimony, child support or separate maintenance income, if you do not want it to be considered as money available to repay the loan. However, not including this money might affect your loan amount.

Special Calculations:

• Lenders will require special calculations and additional information for self-employed borrowers. You might have to provide full tax returns showing all schedules for at least the last two years in order to document your "After Expense" income. Most good loans are "full doc" loans, meaning the lender wants full, complete real documentation of your income before making the loan.
• You might also need to provide this information if you are:
  • Self-employed,
  • Work on contract,
  • Work on commission,
  • A retired borrower,
  • A military borrower, and/or
  • Use interest and dividend income as your main source of income.

Down Payment:

The amount you pay must meet the minimum standards required by the loan product you choose. Typically, the more money you put down towards the purchase, the lower the amount you need to borrow; this can increase your chances of securing a loan. In addition, the lender will look at the source of your down payment. The following are acceptable sources for a down payment:

1. Funds from savings and checking accounts.
2. Funds from a down payment assistance program (guidelines vary, depending on the loan).
3. The equity in your current property.
4. Secured loans.
5. Retirement savings plans such as IRAs or 401(k) plans (many plans allow a hardship withdrawal or a loan against your balance; some allow loans specifically for purchasing residential property).
6. Proceeds from the sale of an asset, such as your art, car, jewelry, etc., are valid. You can sell any item the value of which can be supported by an independent appraisal. You will also be required to provide proof of sale and sale price. A bill of sale is often sufficient evidence.
7. Income from investments.
8. Additional sources from family, friends, organizations, etc. allowed by your lender or loan product.

Credit History:

The lender will pull a credit report to help determine your credit risk, and whether or not you can repay the mortgage debt. Credit items for review include:

1. How much do you owe? Items like credit cards, car loans, student loans, etc. will be considered.
2. How often do you borrow?
3. Do you pay your bills on time?
4. Do you live within your means?
5. Do you have a history of bad credit or unpaid debts?

If your report shows problems, the lender might ask for a letter of explanation and supporting documentation to prove past debt problems have been settled. Many lenders will work with you to help you get your credit in shape and enable you to qualify for a loan - eventually. For additional information on credit, see Chapter 3: Understanding Credit.

Stability:

• How you live and work is important to a lender. Long-term employment and residential tenure reflects commitment to the long run. Lenders are risk-averse, and a mortgage is a long-term commitment. Consistent job-hopping (without logical moves) and serial moving are red flags to lenders that you are a financial risk; they will consider you unstable.

Collateral:

• The lender will evaluate the property you intend to purchase (with the help of an appraisal) to determine if the property is valuable enough to support the loan request. The property then becomes your collateral, and is a guarantee to the lender that if you are unable to continue making mortgage payments, they can recoup their investment through the foreclosure then sale of your property.

Additional Considerations:

• Depending on the loan you choose, cash and funds not deposited in a financial institution might not be accepted for down payments, closing costs or even as collateral.

Application

By now, you have weighed the pros and cons of ownership vs. leasing, have examined your finances, and have identified the location and type of space you want. It is now time to compile your documents and secure your loan!

At your application appointment, your loan officer will request the following types of information and documentation. Lender requirements may vary; if you are using a homeownership assistance program or other specialty assistance, you might need to provide additional documentation.

Income Items and Verification:

1. Recent pay stubs from your present employer showing year-to-date earnings and pay period. Typically, you will need to show pay stubs from the last 30 days if you are paid more than once per month, and stubs from the past 60 days if paid monthly.
2. If you are a recent graduate student, the lender will need proof that you were enrolled full-time in school. Your academic institution should be able to provide a letter.
3. Name and mailing address of prior employer.
4. Signed and dated copies of your Federal Tax Returns (include all schedules from at least the last two years).
5. W-2 forms for the previous two years to match with your Federal Tax Returns.
6. Rental/Lease Agreements from your current residence.
7. Copy of Notes Due. These are loans you have made to others, and represent money owed to you.
8. Bank statements covering the previous two months.
9. Verification of stocks owned and dividends paid.
10. Child support, alimony, friend-of-the-court printouts, and/or 12 months of cancelled checks showing payments received.
11. Awards letters from the Social Security Administration showing any benefits you receive, and/or federal form 1099 to show you receive disability income.
12. Tax returns addressing income derived from rental property, commissions, interest or sources of income other than a salary.

Sources of Funds for Down Payment:

1. Original bank statements for the last three months, including savings, checking and investment accounts.
2. Stock and securities account statements for the last three months.
3. A HUD settlement statement, if using funds from the sale of a residential property.
4. Sale of an asset. You must show proof of ownership, sale and funds transferred to you (i.e. a check, money order, etc.). They want to know that your funds are not illegal.

If You Are Self-Employed :

1. Signed, completed tax returns for the past two years. Include your personal, partnership and corporate returns, and all schedules.
2. Business Profit and Loss Statements signed by you and your accountant. Must be year-to-date for the current year, if more than three months have passed since the end of the tax year.
3. A current balance sheet showing income vs. expenses.

Payment History:

1. Cancelled rent or mortgage payment checks for the past 12 months, if not available on your credit report.
2. Copies of land contracts, if applicable; and
3. Child support/alimony payments.
4. Documentation showing payment requirements.

Credit Items :

1. Name and address of present mortgage holder or land contract holders; and
2. Name and address of landlord and a 12-month rental payment history. Recent receipts or cancelled check are acceptable.

Verification and Explanation of

1. Commission income.
2. Bonus income.
3. Child support (through court or copy of cancelled checks). If you receive this type of funding and will use it towards your payment, proof of receipt for the last three months will be required. In addition, you must also provide proof that these funds will continue for at least the next three years.
4. Overtime income.
5. Separation papers; and
6. Copy of bankruptcy petition, discharge and written explanations.

Explanation letter for any of the following credit issues:

1. Slow pay on credit.
2. Default or foreclosure
3. Judgment or liens; and
4. Bankruptcy.

Additional Information, if applicable:

1. Purchase agreement, including legal property descriptions and any addendum.
2. Divorce decree.
3. Copies of original purchase contract, earnest money (checks) and/or escrow papers.
4. Closing statement from sale of present property
5. Gift letter from down payment assistance program (letter must contain amount of gift, relationship of donor to you, evidence that no repayment is required and verification of the source of the gift).
6. Explanation of source of funds for closing.
7. Construction/permanent loan. Signed construction contract with cost breakdown, builder plans and paid receipts; and
8. VA Loan. Original certificate of eligibility (if available) and DD214 (Report of Transfer or Discharge).

At the application appointment, your loan officer will collect the documentation needed to process your loan, help you choose a mortgage product, and complete the official loan application. Next, you will receive documents that:

• Outline the terms of your loan;
• Estimate the closing costs associated with the loan; and
• Other documents specific to the lender and/or loan.

Keep these documents handy throughout the remainder of the loan process.

Processing

Based upon the information you provide at your application appointment, during the processing of your loan, the lender will:

• Evaluate and verify your assets, income and/or job status;
• Review your credit history to determine how well you have paid your debts in the past; and
• Order an appraisal on the property to determine if the value is consistent with the negotiated price.

All of this information helps the lender to determine how much money to lend you. Once you have been approved, the lender will send you a Commitment Letter outlining all terms and conditions and items needed for closing. You will be asked to sign and return the agreement showing that you are ready to prepare for the closing of the loan.

Next, the lender will begin preparing the documents for your loan closing. This involves:

• Coordinating title work;
• Scheduling property appraisals and inspections;
• Settlement figures; and
• Other closing documents.

During the loan processing, a title company will search the title to ensure that no one else has an ownership claim, lien or second mortgage on the property you are purchasing. The lender will pursue title insurance, which will protect them against loss if an unforeseen claim arises. Consider purchasing this type of insurance to protect your investment.

Before closing, your lender will require you to purchase either homeowner's or hazard insurance on the property. Homeowner's insurance is for residential properties, while a hazard policy is for commercial and industrial buildings. They protect you and the lender against loss if the property is damaged by fire or storm. Many options are available, so check with your lender to ensure your coverage meets their requirements before selecting a policy.

Your lender might also require you to purchase private mortgage insurance (PMI), which protects them against loss if you cannot repay the loan. It is typically required if you put less than 20% down towards the purchase of the property. Because commercial mortgages often require 20% or more down, PMI is needed primarily for residential spaces.

Descriptions of other type of insurance policies are further explained in Chapter 8: Buying Real Estate. Depending on the type of space you have, and how you will use it, examine policies that allow you to cover various needs under a single policy. See Chapter 20: Insurance for more information on insurance issues.

Closing Day

Closing Day on your loan is when you sign the final documents, get the keys to your new space, and become an official property owner. In most cases, the closing is a formal meeting where the buyer and seller, their respective attorneys and real estate agents, and representatives from the lending and title companies complete the sale and financing transaction. Bring your attorney to review the documents before you sign them. At the closing, you will be asked to sign many documents, including:

• HUD-1 Settlement Statement: Both buyer and seller sign this statement, which lists the costs and charges to both parties and is required by federal law. You do not need this document if you have a commercial mortgage.
• The Note: This is your promise to pay the lender according to the terms specified in the mortgage. It provides the details regarding repayment of the mortgage, including payment dates and penalties for falling behind.
• The Mortgage or Deed of Trust: This legal document secures the note and gives the lender a claim against your property if you default on your loan. In other words, the mortgage gives the lender partial ownership until the loan has been paid in full. It outlines the borrower's responsibilities to pay principal, interest, taxes and insurance on schedule, to maintain homeowner's (hazard) insurance on the property at all times, and to keep the space properly maintained. If you violate the terms of this agreement, the lender assumes the right to foreclose on your property, sell it and use the proceeds to pay off the outstanding loan debt, as well as all costs the lender incurred during the foreclosure process. You will receive any leftover funds after all bills to the lender have been paid.
• The Deed: This document transfers ownership of the property from the seller to you.
• Truth in Lending Disclosure: Summarizes the actual costs associated with the loan you have obtained.
• Additional Documents: Depending on the type of loan you have, or the program you are using, you might have to sign additional documents required by state law, the lender or other parties at the closing. Be sure you and your lawyer review all documents before you sign them.

Now that you've signed all the documents and received your keys . . . welcome to the wonderful world of ownership!

Small Business Application

For small businesses, the road to property ownership can be a bit more difficult than for individuals. Many lenders shy away from start-up businesses, which are viewed as a higher credit risk. Lenders want to know that they will get a return on their investment, and are usually more likely to finance businesses that have a proven track record in the marketplace.

The first step for small businesses that wish to apply for a mortgage is to organize their paperwork and find an affordable mortgage. Neighborhood community banks and other lending institutions often specialize in working with nonprofits or small businesses. Research local banks or credit unions that have a history of funding small businesses. For more information about lending resources, see the resource section of Chapter 8: Buying Real Estate and Chapter 11: Models of Ownership. In contrast to individual purchasing, it is very uncommon to get a loan pre-qualification assessment for a business. Lenders are interested in a variety of elements of your business, but are especially concerned with your monthly income and debts. The lender will examine and compare the following:

Gross Income:

The income companies make before taxes, insurance and other expenses are paid. Businesses can include profits from selling products (artwork, tickets to events, murals, etc.) or services (consulting, commission, contract work, classes), as well as income derived from dividends.

Debts:

When calculating monthly debts, divide bills paid through lump sums or other payment arrangements (i.e. property taxes, insurance premiums, etc.) over a 12-month period in order to accurately assess monthly debt. Include debts paid each month, such as:

• Business loans or credit cards,
• Mortgages on other properties,
• Employees' salaries, and
• Insurance premiums to cover space, business or employees.

Additional Factors

Though important, your gross monthly income and debts are not the only factors a lender will consider. Others include:

Business Plan:

This informs the lender of the type of business you have, and its potential financial feasibility. (A brief plan will normally suffice. ) Lenders want to understand how your company makes money, who your clients are, where you are headed, what your goals are, and how do you plan to get there.

Examples of business plans:

• Contains several types of business plans: http://www.bplans.com/sample_business_plans.cfm
• Information from the U.S. Small Business Administration http://www.sba.gov/smallbusinessplanner/index.html
• Information from BulletProof Business Plans: http://www.bulletproofbizplans.com/bpsample/Sample_Plan/sample_plan.html

Year-to-Date Profit and Loss Statement:

This tells the lender how you manage your cash flow, and whether you have any debt management or financial problems. Lenders usually request at least three consecutive years of statements.

Income:

Businesses can include money earned from sales of products or services, as well as income derived from dividends and other sources. Spread lump sum payments received over a 12-month period to accurately assess of your monthly income.

Down Payment:

This must meet the minimum standards required by the particular type of loan you chose. Typically, the more money put towards the purchase, the lower the amount you need to borrow. This can increase your chances of securing a loan. For commercial loans, a down payment of at least 20% or more is required. However, financing through a nonprofit lender often provides greater flexibility in the down payment requirements.
The source of the down payment will be considered as well. The following are acceptable sources:

• Funds from business savings and/or checking accounts.
• Equity in any property currently owned by the business.
• Proceeds from the sale of assets, such as other property. The business can sell any item with a value that can be supported by an independent appraisal. You must provide proof of sale and sale price. A bill of sale is often sufficient evidence.
• Income from other investments; and
• Money from funders.

Credit History:

As with personal loans, the lender will pull a credit report on your business to determine your organization's credit risk and ability to repay the mortgage. Because many businesses do not have a solid credit history, the lender might request verification from your creditors.

Lenders sometimes require owners and board members of start-up businesses to personally guarantee the loan, which makes them personally responsible for the loan in the event that the business is unable to meet its obligations to pay the mortgage. In this situation, credit risk and financial capabilities serve as the basis for the business' ability to secure the loan, as well as that of other loan guarantors.

Lenders consider the following when determining ability to repay a mortgage:

• How much does the business (you/funders) owe other creditors?
• How often does the business (you/funders) borrow?
• Does the business (you/funders) pay bills on time?
• Does the business (you/funders) operate within its means?
• Does the business (you/funders) have bad credit and/or unpaid debts?

If problems appear on the organization's credit report, the lender may ask for a letter of explanation and supporting documentation to prove settlement of past debt problems. For additional information on credit, review Chapter 3: Understanding Credit.

Financial Stability:

Financial Stability is one of the biggest factors that lenders consider when lending to small businesses. This includes the ability to pay current debts, infuse money into the business, and grow and/or operate with positive financial results.

If you are borrowing as a business, lenders will review:

• Your history with clients;
• The variety of clients;
• Whether your client list focuses on one or several companies;
• How well you have been selling your products and/or services, and growth trends;
• Profit margins/losses over the last three years;
• Money and assets the company has to cover unexpected expenses, slow sales, and other issues;
• The consistency of your cash flow. Have there been problems in the past? If so, how did you handle them?;
• Industry track record/reputation;
• If major industry players are on your staff that can generate new/additional business.

Collateral:

The lender will evaluate the property you intend to purchase (with the help of an appraisal) to determine if the property is valuable enough to support the loan request. This is called the Loan-to-Value Ratio. Most banks will only lend up to 75% of the cost of what the property would be worth post-construction completion. The loan is based on the estimated value of the property after any rehabilitation or remodeling on the building has occurred.

For example, you purchase a property for $100,000 and put another $250,000 into rehabbing the space. In this situation, the loan value will be 75% of a $350,000 loan ($100,000 + $250,000). However, if you purchase your space with a small business development loan, such as those offered by the U.S. Small Business Development Center or other community-based financial institution, you might be able to increase the loan amount to as much as 90%.

The property then becomes your collateral, and serves as a guarantee to the lender that if you stop making mortgage payments, they will recoup their investment through the sale of the property.

Other items that can be considered collateral include:

• Other properties owned by the business; and
• The owner or founder of the business, or other individual, may put up a letter of credit stipulating they will personally pay all or a portion of the mortgage in case of default.
• Occupancy Costs: Lenders will want to know how much it cost to lease your last/current space. Were you responsible for property taxes, maintenance and building insurance, or were you simply paying the rent? You have a better chance of securing a loan if you have been paying these additional expenses; to many lenders, it's a sign that you have both the financial stability and capability to maintain the costs of operating a building.
• Other Factors: Lenders may also have additional questions for you about your project that deal with the feasibility of financing the property. For a more in-depth exploration of these issues, review the Lender's Criteria in the Nonprofit section.

Application

You have weighed the pros and cons of ownership vs. leasing, examined your finances, and researched the desired location of your space. It is now time to secure your loan. At your application appointment, your loan officer will need a good deal of information about your business and its finances.

If you are purchasing through an assistance or specialty program, you might need to provide additional documentation. Be prepared for additional questions and requests for information. It could take several weeks for you to gather all the information the lender needs to make a decision on your loan application.

Types of information and documentation the lender will request :

Income Items and Verification:

• Year-To-Date Profit and Loss Statement signed by you and your accountant (self-employed borrowers);
• Corporate/Partnership Tax Returns with original signatures;
• Partnership Agreements;
• Rental/Lease Agreements for space you presently occupy;
• Copy of Notes Due. These are loans you have made to others, and represent money owed to you;
• At least the last two months of bank statements;
• Verification of stocks owned and dividends paid; and
• Tax returns from at least the previous three years.

Sources of Funds for Down Payment :

• Original bank statements for the last three months from savings, checking and investment accounts;
• Stocks and securities account statements for the last three months;
• HUD settlement statements, if using funds from the sale of a property; and
• Sales of assets, including proof of ownership, proof of sale and proof of funds transfer.

Payment History and Credit Items:

• Cancelled rent or mortgage payment checks for the past 12 months, if not available on credit report;
• Name and address of present mortgage holder; and
• Name and address of landlord and a 12-month rental payment history. Recent receipts or cancelled check are acceptable.

Explanation letter for any of the following credit issues:

• Slow pay on credit,
• Default or foreclosure,
• Judgment or liens, and
• Bankruptcy.

Additional Information, if applicable:

• Closing statement from sale of present property; and
• Construction/Permanent Loan -- a signed construction contract with cost breakdown, builder plans and paid receipts.

Processing

Once you have assembled all the documents needed by the lender, the evaluation process begins. New questions might arise, requiring additional documentation and answers.

Throughout the processing of your loan, the lender will:

• Evaluate and verify your business' income and assets;
• Review the business' credit history to determine how well you have paid your debts in the past;
• Order an appraisal to determine if the value of the property is consistent with what you have agreed to pay; and
• Determine the feasibility of the project.

All of this information will help the lender determine how large a mortgage loan to give you. You and the lender will discuss the type of mortgage that best fits your needs and abilities. Once your application has been approved, the lender will send you a Commitment Letter outlining all terms and conditions of the loan and the items you will need for closing. You will be asked to sign and return the agreement showing that you are ready for the closing of the loan.

Next, the lender will begin preparing the documents for your closing. This involves coordinating title work, inspections, settlement figures and other documents.

Whether your business is purchasing a commercial or residential property, the lender will acquire title insurance. This policy protects the lender from loss if an unforeseen claim comes up against the property, such as a secondary mortgage or liens by government agencies. You might also want to purchase this type of insurance to protect your investment. During processing, a title company will search the title to make sure that no one else has a stake in the ownership of the property.

Before your closing, the lender will require you to purchase hazard insurance, which covers you and the lender in the event that a storm or fire damages and/or destroys the property. Many options are available, so make sure your coverage meets the lender's requirements.

Closing Day

Typically, the closing is a formal meeting where the buyer or company/organization representative, seller, real estate agents, and representatives from the lender and title companies meet to complete the sale and financing transaction. Bring your attorney to review the documents before signing them. Documents to be signed include:

• The Note: The business' promise to pay the lender according to the terms specified in the mortgage. It spells out all specifics regarding mortgage repayment, including payment dates and penalties for falling behind.
• The Mortgage or Deed of Trust: This legal document secures the note and gives the lender a claim against the space if the loan goes into default. In other words, the mortgage gives the lender partial ownership in the property until the loan has been paid in full. It outlines the borrower's responsibilities to pay principal, interest, taxes and insurance on schedule; to maintain homeowner's (hazard) insurance on the property at all times; and to keep the space properly maintained. If the business/organization violates these terms of agreement, the mortgage contract gives the lender the right to foreclose on the property. The lender can legally seize and sell the property, and use the proceeds to pay off outstanding loans and any costs it incurred while pursuing the foreclosure. The business/organization will receive any remaining funds after all bills to the lender and others (i.e. property taxes, mechanic liens, etc.) have been paid.
• The Deed: This document transfers ownership of the property from the seller to the business.
• Inter-creditor Agreement: This document is needed when multiple lenders co-fund a project. The agreement stipulates the process and procedures to be followed in managing the loan, such as which lender gets paid first in the event of default.
• Guaranty: This document is needed if the organization's executive director or board members personally guarantee the loan.
• Other Documents: Depending on the type of loan you have, or the program you use, you might have to sign other documents required by state law, the lender or other parties. Read all documents carefully before you sign them.

Now that all the documents have been signed, and the keys have been handed over, welcome to the wonderful world of property ownership!

Non-Profit Application

Applying for a mortgage as a nonprofit can be more complicated than purchasing as an individual or business. Not only must you demonstrate that your organization can financially sustain itself and the new property -- you must also deal with preconceived notions many conventional lenders have about nonprofits.

Lenders are careful in taking risks. They want a return on their investment, and usually finance organizations with proven successes. Conventional lenders sometimes shy away from small or fledgling nonprofits, which they view as having a higher credit risk.

Cast a wide net in your search for lenders. Consider neighborhood community banks and other institutions that specialize in working with nonprofits, these lenders often have less stringent guidelines than conventional lending institutions, and might consider your loan if you relocate to their communities. This is a link of lenders who have funded facilities projects for local non-profits: http://www.wshfc.org/facilities.lenders.pdf. These lenders have experience funding non-profit projects and may prove to be a valuable resource.

Develop a realistic understanding of what your organization can afford, where its operating funds are generated, and how cash flow works within your organization. In addition, be alert when dealing with financial institutions that are unfamiliar with the workings of nonprofit organizations. The lender might suggest a larger loan than your organization can handle.

Lender's Criteria

Strive to understand the criteria lenders will use when considering your project. The three main factors that the lender will evaluate:

Organizational Strength

When reviewing an organization's strength, lenders consider:

• Its nonprofit charter, which explains whether or not your organization can receive grants/charitable gifts.
• Your 501(c)(3) final determination letter from the IRS. Most lenders prefer borrowers who have been in business for three or more years.
• Size of board and staff, and how many volunteers help to achieve your mission.
• Who on staff and/or board has expertise in real estate development.
• If your staff/board does not have the real estate development capacity, which consultant or real estate development firm you have hired to orchestrate the process for your organization.
• The depth of leadership and professional, networking, financial resource management, real estate development, legal, and fund-raising experience among board members and staff.
• Who can ensure successful completion of the project and maintain effective operating procedures.
• Whether the organization developed real estate projects before, and, if so, how successful they were; their size and scale.
• The organization's annual operating budget for the past three years.
• The organization's fiscal management. Does it routinely operate with budget surpluses or deficits? Is cash flow strong and steady? Is grant support consistent? Is the organization's net fund balance (i.e., net worth) positive? Does it have operating (and/or capital) reserves to cover unexpected expenses or an unexpected shortfall in earned income and/or charitable support? Does the organization have its own cash equity to invest in the project? Does the organization have a solid track record of paying back loans and other creditors?
• The type of collateral the organization can put up for the project. Are there financial pledges (in writing) which can be used as collateral?

Financial Stability

A nonprofit organization's financial stability is of utmost importance to lenders. An organization's debt management, growth, operations and fund-raising success are critical factors. Lenders will review:

• Income sources
• Whether the organization has diverse funding streams
• Consistent organizational growth
• Reliance solely on grants, or other income-generating sources such as membership fees, workshops, interest from an endowment, etc. (this is also known as earned income)
• Fund-raising track record
• Guaranteed financial commitment from funders for the next 3 or more years, and amount
• Contingency plans for unexpected loss of major funding sources
• The organization's financial "cushion" (or operating reserve) for dealing with unexpected events, slow memberships, etc.
• Sustainability
• Debt-to-asset ratio
• Past cash flow problems
• The staff's and board's financial competency (whether individuals from the lending and financial industry are on board, and past management success)
• Strength and sophistication of fiscal systems such as accounting software and practices, and internal controls such as how reconciling bank statements and control/monitor spending.

In addition, the lender will review the organization's:

Income:

Nonprofits can include sources such as fundraising, grants, membership fees, programming, and ticket sales. Spread payments received in lump sums (grant money) over a 12-month period to accurately assess your monthly income.

Year-to-Date Profit and Loss Statement:

This tells the lender how the organization manages cash flow, and alerts them to debt management and financial problems. Lenders will require at least three consecutive years' worth of statements.

Credit History:

Trying to ascertain a nonprofit's credit history can be complex for lenders, and is usually determined on a case-by-case basis. Typically, lenders will examine alternative forms of credit to determine your ability to repay the mortgage.

Lenders typically consider:

• How much the organization owes other creditors
• How often the organization borrows money
• Whether the organization pays bills on time
• Whether the organization operates within its means
• Whether the organization has any bad and/or unpaid debts

If the lender requires the executive director or key board members to guarantee the loan, then a personal credit report will be pulled and their personal financial capabilities reviewed. If the organization has experienced past credit issues, the lender might request a letter of explanation and supporting documentation to prove past problems have been settled and corrected. For additional information on credit, see Chapter 3: Understanding Credit.

Project Feasibility

When reviewing a proposed project's feasibility, lenders consider the following:

• Assuming your organization has the capacity to develop the project, or has hired a firm that can, is the project itself feasible? Has the cost of the acquisition, construction and other "soft" costs been estimated by a trained and credible professional? Are those costs realistic?
• If the lender is only one layer of the financing structure, can financing and/or grants be secured to cover the entire cost of the project? Can the other sources of financing/funding be documented in writing and verified by the lender directly through independent contact with the identified additional sources?
• Does the pro forma or multiple-year operating budget for the project suggest that the building itself (not the organization) can generate revenue to cover all expenses and leave ample income to cover the loan payments? Most lenders prefer that the activities in the building generate 20% or more revenue than necessary to cover loan payments. This is known as a 1.2:1 or 1.2 debt service coverage ratio. Ultimately, lenders want to make sure that the activities that occur in the space, as well as the organization's other income-generating activities (grants, off-site workshops, membership, etc.), can sufficiently cover the costs of the building and the organization's other operating expenses while still leaving a contingency cushion. Most lenders won't support projects that can only generate enough funds to cover the cost of the building.
• Does your organization have an overall business plan and/or operating plan that demonstrates strong financial components, market demand and the appropriate marketing strategy and management team?
• Is the project development team capable and experienced? Does your organization have:
  1. An experienced project manager?
  2. A real estate development consultant or firm, if necessary?
  3. A qualified, experienced, licensed and bonded general contractor or builder?
  4. Qualified, experienced (especially with the type of project), licensed and insured architects?
  5. A qualified, experienced and licensed real estate attorney?
  6. An experienced and effective property management firm, if necessary? And
  7. Appropriate technical assistance providers, if necessary? An artist work condominium would benefit, for example, from being a member of the Association of Condominium, Townhouse and Homeowner Associations: an organization that works with Boards of Directors and unit owners on various methods of operating and managing an association.
• For projects that require public sector grants, low-cost loans or zoning changes, does your organization already have the support of your local political and/or community leadership?

The lender will also consider the organizations:

Down Payment:

The amount of down payment must meet the minimum standards required by the loan. If you are using a conventional loan for your purchase, a down payment of at least 20% or more may be required. If your organization is financing through a nonprofit lender, there might be more flexibility in the down payment requirements. In addition, the source of the down payment will be considered.

The following are acceptable sources for your down payment:

• Funds from the organization's savings and checking accounts,
• The equity in any property currently owned by the business/organization,
• Income from investments, and
• Grants and fundraising.

Collateral:

The lender will evaluate the property you intend to purchase (with the help of an appraisal) to determine if the property is valuable enough to support the loan request. This is called the Loan-to-Value Ratio. If you plan to rehab or remodel the property, most banks will lend up to 70% of the value of the property, including any value added due to rehabilitation or remodeling.

For example, you purchase a property for $100,000 and put another $250,000 into the rehab and remodeling of the space. In this situation, the loan value will be 70% of a $350,000 loan. Nonprofit Community Development Financial Institutions (CDFI) such as the Chicago Community Loan Fund or Illinois Facility Fund may increase the loan to as high as 90%, and sometimes 100%.

The property then becomes your collateral, and is a guarantee to the lender that, if you are unable to continue making the mortgage payments, they will be able to recoup their investment through the sale of the property. Other items that can be considered collateral include:

• Other properties owned by the organization;
• A letter of credit in which another foundation or organization guarantees that they will pay all or a portion of the mortgage in case of default; and/or
• Financial pledges (in writing).

Occupancy Costs:

Lenders will want to know:

• How much it cost to lease your last space;
• If you were you responsible for property taxes, maintenance and insuring the building, or simply paying rent. You have a better chance of securing a loan if you have already been paying these expenses. To many lenders, it shows you have both the financial stability and capability to maintain the costs of operating a building.

Loan Intake

Obtaining a mortgage for a not-for-profit is a multi-tiered process. The first steps may involve a telephone or face-to-face interview with the lender known as "The Intake." During the intake the lender will ask you questions about your organization to determine whether or not they can take on your project. Keep in mind that this initial intake process does not guarantee a loan and is simply an information-gathering exercise. This is not an approval, nor a formal application.

Some of the questions the lender may ask include:

• How much money are you seeking and when do you need it?
• What type of loan are you interested in and under what repayment term (length) are you looking for?
• How do you plan on repaying the loan?
• What collateral do you have to secure the loan?
• What is the environmental status of the property?
• If there are environmental problems, can you afford the clean-up if it is necessary?
• Are planning to use green supplies when rehabbing?
• Do you have the support from community leaders?
• How is the financial health of your organization? How do you manage your money and do you consistently pay your bills on time?
• Who is on your Board of Directors?
• Do you have architectural renderings of the property, if applicable?

If your answers to these questions and your documentation demonstrate that your organization has the capacity to undertake the project, the lender will ask you to submit an official application with supporting documentation. Keep in mind that your space project may not fit the parameters of all lenders, so be prepared to shop around. Some lenders may even point you to other organizations or lenders that can specifically finance your space if they cannot.

Application

Once you complete the intake process, and the lender has expressed interest in your space project, the next step is to submit an application and supporting documentation. Below is a list of the documentation you will need. If you are using any type of assistance or specialty lender (i.e. nonprofit funder, government, etc.), you might also need to provide additional information.

Organization Information

• Mission statement;
• Summary of the organization's activities (programming, membership services, community activities, etc.);
• Summary of organization's goals over the next five years (financial, programming, etc.);
• Explanation of how this project impacts goals;
• Number of employees, board members and volunteers (may ask for demographic breakdown);
• Organizational chart;
• Job descriptions of key personnel;
• List of all advisors and their roles;
• List of board members, including bios;
• Reports on the organization, such as news articles;
• Organizational brochure, pamphlets and other literature;
• Description of current facilities;
• 501(c)(3) documentation (the IRS Determination Letter); and
• Articles of Incorporation.

Project Information

• Summary of the organization's real estate buying and/or development experience, including the type of property the organization has owned.
• Development Team. Who will work on the space project, and what is their experience in real estate buying and/or real estate development? Consists of consultants, staff and board members specifically responsible for overseeing the project.
• A detailed list of all partners involved in the project, including other organizations, businesses and government agencies.
• Environmental report on the current environmental condition of the site. Click here for more information.
• Appraised value of the property.
• What is the tax status of the property? Are back taxes owed? Is property taxed at residential, commercial or industrial rates?
• Is the property zoned for your intended use? If not, have you started the rezoning process?
• Why is the proposed property appropriate for your use and activities?
• Do you have another property in mind, if you cannot obtain this one?
• What will be the impact of your organization on the community?
• Who is your contractor and/or builder?
• How did you select this person and/or company?
• Does this person and/or company have experience working with projects similar to your own?

Financial Information

• Financial spreadsheets;
• What is your proposed budget for this project?
• Have you approached other lenders? If so, is their loan commitment contingent on your securing additional financing?
• What sources will you use to pay back the loan?
• Letters from funders stating how much you have been awarded, and for how long. Should include large gifts from government, private foundations and individuals.
• Profit and Loss Statement signed by you and your accountant, covering the last three years
• Rental/lease agreements for space you occupy now
• Bank statements including savings, checking and investment accounts for the last three years
• Tax returns for the last three years
• Original stocks and securities account statements for the last three months
• Name and address of present mortgage holder
• Name and address of landlord
• 12 months or more rental payment history. Recent receipts or cancelled checks are acceptable
• Contact information of your current lenders, as well as the amount you owe
• Audits

Collateral

• List of items that can be pledged as collateral,
• Credit and financial references, and Pledges (in writing).

References

• Character references, and
• Credit and financial references.

Explanation letter for any of the following credit issues

• Slow pay on credit,
• Default or foreclosure,
• Judgment or liens, and
• Bankruptcy.

Additional Information, if applicable

• Closing statement from sale of present property; and
• Construction and Permanent Loans will need a signed construction contract with cost breakdown, builder plans and paid receipts.

Processing

You have submitted your application and supporting documents. As the lender processes your loan application, be prepared for several rounds of questions and answers as the lender works toward developing a clearer picture of the project and your ability to pay back a mortgage loan. The lender will evaluate and verify the information in your application and supporting documentation, so be as thorough as possible from the start.

If you are working with a nonprofit lender the evaluation process will take several weeks -- or even months. Approval of your project through these organizations typically involves review and approval by a committee.

At the conclusion of the application review process, the lender might:

• Need additional information;
• Deny your application. So, keep looking elsewhere;
• Refer you to another lender that can finance your project;
• Agree to finance your project on the condition that you obtain additional education on property ownership as a nonprofit. This is similar to homeownership assistance programs, which sometimes require participants to complete homebuyer courses in order to qualify for a loan.
• Agree to finance your project.

If the lender agrees to finance your project, you will typically receive a formal approval commitment letter containing information about the loan, including:

• Amount of the loan,
• Purpose of the loan,
• Interest rate and payment plan,
• Term of the loan,
• Outline of the conditions and documentation needed prior to closing,
• Organizational documents,
• Financial statements,
• Amount of your down payment,
• Proof of insurance, and that it meets the lender's requirements,
• Survey (if needed),
• Appraisal report,
• Proof of tax-exempt status,
• The conditions under which the contract and funding can be terminated, and
• Additional information specific to the lender and/or loan.

If your agreement letter indicates you must meet specific conditions before accepting the loan, gather the necessary documents and information. Don't be surprised if this process takes a few extra weeks. Once you turn in the required information and documentation, the closing process will begin.

The lender will normally obtain title insurance. This policy protects the lender from loss if an unforeseen claim arises against the property, such as a secondary mortgage or government lien. Consider purchasing this type of insurance to protect the organization's investment. During the loan processing period, a title company will search the title to the property to ensure that no one else has an ownership claim.

Before your closing, the lender will require you to purchase hazard insurance, which covers you and the lender in the event that a storm or fire damages and/or destroys the property. Many options are available, so check with your lender to make sure your coverage meets their requirements as well.

For more information about insurance, see the Mortgage Insurance section in Chapter 8: Buying Real Estate. Depending on the type of space you have, and the activities that will occur in it, you should also examine the different types of policies available in Chapter 20: Insurance.

Closing Day

In most cases, the closing is a formal meeting where the buyer, seller, their respective attorneys and real estate agents, and representatives from the lending and the title companies complete the sale and financing transaction. It is critical that your organization's attorney is in attendance to review all documents before you sign them.

Documents to be signed at the closing include:

• Loan Agreement: This document outlines the loan provisions and requirements, such as warranties, contractual agreements for financial updates, agreements not to rehab the property without the lender's consent, etc.
• The Note: This document is the organization's promise to pay the lender according to the terms specified in the mortgage, including payment dates and penalties for falling behind in repayment.
• The Mortgage or Deed of Trust: This legal document secures the note and gives the lender a claim against the property if the loan goes into default. In other words, the mortgage gives the lender partial ownership in the property until the loan has been paid in full. It outlines the borrower's responsibilities to pay principal, interest, taxes and insurance on schedule; to maintain hazard insurance on the property at all times; and to keep the space properly maintained. If the organization violates these terms of agreement, the mortgage contract gives the lender the right to foreclose on the property. The lender can legally seize and sell the property, and use the proceeds to pay off outstanding loans and other costs the lender incurred while pursuing the foreclosure.
• The Deed: This document transfers ownership of the property from the seller to the organization.
• Inter-creditor Agreement: This document is needed when multiple lenders co-fund a project. The Agreement stipulates the process and procedures to be followed in managing the loan, such as which lender gets paid first in the event of default.
• Guaranty: This document is needed if the organization's executive director or board members personally guaranteed the loan.
• Other Documents: Depending on the type of loan you have, or the program you are using, you might have to sign other documents required by state law, the lender, or other parties at the closing. Be sure you and your attorney read all documents carefully before you sign them.

Now that all the documents have been signed, and the keys have been handed over, welcome to the wonderful world of property ownership!

• Home Ownership
• Co-operative
• Business Organization
• Corporation
• Limited Liability Company
• Nonprofit Corporation
• Community Development
• General Partnerships
• Which Model Is for You?
• Examples of Successful Models
• Ch. 11 Resources

This chapter examines different ways in which you, either as an individual or with others, can own property -- from housing ownership to development of spaces through community partnerships. Each model can be adapted to address artists' space and ownership needs.

Three scenarios to consider:

• Say you are a writer working from a rented condominium, and the owner offers to sell the property to you. Before you buy, you need to know what ownership of a condominium entails.
• Or, imagine you are one of six artists working in a small industrial building, and the building is put on the market. Faced with an uncertain future, the six of you consider buying the building together. How could your joint ownership be structured to protect your interests and needs, both individually and collectively?
• Or, perhaps you want to start a nonprofit organization that specializes in affordable housing for artists. You will need to know what it takes to start and manage a nonprofit, and how to finance the enterprise.

The legal aspects of property ownership are complex, especially if more than one person is involved. The information presented here provides an overview of available options. This is not legal advice, so be prepared to do additional research.

Seek professional advice before deciding how to structure your ownership. Chapter 4: Professional Services provides information on locating the necessary professionals.

Home Ownership

This section discusses various ownership models traditionally associated with the purchase of residential property.

Sole Ownership

This is the easiest to understand, and the easiest to undertake. An individual who purchases a property then owns title and can sell at any time, recouping any gains or losses. The owner is 100% liable for the property, including payment of the mortgage (if there is one), taxes, insurance and repairs.

Joint Tenancy

Joint tenancy is commonly used when two or more individuals purchase real estate property together. As joint tenants, each purchaser owns an equal interest in the property. Even if one party contributes more towards the purchase price, each tenant's share of the property is equal. In essence, each tenant owns the entire property jointly with the other owner(s), and is equally liable as well.

An important component of joint tenancy is the right of survivorship. When an owner dies, his/her interests and rights to the property are automatically transferred to the surviving owners only.

For example, say you and three colleagues purchase a warehouse. A few years later, one colleague dies, leaving a wife and three children. His share and rights to the property are automatically transferred to you and the remaining two owners, not to his heirs. Even if he has written a will that transfers ownership of his portion of the property to his wife and children, his surviving relatives cannot claim ownership. Essentially, the will is null and void when it comes to the property he owned in joint tenancy with you and the other owners

Tenancy in Common

If you buy as a tenant in common, the situation is very different from that of joint tenancy. Each person owns a specific percentage of the property. The tenants in common can divide ownership however they decide. This may (but does not have to) reflect their financial contributions towards the purchase price.

Another important difference from joint tenancy involves the right of survivorship. When an owner who is a tenant in common dies, their interest passes in accordance with their legal will or by the rules of the court if no will has been left. This can lead to problems if the beneficiary wants to sell his/her inherited interest in the property.

Condominium

The term "condominium" refers to a form of ownership in which a specific building unit is owned by the unit purchaser, while common areas such as hallways, elevators, loading docks, balconies/patios, etc. are owned jointly by the Condominium Corporation. Each unit owner is a member of the Condominium Corporation, which elects a board comprised of owners to manage the building's administrative and operational needs. Every owner has a voice in how the building is managed, and can run for election to the board.

The Board is ultimately responsible for the sound management of the building, and uses both the CC&R (covenants, conditions and restrictions) and bylaws in its decision-making process. The CC&R stipulates how tenants/owners can use space in the building. For example, if you had a workspace condominium, the CC&R might dictate the facility's hours of operation or the type of art production allowed on the premises. Bylaws are the rules, regulations and procedures that govern how the condominium is managed. The bylaws and CC&R are different for each building, and are developed and amended by the Condominium Corporation. The Board's responsibilities include enforcing the condominium rules, collecting assessments, maintaining common areas and making other building management decisions.

As with the purchase of a house or commercial building, you can take out a mortgage or a loan to purchase a condominium unit. You are responsible for the property taxes, utilities and maintenance costs for your unit, as well as a share of the costs associated with upkeep of the common areas.

You will also be expected to make an additional monthly payment to the condo association called an assessment fee, which covers the shared maintenance costs, additional insurance for the building, security and other expenses inherent to this form of ownership. Assessment charges vary widely -- from a few hundred to a few thousand dollars each month -- and are normally determined by factors such as the type of amenities provided, reserve funds needed by the corporation, needed repairs, unit size and/or location, etc.

Technically, Condominium Corporations are a form of nonprofit. As such, condominiums in Washington State are governed by The Washington State Condominium Act further outlines the do's and don'ts, responsibilities and requirements of condo ownership. The act is outlined on the Washington State Legislature's website at http://apps.leg.wa.gov/RCW/default.aspx?cite=64.34

For additional information about the Condominium Act there is a helpful website at The Washington State Chapter Community Associations Institute: http://www.wscai.org/Community-Associations-Institute-Washington-State-Chapter~5379~294.htm

Co-operative

A cooperative or "co-op" is a form of ownership in which members own shares or stock in the cooperative, and it (not you) owns the building in which your space is located. To guarantee rights and privileges regarding a particular unit or space in the building, you normally sign a proprietary lease, also known as an occupancy agreement, with the cooperative.

Co-op members must pay a monthly assessment fee to cover the building's mortgage and maintenance, insurance, security, property taxes and other fees associated with ownership. Assessment charges vary widely, from a few hundred to a few thousand dollars each month, and normally are based on the amenities the co-op offers, needed repairs, and unit size and/or location.

As with condominiums, cooperatives are governed and managed by an elected board of tenants that administers community by-laws and the CC&R.

You must follow and file the correct paperwork, just as though you were operating a nonprofit. Failure to do so can lead to the dissolution of the organization. Similar to other real estate purchases, you can obtain a mortgage or loan to buy your shares in the cooperative, which then "leases" you a unit.

Cooperative members do not "own" their units, but shares in the larger organization. If you default on your mortgage, the bank cannot take possession of your unit -- only your shares in the co-op. This limits the number of lenders who are willing to provide co-op mortgages. See the resource section of this chapter for a list of lenders that provide coop mortgage financing. If you stop paying your assessment, however, the co-op organization can move to have you evicted from your unit.

For a variety of reasons (tax determinations, lending issues, etc.), cooperatives are often considerably less expensive than condominiums. Co-ops can be risky, however, because all members are responsible for paying the mortgage every month. If someone can't pay their portion due to illness, job loss, etc., your assessment will increase to cover their portion of the mortgage.

There are three primary types of cooperatives:

• Limited Equity Cooperatives (LE): These have income caps and other controls to limit the resale price of shares to maintain affordability.
• Market Rate Cooperatives (MR) : Prices are based on the free market value of the cooperative's shares. As with any other space purchase, you can negotiate share price. However, ensure that the price you are being quoted includes the cost of the monthly mortgage of the building. You do not want to pay an exorbitant price for the shares and high assessments fees as well.
• Leasing Cooperative (LC): This type of cooperative does not own a property, but rents its space. One benefit: When the cooperative is ready to purchase a space and convert to either a Market Rate or Limited Equity cooperative, it can do so more quickly because it does not have to go through the process of establishing and forming the nonprofit organization. The downside: As with any other type of leasing or rental agreement, the LC cannot access any of the equity in the property it is presently utilizing.

For additional information on forming a cooperative, check out the Washington Secretary of State website: http://www.secstate.wa.gov/corps/NonprofitCorporations.aspx

Business Organization

This section discusses business organization models that can be adapted to purchase space (and that can also help you to structure a business or nonprofit, or develop the framework of an operation and use agreement if you are purchasing space with others). It is meant to get you to think outside the box in regards to how you can purchase and manage space.

After reviewing this section, take a look at the Business Models Comparison Chart, which compares various business organization models and their requirements for taxes, personal liability, and other aspects.

Sole Proprietorship

Purchasing space through a Sole Proprietorship (SP) business is similar to buying property through the model of the same name. However, as a business entity, you purchase property under the name of your company, not your own name.

The Sole Proprietorship is the simplest structure to establish. It involves the least amount of government regulation, requires the least amount of reporting, and is very inexpensive to start -- just apply for a business license to be considered legally valid. If you work on contract, are self-employed or are paid by commission, you are automatically considered a Sole Proprietorship, even if you have not registered your business as such.

Ease in paying taxes is also a benefit of the SP model. SPs can file on their personal income taxes, and do not need separate or extensive organizational tax systems.

The main concern with an SP is that you are completely and personally liable for the business. Your personal assets (home, car, bank account, etc.) are not protected, and can be used to fulfill legal judgments filed against your company. Depending on the level of risk associated with your business or art practice, this model's liability status might not work for you. However, other organization models discussed in this section allow you to purchase space and reduce your personal liability.

Corporation

A corporation is a legally recognized entity that enjoys the same rights and responsibilities as a person. A corporation or its representatives can sign leases, purchase property, or be sued. Corporations are managed by a board of directors and company officers, and their owners and/or founders do not have to participate in everyday management of the business.

The corporation is the most complex business model, and is subject to considerable government regulation and reporting requirements. Forming a corporation can be both expensive and time-consuming. Failure to file the proper forms and paperwork annually (state and federal) can result in the immediate dissolution of the organization.

The benefit of the corporation model rests in the limited liability enjoyed by its owners and/or founders. A corporation does not provide complete protection, but does protect your personal assets from legal judgments and liens filed against the company. If you personally guarantee a loan or lease for your business, however, the personal liability protection offered by the corporation structure is negated, and your assets will be vulnerable.

There are two types of corporations to choose from, each with its own benefits and risks. C-Corporations and S-Corporations. A major difference between the two models hinges on how taxes are reported and paid. Conventional corporations (a.k.a C-Corporations) pay corporate taxes on the company's earnings, as well as income taxes if you are paid a dividend or salary from the company. Owners of Subchapter (a.k.a. S-corporations) pay taxes only on their individual federal income taxes.

Both C and S models remain in existence even if one member wants to end their association. For example, you and three colleagues incorporate your experimental performance group into a corporate entity (The Dancing Contortions) and purchase a building under the corporation's name. Three years later, one member wants to leave the group and end all legal and financial responsibilities. Unless s/he can find someone to purchase his shares, or sell them to the remainder of the group, s/he remains an owner of the Dancing Contortions and will remain liable for the mortgage loan.

Corporations are governed by the Washington Secretary of State Office.

Limited Liability Company

A Limited Liability Company (LLC) is a business structure that offers the tax benefits of a sole proprietorship and the liability protection of a corporation. LLC owners can file your business taxes on your personal federal and state income tax returns.

"Limited liability" means that, if your business defaults on a lease or mortgage, your personal assets, home, car and other collateral are protected in the event that the company is sued and a judgment is filed against the LLC. If you personally guarantee a loan or lease for your business, however, the personal liability protection offered by the LLC structure is negated, and your personal assets will be vulnerable.

Because of its liability protection, the LLC is fast becoming more popular than the sole proprietorship (SP) model for small businesses and single-person shops. However, unlike an SP, you must file the correct paperwork to gain LLC status.

LLCs are governed by the Washington Secretary of State Office.

Nonprofit Corporation

A nonprofit corporation is specifically organized for purposes other than profit-seeking. Nonprofits can include, but are not limited to, religious organizations, academic institutions, professional associations and cultural organizations.

The most important difference between for-profit and nonprofit corporations is that nonprofits cannot be organized for individual personal gain, and are required to give their assets (funds, office equipment, etc.) to a similar nonprofit upon disbanding. In addition, profits earned by nonprofits cannot be disbursed to individuals (the board of directors, staff members, volunteers, etc.), but must be used to advance the organization and its mission.

Nonprofits enjoy the same benefits as for-profit organizations, including the ability to purchase property. A common misconception is that nonprofit status automatically confers property tax exemptions; this is not always the case. For a detailed explanation on property tax exemptions for nonprofits, see Chapter 15: Property Taxes. Like for-profit corporations, nonprofits must also file the correct paperwork on an annual basis or face dissolution. Both condominiums and cooperatives are considered nonprofit corporations. See the previous sections for more details on these models of ownership, as well as the Corporation sections.

Washington nonprofits are governed by the Washington Secretary of State office.

Community Development

The community development models featured here require working with businesses or nonprofit organizations that are willing to work with the community to manage and develop space. These models might be traditionally associated with the creation of affordable housing, yet offer insight into developing space for artistic use. A key concern of this section is to get you to think creatively about how you can access and develop alternative resources to create art spaces.

Financial Institutions and Corporations

At the heart of programs in this category is a desire to support economic initiatives and community development in low-income and underserved communities. These efforts often include the development and/or support of affordable housing. There are two primary vehicles of financing in this category: Community Development Financial Institutions (CDFIs) and Community Development Corporations.

There are four primary types of CDFIs:

• Community development banks,
• Community development credit unions,
• Community development loan funds (CDLF), and
• Micro-enterprise Lenders.

Both community development banks and credit unions operate like their commercial counterparts, while CDLF and micro-enterprise lenders often offer grants or small-scale (micro) loans. All four types are considered nonprofit, and all offer a variety of programs. A CDFI might focus its efforts on housing issues, and provide personal assistance programs such as residential mortgages or larger affordable housing developments. Or, the CDFI may support community development initiatives and offer grants and loans to small businesses that operate within its service area.

For more information on CDFIs, visit the Coalition of Community Development Financial Institutions Website, which provides additional information and links and listings of CDFI organizations nationally and locally. Also, visit the Foundation Partnership on Corporate Responsibility Website.

Another option to review in this category are community-based venture capitalist organizations. Venture capitalists invest in innovative and/or specific projects in which they are interested. For additional information on the types of financing programs available in this category, check out the Small Business and nonprofit Assistance Programs resource section in Chapter 8: Buying Real Estate.

Community Land Trust

A Community Land Trust Organization (CLT) is a public-private partnership designed for the sole purpose of creating affordable space opportunities. Typically, a CLT acquires, holds and owns the land itself in perpetuity, but sells any residential and commercial buildings on the property. Individuals, organizations or businesses that purchase buildings on the CLT's land are called leaseholders, and lease the right to use the CLT's land.

In an effort to maintain long-term affordability, CLTs place equity limitations on their land lease agreement. The CLT restricts the resale price of the properties on its land in order to maintain these spaces' affordability.

The CLT is governed by a board of directors elected by its membership, comprised primarily of leaseholders and other community representatives.

CLTs can play a crucial role in the creation of affordable spaces, as they remove the cost of purchasing land in the development process. By working with a CLT, potential leaseholders only have to worry about the costs of purchasing materials and labor to develop, build or rehab a space. However, creation of a CLT is an intensive and complicated process.

The Institute for Community Economics developed the national CLT model, and works with community groups around the country to develop CLTs.

The City of Seattle Office of Housing funds several local land trusts such as Homestead Community Land Trust and House Key Trust Seattle to provide down payment assistance to purchase homes in Seattle

Buyers purchasing homes through a land trust receive a substantial up-front subsidy reducing the mortgage amount needed. Under a land trust, homes are taxed on the affordable price, providing additional savings to owners. These combined benefits significantly reduce monthly housing costs, allowing low- and moderate-income buyers to attain and sustain homeownership and wealth creation.

For More information visit the City of Seattle Office of Housing Website: http://www.seattle.gov/housing/buying/programs.htm.

Other non-profit housing groups include the Housing Resources Group www.hrg.org and the Seattle Housing Authority: www.seattlehousing.org.

Mutual Housing

A Mutual Housing Association (MHA) is a form of partnership in which a nonprofit develops and owns affordable housing. MHAs are membership associations, and may include residents, supporting corporations and other community groups or institutions.

Members pay a fee, which grants them full participation in the association's activities: home ownership workshops, financial counseling, community support groups (senior, youth, etc.) and community celebrations, just to name a few. MHA members may or may not live on the premises. For resident-members, the fee for occupancy is considerably higher. Management of these properties is governed by a board of directors, which is voted on by the residential and non-residential MHA members.

There are two types of Mutual Housing: Integrated and Federated:

• Integrated : The MHA develops, owns and manages the properties on its lands. To occupy a unit, residents sign a lease for rights to the space. Although residents cannot access the equity in the property, they do have access to MHA benefits and activities.

• Federated Mutual Housing : The MHA is formed when several independent cooperatives partner up to create a support network or community. As in the Integrated model, members have access to MHA activities and benefits.

For more information on Mutual Housing and specific successful examples in Seattle, see the following document: www.practitionerresources.org/cache/documents/19449.doc

General Partnerships

In this ownership model, a corporation or nonprofit interested in developing affordable space simply builds or purchases the space and partners with the residents to manage and operate it. The design of the partnership and division of rights and shared responsibilities are different for each situation.

For example, a building owner might handle financial issues associated with the building (taxes, new residents, rehabbing the space), while the residents handle day-to-day management (maintenance, enforcing bylaws, electing boards).

Partnerships can form for many reasons. For example, a property gets new owners who are interested in this form of community development. Or, the partnership forms at the suggestion of community members who approach interested businesses or organizations to assist with development of a space. Each partnership model is different, and may require a little ingenuity on your part in locating a funder interested in community space development.

TIP: You must read the CC&R and bylaws of the condominium association or cooperative to get a clear picture of what it will be like to live or work there. Ask for and review minutes from the prior three years of board meetings. Also, ask for information about the organization's capital reserves: funds set aside for emergency repairs and general maintenance.

TIP: A lawyer can help shape the values of each prospective co-ownership owner into a clear legal framework that will best protect everyone and help preserve friendships.

TIP: Seeking a lawyer's services is advisable in any real estate purchase, but is even more important when you consider forming a business organization or non-profit in order to purchase the space.

Which Model Is for You?

Having examined the most typical models of ownership, you must now determine which one is best-suited to your particular situation. You can purchase through traditional home ownership routes, use business models, or develop space through a community partnership.

If you are planning to purchase space on your own, the situation is relatively straightforward. If you are self-employed, discuss with your accountant and lawyer the model that reflects your needs and wants most effectively, and whether you should purchase through a privately held company. See the section Business Models Comparison Chart for more information on the pros and cons of each model.

Trying to decide if an ownership model will work for you becomes increasingly more complicated when it involves working with others. The remainder of this section will discuss common concerns in co-ownership.

Costs of Ownership

Each ownership model discussed in this chapter involves the law, to some degree. In addition to legal fees, you will also have to pay fees for filing the correct paperwork with the state and local government, as well as property taxes.

Some ownership models, such as condominiums, can cost several hundred to several thousand dollars to legally divide each individual space into separate tax-paying units. Other models, such as corporations, can become expensive and time-consuming. You will need to file paperwork with a variety of state and federal government agencies on an annual basis, as well as develop bylaws, create stocks, shareholders agreements, etc.

Seeking a lawyer's services is advisable in any real estate purchase, but is even more important when you are considering forming a business organization or nonprofit in order to purchase the space. Again, not only will you need to file the correct paperwork if you pursue this model of ownership, but you will also need to compose an operation agreement to stipulate how the space is operated and managed.

See Chapter 4: Professional Services for information on obtaining legal advice. For more information about forming a corporation (including condominiums and cooperatives), see the section Home Ownership, which has links to the legal guidelines and requirements set by the Washington Secretary of State Department for each ownership model.

Work Space

When comparing models of ownership, you might notice, condominiums, corporations and cooperatives are models of development that are easily adaptable to the development of workspace. For example, if six artists purchase a small industrial building, it is possible to structure the ownership as a condominium corporation. Each owner receives title to their particular studio space, and shared ownership of the common elements (which might include pricey equipment and exhibition or rehearsal space). Owner-tenants also share ownership of other studio spaces that can be rented out to help generate income for the property. This model provides security, since each partner has ownership to his/her own unit.

One might also follow the cooperative model, similar to the above condominium example. The cooperative owns the workspaces and leases space to its shareholders.

The process of establishing a condominium or cooperative can be lengthy, complex and expensive. Seek legal counsel. Many of the same procedures for establishing a condominium corporation apply to a cooperative. Although these ownership models seem similar, they have many differences. Review the Cooperative and Condominium sections of this manual for further information.

Ultimately, when it comes to creating art work spaces, or rehearsal or performance space it is important to find creative solutions to accessing property.

Co-Ownership

If you are considering purchasing real estate with other people, you will find the co-ownership models discussed in this chapter to be particularly relevant. Each model of ownership reflects a different set of values, and confers certain economic and financial rights and obligations in terms of use of the space.

While you examine the different models, think about the values that you would bring to a co-ownership agreement. For example, if you are interested in ownership because you value stability and are not overly concerned about profits, would your co-owners share these values? Or, do they value achieving a return on their investment, and plan to sell the building if the real estate market turns hot and a substantial return is guaranteed? Thinking about these issues is imperative if you are considering co-ownership.

The following questions will help you define your personal values when it comes to owning property and living or working with others:

• Should there be collective control over who occupies the space?
• Should the price for new owners remain affordable over time? Or should it reflect market trends?
• How should conflicts be addressed?
• How can joint decision-making be achieved?
• Should the property be exclusively owned and maintained by the occupants? Or should you hire a management company?
• To what extent will each owner accept financial liability for the other owners?
• Will the property accept renters?
• What type of live/work or work-only is allowed in the space?
• How much do you need to know about each other's financial situation, credit history, etc.?
• What skills or attributes (property management, maintenance, fundraising) do the others bring to the table?
• Are your uses -- art production methods, space needs, administrative abilities, etc. -- compatible?

In addition, you and the other potential co-owners should jointly discuss your values, expectations and intentions for the enterprise. When everyone has come to an agreement on these issues, you should seek legal assistance to help you design a legal structure that most closely fits these expectations and meets your needs.

The legal documents must clearly spell out the requirements, consequences for actions, rules of conduct, rules for arbitration and other stipulations. You never know what will happen in the future. For a list of documents you will need in order to legally create each model, review the Business Models Comparison Chart.

A group can purchase property as tenants-in-common or joint tenants, form a corporation or limited liability company, or set up a cooperative or condo. A lawyer can help you to decide which form of ownership is best-suited to your particular situation, which type of co-ownership agreement you need, and your potential liability in each case. With the assistance of an accountant, an attorney can also advise you on the personal and business tax implications of each model.

Potential Pitfalls

Collective ownership can work very well if your co-owners share similar values and goals. However, co-ownership can be fraught with problems if the group enters into the transaction without having thought through and agreed upon what steps to take in difficult situations. Write a very clear agreement outlining your individual and collective rights and obligations as co-owners. These agreements, taken together, are considered the bylaws and CC&R (covenants, conditions and restrictions) of the community, and will govern how you interact and solve problems and disagreements when they arise.

Your agreement should address every conceivable eventuality, such as:

• If one owner (let's call him Joe Somebody) wants to sell his interest, what are his obligations in finding a buyer?
• What if Joe finds a buyer, but the buyer is unacceptable to the other owners? For example, you want your space to remain a quiet haven for writers and Joe wants to sell his studio space to a pianist.
• What "first rights of refusal" do the other owners have to purchase Joe's space, and at what price?
• What rights and responsibilities do the other owners have if they do not want to buy him out, and no other purchaser can be found?
• Who is responsible for paying common bills?
• What happens if Joe gets behind in his payments? Who has to pay his portion and what are the penalties? (This might not apply, depending on the type of ownership model the space is under.)
• What happens when Joe dies? Who pays his portion (if applicable)? What happens to his share of the property; Does ownership transfer to the remaining co-owners, or to Joe's heirs?
• What if Joe wants to rent out his space? What do the other owners do if the tenant is noisy or does not pay the rent?
• What happens if you agree collectively to sell, but the value of the property has fallen below what you have all put into it? Does each person owe for the balance of the loss in equal proportion to his/her ownership?
• What happens if Joe is unemployed and repairs need to be made? How will his portion of the payment be paid? If the other group members pay his portion, how will they guarantee he will reimburse everyone for the payment?

These potentially controversial issues do not need to destroy a co-ownership as long as they have been discussed and formally addressed (via an agreement) upon prior to the purchase. It is very important to seek legal advice when creating the wording and content of such an agreement, and to correctly file all appropriate paper work.

Co-owners might consider obtaining individual legal counsel, to protect each individual's interest. Another possible solution: Have one member's lawyer draft an agreement. The other members could then ask their own counsel to review and edit the draft. This will ensure that the final document reflects the interests and needs of each co-owner, and the group as a whole.

TIP: Seek legal advice when creating such an agreement, and correctly file all appropriate paper work. See Chapter 4: Professional Services for information on finding an attorney

Co-Owner Financing

If you are considering financing property with others, the lender will require each owner to sign the original mortgage. The lender holds each member personally liable for the mortgage, regardless of his/her individual level of investment in the property.

For example, say your contribution to the down payment represented 10% of the building price. You are now expected to pay 10% of the mortgage each month. Despite your agreement with the other co-owners to pay 10%, the lender will, in most cases, still want a 100% guarantee on the loan. If the mortgage goes into default, the lender will come after you personally to pay all or a portion of the loan. Typically, the lender will require some type of guarantee from all co-owners.

The lender will look for as much security (or more) as in a single-owner purchase. In addition, your individual credit records will impact the financing package, even if you are purchasing the property as a business entity or nonprofit. See Chapter 3: Understanding Credit for more information on credit's role in the financing process.

Condominiums

Problems with owning a condominium can arise in insuring your property. Because you own only your unit, many insurers are only willing to provide coverage that addresses incidents occurring within your unit, such as burglary or a kitchen fire.

However, some insurers might want to insure the entire building, not just your unit -- for example, if a flood damages the foundation and makes the building uninhabitable. Although your insurance policy covers your unit, it does not cover the building. In this instance, the condo association will need to have purchased insurance that covers the entire building.

When considering a condominium, see if the association carries enough insurance to cover major calamities. See Chapter 19: Insurance for more information on insurance issues for condominiums. Also, investigate insurance packages that will protect you should the condominium corporation become short on funds. You might face increased assessments for property damages and liability losses that occur on the property, which are uninsured or underinsured by the corporation.

For example, if the common areas sustain damage, the master deed might stipulate the condominium owners (i.e. you) are personally liable to pay the remaining balance for any repairs that the insurance does not cover. Find an insurance package specific to condominiums that offers increased liability protection. Again, see Chapter 19: Insurance or more information.

Cooperatives

Financing a cooperative is typically cheaper than financing a condominium, but can be extremely difficult. In a cooperative, you do not own any real property but instead own shares in the cooperative corporation, which in turn allows you to "rent" your space. In essence, the only real collateral for the lender is your stock.

In the event that the building is foreclosed upon, the primary mortgage taken out by the cooperative organization will have to be paid first. Any additional loans given to the tenants will be considered secondary. The lender that provided the mortgage for the actual building will be paid, while the lender that provided the mortgage for the tenants' shares (i.e. your mortgage lender) may not be compensated if a foreclosure occurs. For this reason, many lenders shy away from financing cooperative loans. However, the National Cooperative Bank and others specialize in financing cooperatives.

When it comes to insurance, many of the same standards and issues that apply to condominiums apply to cooperatives. See Condominiums for more information.

Examples of Successful Models

In the City of Seattle there are several examples of integrated and creative models for successful multi - use spaces:

1. DNDA and the Youngstown Cultural Arts Center: www.dnda.org

2. Coleman School and the African American Museum

3. Central District Forum: www.cdforum.org

4. Historic Seattle: www.historicseattle.org

Resources

Association of Condominium, Townhouse and Homeowners Associations (ACTHA)
Focuses on educating boards of directors and unit owners on various methods of operating an association. Also keeps information on legislation effecting condominium, townhouse, and homeowner associations.

Cohousing Association of the United States (Coho / US)
Promotes cohousing efforts and development and is comprised of a network of communities, households, and professionals involved with cohousing.

Condominium Business Network, Ltd.
Links to every aspect of condominium business.

Cooperative Housing Coalition (CHC)
Works toward the creation of cooperative housing.

Institute for Community Economics (ICE)
A national community development organization promoting economic justice through community land trusts (CLTs) and community investment.

Internal Revenue Service (IRS)
Provides extensive information on filing income taxes for individuals, businesses and nonprofits. Explains documents for filing and completing federal tax forms, and makes them available for downloading.

National Association of Housing Co-operatives (NAHC)
The only national cooperative housing organization. Offers information and resources on cooperative ownership issues.

National Cooperative Bank (NCB)
Provides a broad array of financial services to the nation's cooperative businesses, including many housing co-ops.

National Cooperative Business Association (NCBA)
Provides information on cooperative businesses across the U.S.

Northern Trust
Provides financing options for cooperatives.

Senior Cooperative Foundation
Provides information and resources on senior-owned cooperatives. Website lists senior housing cooperatives.

• Auctions
• Foreclosure
• Government Sales
• Artspace
• Habitat for Humanity section
• NACA
• REO
• Additional Resources
• Tax Sales

Obtaining a mortgage is probably the most common method of purchasing a property, but it is not your only option. This section discusses the pros and cons of various purchasing alternatives, such as foreclosures, public and private auctions, tax sales and purchasing from lenders, nonprofit programs and federal and local government agencies. These options are for those who are adventuresome, or for those who must make their dollars stretch.

Be prepared to do a little more leg work in educating yourself about these purchasing options, or in locating professionals who can. Seek a lawyer's advice to navigate these tricky waters.

Information presented here is not intended to be a detailed study or how-to-guide, but is a basic introduction to "alternative" methods of locating and purchasing real estate. These options usually involve more risk and time than conventional methods. Points to consider:

• The title of the property may have other liens against it, such as property taxes or second mortgages. The title is the legal document that denotes ownership of the property; liens are claims against the property, which may hinder or delay ownership or possession.
• The property might require extensive rehab and repairs.
• You might end up responsible for taking possession of the property (i.e. evicting current tenants.)

Auctions

Attending a real estate auction can be an exhilarating experience, and might land you a piece of property at a cheaper cost. There are several types of auctions available for real estate:

• Public Auctions : Properties sold through a public auction. These properties are obtained by King County for failure to pay property taxes for an extended period of time. The Auctions are handled by the King County Treasury Operations. There is detailed information about the auction process as well as detailed information about responsibilities of the bidder. Additionally, King County Treasury Operations publishes a list of available properties by address and lists value. It is the absolute responsibility of the buyer to research and inspect properties thoroughly, once a property is bid upon the sale is final. The web address of the King County Treasury Operations : http://www.kingcounty.gov/operations/Finance/Treasury/Foreclosure.aspx

• Real Property Auctions or Sheriff Sales : Sheriff's Sales are 'judicial foreclosures' (or executions) on real property to satisfy a money judgment. The order to sell comes from the Superior Court Clerk. The Sheriff Sale is selling only the judgment debtor's interest in the real estate. It is subject to all existing liens and encumbrances. There is limited information about the sale property since they do not need to know any information other than the address and legal description to conduct a Sheriff sale. It is not possible for potential purchasers to view the interior of the structure prior to the sale. The property sold may have a Redemption period from eight months to one year. Redemption means that the owner may pay back the amount bid at the sale plus interest, taxes, etc. in order to 'redeem' the property and become the owner again. If you have legal questions about this procedure, you should contact your attorney for direction, or read the Revised Code of the state of Washington pertaining to Redemption. Sheriff sale notices and notices regarding postponements of sales are posted in the King County Courthouse lobby, as well as in the first and fourth floor entrances of the King County Administration Building. The sales of real property conducted by the Sheriff are published in the Seattle Daily Journal of Commerce newspaper once per week for four consecutive weeks prior to the sale. If you are the winning bidder at a sale, you must provide the Sheriff with cash or cashier's check made payable to the court clerk's office issuing the Writ of Execution or Order of Sale by 12:00 p.m. or the property will go to the next highest bidder. For more information visit the Sheriff Sale website at: http://www.kingcounty.gov/safety/sheriff/Services/SheriffSales.aspx

• Private Auctions : Real estate sold at private auction are properties that may be sod my a home owner, may be a foreclosed home that did not sell at a Sheriff's sale, or may be at auction for some other reason. Purchasing property at an auction may be at a better price than through traditional purchasing methods. There are inherit risks to the buyer because of the frenzied environment of the auction process as well as there are no safe guard to the buyer after a bid has been made. It is the absolute responsibility of the buyer to research and inspect the property to ensure that the buyer is fully aware of the aspects of the property before making a bid. Additionally due to the frenzied nature of auctions the buyer must be educated on the value of the property so that they do not end up paying more than the property is valued. There are many online listing of upcoming private auctions such as Auction Zip or National Relocation.

When purchasing through an auction (public or private), you are usually required to present an initial payment of around 10% of the bid at the time of the auction. These down payments can be made in cash, certified check, money order or other certified funds. The remaining balance is usually due within a set period of days (usually 30) of the auction. This window gives you time to secure financing for the space.

Failure to pay the remaining balance in the allotted time puts your bid at risk of defaulting, which usually results in you forfeiting your initial down payment. In addition, the property can be put up for auction again. As the requirements for each auction house are different it is vital that you take the time and review the policies and procedures before participating in an auction.

Be forewarned that property bought through this method may not have clear title (especially a private auction property) and you may have other legal red tape to clear up before you can take possession. You will need to check with the auction house to find out if can check the financial and legal strings tied to a property prior to bidding. Properties sold through an auction are often sold as-is. Meaning, the owner will not make any repairs to the property before you take ownership. For this reason, it is a good idea to have the space inspected beforehand.

In most cases, you will not be reimbursed nor allowed to renegotiate your offer. However, an inspection can help you to assess how much investment you will need to make in the property to make it habitable, and will inform your biding process. You can also explore making your purchase offer contingent on the results of the inspection, so that if repair requirements are not acceptable or exceed your budget, you do not have to purchase the property. For more information on building inspections, see Chapter 17: Inspections. To find when an auction will occur, contact the above-mentioned government agencies, as well as local auction houses listed in the telephone directory.

Foreclosure

Foreclosure is a complex legal process whereby the owner of a property forfeits their claims to the property due to:

1. Failure to make mortgage payments (the most common reason);
2. Failure to pay property taxes;
3. Personal bankruptcy; or
4. Seizure of the property by the government due to illegal activities by the owner.

Failure to make mortgage payments triggers a series of legal actions that ends with the termination of the present owner's rights to the property and sale, typically at public auction.

Washington State has two types of foreclosure:

• Judicial Foreclosure: The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.
• Non-Judicial Foreclosure: The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

In addition to the above methods, you can approach a property owner on the verge of foreclosure to craft a purchase agreement with them and their lender. In this situation, everyone wins. Not only are you able to purchase property below market value -- the owner doesn't have to face a foreclosure, and the lender gets a return on their investment.

For a listing of foreclosed homes visit: http://your.kingcounty.gov/finance/treasury/foreclosure/Disclaimer.asp.

Please be aware that an owner has the right to save his or her property from foreclosure by paying all past taxes owed up to the night before the foreclosure sale. Therefore this list may change frequently, and interested parties should check with the Treasurer to assure status of properties they are tracking.

Any questions regarding tax foreclosures must be directed to the King County Treasurer at (206) 296-4184. Foreclosure Sales that occur due to DEFAULTING MORTAGAGES ARE NOT handled by the county. You should contact the lending institution holding the defaulting note.

For additional information on how the foreclosure process works, see Defaulting on your Mortgage in Chapter 8: Buying Real Estate.

Government Sales

National government agencies often obtain possession of properties and then sell the properties. This section discusses programs offered by the U.S. Federal government.

Federal

Several federal agencies sell real estate, land and other properties such as lighthouses. These properties fall into the government's possession for many reasons -- most commonly, because the previous owner failed to pay a government-backed mortgage loan. Other causes include the property has been seized from individuals or businesses for tax evasion or other illegal activities, or because the government has surplus property, including land, that it needs to sell.

Typically, property sold through an auction comes as-is. To purchase, you must follow the individual agency's auction procedures. Although the selling agency will normally not repair problems uncovered by an inspection, and might not allow you to renegotiate your offer, an inspection will give you an idea of the additional cash you will have to invest to make it habitable and inform your bidding process. If you are allowed to renegotiate your offer, the inspection report will give you leverage.

A major advantage of buying properties from the federal government is that the title is often clear of any liens.

For more information on building inspections, see Chapter 17: Inspections.

Fannie Mae

Fannie Mae is a government-backed mortgage provider, the largest purchaser of secondary market mortgages in the nation, and the largest mortgage holder (see Chapter 8: Buying Real Estate). Fannie Mae sells both single-family and multifamily buildings acquired through foreclosure.

Search for single- family Fannie Mae properties for sale at: http://www.homepath.com/

Click to search multi-family Fannie Mae property for sale: www.efanniemae.com/multifamily

Housing and Urban Development

The Department of Housing and Urban Development (HUD) acquires properties as a result of foreclosures on HUD-backed mortgage loans. HUD sells single-family properties, with priority given to individuals purchasing the space as their primary residence.

Search HUB property for sale:http://portal.hud.gov/portal/page/portal/HUD/states/washington

Learn more about purchasing a HUD property: http://www.hud.gov/offices/hsg/sfh/reo/reobuyfaq.cfm

Internal Revenue Service

Property sold by the Internal Revenue Service has been seized for non-payment of federal taxes. Property can include residential and commercial real estate as well as other items such as art, vehicles, businesses, etc.

Search IRS property for sale: http://www.treas.gov/auctions/irs/index.html

For more information on IRS auctions and property for sale: http://www.treas.gov/auctions/irs/faq.shtml

Small Business Administration

The U.S. Small Business Administration sells property obtained while administering its loan programs. The property ranges from real estate -- commercial property, single family homes, vacant land and farms -- to business property such as machinery, equipment, furniture, fixtures and inventory.

For SBA properties: www.sba.gov

For more information about Small Business Administration Sales: http://www.pueblo.gsa.gov/cic_text/fed_prog/fedsales/sba.htm

Veterans Administration

The Department of Veterans Administration (VA) acquires properties as a result of foreclosures on VA-guaranteed loans. The VA sells both single-family dwellings and multi-unit properties. All properties are marketed with Ocwen Federal Bank FSB in West Palm Beach, Fla. and are listed by local listing agents through the multi-listing systems (MLS). A list of properties for sale may also be obtained from Ocwen's Website.

Search VA properties: http://www.altisourcehomes.com/

Other

Below is a list of additional federal government agencies that sell a variety of property, including real estate.

• Department of Agriculture (USDA): Information on government-owned real estate and potential foreclosed properties such as farms, ranches, single-family homes, multi-unit buildings, lots and other real estate. This site provides detailed information about each of property.
• Department of Customs : offers real estate and other items for sale that has been seized and confiscated for a variety of reasons, including illegal activity.
• Federal Deposit Insurance Corporation (FDIC): has single and multi-family properties for sale. For more about how to purchase a FDIC property.
• General Service Administration (GSA): Sells a variety of real estate ranging from commercial and industrial buildings to residential properties and vacant land. GSA also manages the lighthouse program, and sells excess federal lands for public use such as cultural institutions and parks.
• Information on purchasing property through GSA.
• Information on purchasing Excess/Surplus Federal Lands.
• Information on the Lighthouse Program
• Department of Treasury : offers real estate and other items for sale seized for a variety of reasons, including use of the space to conduct illegal activities.Search Treasury property for sale.
• U.S. Army Corps of Engineers: Provides assistance to eligible federal employees who were stationed at or near an installation scheduled for closure (i.e. military bases). This site lists real estate properties (primarily residential) being sold by federal employees. Search ACE property for sale.
• U.S. Marshal's Office: offers residential and commercial property, seized due to illegal activity, through the National Seller's List. Property. Also sells personal property such as motor vehicles, boats, aircraft, jewelry, art, antiques and more. The National Seller's List is a list of contracted service providers and federal agencies throughout the U.S. that are authorized to sell USMS-seized property. More information and to view the USMS's National Seller's List.

Other Organizations

Nonprofit programs, organizations and family can provide alternative financing to assist you in purchasing or locating a space. Your real estate attorney or accountant may also know of additional funding and/or purchase resources, in addition to the resources presented in Chapter 8: Buying Real Estate.

Each program enforces its own requirements for participation, and some might require community service from you in order to participate. ACME Artist Housing, Habitat for Humanity, the Neighborhood Assistance Corporation of America (NACA) and REOs are examples of non-traditional avenues for purchasing real estate.

Artspace

Artspace mission is to create, foster, and preserve affordable space for artists and arts organizations. They pursue this mission through developmental projects, asset management activities, consulting services, and community building activities that serve artists and arts organizations of all disciplines, cultures and economic circumstances.

For more information visit their website at www.artspace.org

Habitat for Humanity

Habitat for Humanity is a nonprofit organization that builds and rehabilitates affordable housing with the help of volunteer labor and donated money and materials.. To participate, you must apply; acceptance is not guaranteed.

Chosen applicants must make a small down payment (around $500) and monthly mortgage payments. Selection is based on the individual's need, ability to pay the mortgage, and willingness to invest hundreds of hours of sweat equity into building their home.

Habitat for Humanity provides no-interest loan financing for participants to purchase the home. Money paid by participants for their mortgage is used to build additional Habitat homes. Contact the main area Habitat office at (206) 292-5240 or visit their website at www.seattle-habitat .org for details.

NACA

The Neighborhood Assistance Corporation of America (NACA) is a nonprofit organization that provides loans to low- and moderate-income people, as well as "sub-prime" borrowers. NACA has commitments from banks and lenders totaling $3.8 billion, allowing it to offer mortgage loans with no down payment to borrowers at below-market interest rates. In addition, participants have the option to lower their interest rate by placing a larger down payment. Specifically, for every $1,000 a participant pays over the required down payment amount of around $3,000, the interest rate is lowered by 0.25%.

Borrowers are required to participate in NACA-sponsored affordable housing political actions. They must also contribute to a self-insurance fund used to pay the mortgage for a set number of months for those NACA homeowners who, for specific reasons (such as loss of job), are unable to pay their mortgage. Through the NACA program, you can finance multifamily residential buildings (up to four units) as well as mixed-use buildings (i.e. store front properties.)

Anyone can participate in NACA's program. Individuals with poor credit will be required to go through a NACA-sponsored debt management and credit repair program before purchasing.

Visit the NACA website at www.naca.com for more information.

REO

REO is an acronym for "Real Estate Owned by Lenders." Lenders come into possession of real estate property for many reasons:

• When a borrower faces foreclosure, and signs the deed over to the lender to settle the mortgage debt;
• The lender repossesses the property; or
• The lender purchases the property at a public auction of foreclosed properties.

Many properties owned by lenders are sold at below-market rates. When the lender acquires a property, they automatically inherit a financial cushion. When a property goes into foreclosure, or is repossessed, the previous owner forfeits both the down payment and the accumulated equity, both of which now belong to the lender. This cushion gives the lender the ability to sell property quickly and below market value, because the remaining balance of the mortgage is often less than the market value.

Properties sold by lenders may require some additional repair work. Because many REO properties are sold as-is, have the space inspected. Although the lender will not repair the problems uncovered by the inspection, and might not renegotiate the offer, an inspection will give you an idea of how much additional cash you will have to invest in the property to make it habitable.

You can make your purchase offer contingent on the results of the inspection. If the inspection report does not meet your requirements, or the costs exceed your budget, you are not required to purchase the property. Depending on the stipulations of the sale, you might also be able to lower your offer if the property requires substantial rehabilitation. For more information on building inspections, see Chapter 17: Inspections.

Contact lenders directly to see if they have properties for sale, and where you can obtain purchase information.

Additional Resources

In addition to the models discussed here, check with local housing organizations for information on other nonprofit-sponsored purchasing plans. Chapter 11: Ownership Models also offers alternative purchasing tips through nonprofits in the section, Community Development.

Tax Sales

Coordinated by the King County Treasurer's Office, the County Tax Sales program is the primary program offered by King County and the State of Washington to purchase land and property. The Tax Sale occurs on an annual basis. The listing of foreclosed properties is available on or around June 10th

and will be published in the Seattle Times in the legal section. For more detailed information go to: http://www.kingcounty.gov/operations/Finance/Treasury/Foreclosure.aspx

To learn more about the Tax Sales program, review Chapter 15: Property Taxes. You can also contact the King County Treasurer's Office to review the guidelines and procedures for participation, and to view properties with delinquent taxes.

• Land Use
• Building Code
• Arts Space: Important Topics for Buying or Leasing a Space
• ASPECTS OF SUCCESSFUL FACILITIES
• DEVELOPMENT CONSIDERATIONS
• HELPFUL TIPS
• BUILDING CODE AND PERMITTING
• HOW TO DETERMINE LAND USE AND ZONING ISSUES
• GETTING STARTED
• OTHER HELPFUL CONTACTS AND RESOURCES

The Department of Planning and Development (DPD) is responsible for managing growth and development in Seattle in a way that enhances quality of life. DPD accomplishes this by regulating buildings and land use through permitting, zoning, building codes, building inspections and compliance issues. When you are looking for a new location to lease or purchase it is imperative that you understand and comply with DPD rules and regulations, failure to do so can result in potentially large expenses, project delays and ultimately the in ability to use the space as you have intended. The DPD website has an immense amount of information regarding all of the various rules, regulations and requirements and it is a great place to start, http://www.seattle.gov/dpd/onlineservices/. The two main responsibilities of DPD are land use and Building Code.

Land Use

What is land use zoning? Why does it matter? And why should you, as an artist, have to worry about it? This chapter discusses and explains Zoning, which tells you where certain activities can occur throughout the City. Zoning is intended to create a balanced system that keeps residents and visitors safe while providing opportunities and environments needed for residential, commercial, manufacturing and art production to occur. It influences your use of space -- and, by association, your art practice -- in many ways. The most obvious impact is that certain types of artistic activity are restricted to areas with a particular zoning classification. For example, operating a dance school would not be permitted in a residential setting. However, a business or commercial-zoned property may allow both residential and art uses to exist in the same space.

Tools: http://www.seattle.gov/dpd/onlineservices/

Compliance

There are various possible consequences of using a building (or a space within a building) in a way that is contrary to Zoning. The City could force you to comply with the Ordinance through the courts. In which case, you could be faced with high fines and the costs of obtaining legal advice.

You could also end up faced with the cost of leasing or owning a space you can't use for your intended purposes. If you are leasing the space, City inspectors could evict you for non-compliance. In addition, the landlord could also terminate your lease if you use the space in a manner that is prohibited by the lease.

As you can see non-compliance can be costly. Make sure that when you start looking for a space you know how a building is zoned and what activities can and cannot occur before you commit to leasing or purchasing a property.

Building Code

The building code outlines minimum fire, building and structural standards, as well as health and safety requirements, that apply to every building in the city. The Code sets guidelines and requirements based on how a space is used and occupied, and addresses questions such as:

• Is the space used for residential, commercial or industrial purposes?
• How many people use the space?
• What is the maximum number of people allowed inside?
• What types of activities will occur in the space?

Building Code requirements become more stringent when:

• The number of persons using the space, or occupant load, is large, and
• Use of the space is hazardous.
• Flammable and combustible liquids and other hazardous materials are stored or used above specific thresholds.

Once a building is occupied, Fire Code regulations further control use. Beyond the scope of this section is a detailed explanation of the Building Code. Because the Code's requirements are specific to each space, and vary as the use and intensity of use of the space changes, we will highlight the major concerns of the Code with a specific focus on:

• Permits
• Lighting and ventilation requirements
• Water access
• Entrance and exit issues
• Attics and basements
• Artist live/work spaces
• Building inspections

If you are considering a major renovation to or new use inside a space, seek the services of a state-licensed architect. An architect will be able to help you incorporate Code requirements into the design or remodeling.

Permits

Often, changes planned for a space require a variety of work and building permits, as well as drawings for the project. While the professionals you hire will normally inform you of the type of permits you need, it is wise to find out at the beginning of your planning process what type of permits are required, especially if you intend to complete the project yourself.

One of the easiest ways to find out if your project needs a permit is to access the Permit form Packets on the DPD website at http://www.seattle.gov/dpd/permits/forms/default.htm. This online tool allows you to search through five major permitting categories: Single Family Residence, Multi-family, Commercial, Demolition, and Land Use to determine if you need a permit, and if so the forms you need to begin the permitting process.

If you have general questions about a wide variety of DPD topics check out the extensive list of Client Assistance Memos (CAM) which are designed to provide user-friendly information on the range of City permitting, land use and code compliance policies and procedures you may encounter while conducting business with the City at: http://web1.seattle.gov/dpd/cams/camdetail.aspx?cn=102

If you are purchasing property outside of Seattle but within King County, visit the King County Department of Development and Environmental Services for Building Code and Land Use at: http://www.kingcounty.gov/property/permits/info/SpecialInterest/RealEstate.aspx

Arts Space: Important Topics for Buying or Leasing a Space

Approved June 3, 2009

Arts Client Assistance Memo (CAM)

DPD and the Arts and Culture Office worked collaboratively to create a CAM to address issues specific to arts organizations. You can access an online version of the CAM at the above link under CAM 4000. Below you will find the full text version of the CAM:

This CAM is designed to provide you with more information on what you should know and consider when undertaking a move to purchase or lease an arts-appropriate facility. The purpose of the CAM is to outline the issues of successful facilities, development considerations, building code and permitting, and land use and zoning. The target audience for this CAM is individual artists, or an arts organization, it is not intended for complex multi-use large-scale facilities.

We strongly urge you to visit the Department of Planning and Development (DPD) early in your preparations. If at all possible, discuss your plans with a DPD land use planner and/or a permit specialist in the Applicant Services Center (ASC) before you lease or buy a new space. The ASC is located in the Seattle Municipal Tower on 700 Fifth Avenue, Suite 2000.

ASPECTS OF SUCCESSFUL FACILITIES

Good Design

Whether you have been asked to vacate your current space or you are voluntarily choosing to upgrade or

move to a new location, there are several important issues that you should consider as you begin your search. Some popular cultural facilities are shoehorned into buildings that can pose challenges for the organization. Bad design can adversely affect your audiences, image, and way of doing business. Good design- particularly in new buildings or renovations - can help your organization grow and operate more smoothly.

Design issues to consider:

• Where are the windows? Are there any on the street? Is the entry visible?
• Is the space interesting and inviting?
• Does the space offer informal gathering spaces?
• Are there specialty spaces?
• Are there multi-purpose spaces?
• What are the building's important amenities?
• Can you easily phase in new construction and renovations into the space?

Are you Choosing the Right Location?

Before you buy or lease a facility, you should speak with a DPD land use planner in the ASC for the following issues:

• Zoning
• Parking

Is the Building Appropriate for Your Needs?

If you are expecting your space to accommodate 50 or more people, additional building code requirements might apply. This includes:

• Seismic requirements
• Sprinklers
• Additional exits
• Accessibility

If you are expecting to do a lot of construction, please speak with a DPD permit specialist in the ASC.

Other Issues to Keep In Mind When Purchasing or Leasing a Facility

• Public transportation
• Restaurants
• Other cultural institutions nearby
• Neighborhood attitude toward arts activities
• Visibility
• Cost
• Foot traffic
• Image of area
• Audience proximity
• Perception of safety

Programs and Finances

Programming success is dependent on many factors, including the organization's overall financial stability and success. Consider:

• Do you have careful budgeting and good financial management practices?
• What does your audience want, and can you deliver these services in a financially sound manner?
• Can the facility be used for multiple uses? What other ways can it generate revenue?

Community Relations

Cultural facilities are important institutional assets to their communities. The best cultural facilities understand what it takes to play this role successfully and do it on a continuous basis.

You will need to consider:

• Partnerships
• Meeting community needs
• Outreach
• Membership in community groups
• Role in community development

DEVELOPMENT CONSIDERATIONS

Project Planning

Make sure you have a business plan prepared. At minimum, the plan should:

• Define how the organization will absorb the impact of the facility.
• Identify expected expense changes (increased staff, administrative costs, facility maintenance costs, fundraising costs).
• Establish new revenue goals and define how they will be met.
• Determine cash flow needs.

Plan for the immediate and long-term building needs. This involves either changes or additions to the building design, from simple changes to additional signage to complex modifications to room configuration.

Construction Period

Myriad problems can ensue during the construction period, most of which - such as the weather, or late delivery of materials - are difficult to control. Develop contingency plans, patience and flexibility.

Construction glitches can postpone completion and increase costs. Common stumbling blocks include:

• To save money, organizations choose not to hire a construction manager, eventually costing themselves both time and money.

Decisions on design elements are made too late, and accommodating them requires redoing or adding to the construction plans. This happens when:

• Ideas about the design change.
• The project has been rushed.
• Too many people are making decisions and are taking too long to reach a consensus.
• The decision maker is overextended.
• The organization or contractor has cash flow problems during the construction. For some time, more money flows out than comes in. Contractors must wait to be paid, which can cause problems.
• An organization wrongly relies upon its architects to know and understand all city, state and federal regulations, which cost time and money.

HELPFUL TIPS

Seven ways to make your building development or rehab project run more smoothly:

• Get organized: Space development is a complex process that usually takes several years. Your files, financial information, resources, etc., must be in order for you to effectively manage this process.
• Research: Before you make any building purchase, make sure you understand the condition of the building, zoning, and the permit process if you want to change the structure. You can find out more information by visiting the ASC.
• Check your zoning status: You don't want to commit to a building and start the planning process, only to learn that you can't use the space for your intended purposes. Go to the ASC and talk with a land use planner orvisit DPD's website to access the Land Use Q&A on the "Online Tools" page: www.seattle.gov/dpd/onlineservices
• Get your finances in order: Understanding how your finances work will better prepare you for a development project. Work with an accountant from the beginning and conduct a financial feasibility study.
• Get your board in order: As previously discussed, having a board of directors with depth and a range of skills can help the project succeed. Well-connected and knowledgeable board members can bring new resources and support to the project, and help you avoid costly mistakes.
• Get your staff behind the project: All parties involved with the project must understand and support the goals. A disinterested or unsupportive staff can derail the project.
• Be patient: A development project is a major undertaking.

BUILDING CODE AND PERMITTING

Now that you have taken into account the aspects of successful facilities it is important to develop a clear, cohesive and organized plan. Once you have identified a potential space, you should begin researching your project with DPD to uncover issues that may require special attention. When an artist or organization moves into a new space, changing the configuration of the space or using it for a different purpose will generally require a permit from DPD. Permitting will be an important initial step for your project. Please see DPD CAM 102, Small Business and Getting your Use and Building Permit from DPD for a comprehensive overview of the process. CAM 102 can be found at: http://web1.seattle.gov/dpd/cams/camdetail.aspx?cn=102. For commercial plan review projects, zoning and building code reviews are always required. Depending on the specific proposal, additional reviews could include: energy, mechanical, ECA, health, and fire.

HOW TO DETERMINE LAND USE AND ZONING ISSUES

The Land Use Code determines the activities that are legally permitted on a property. Land use and zoning will be an important consideration in the search and identification of your space.

In the chart on page four, first identify your use by definition (you will find these after the chart). Then determine how each use is allowed in the following zones. Not all uses fall completely within the definitions and often the function of the space could include many characteristics of several definitions. You may also have associated administrative functions which fall under the definition of "office." Please speak to a land use planner to determine whether this type of activity would be considered a "primary use" or "accessory use" in association with your type of "facility." You can find more information about your zone by using the DPD GIS (geographic information system) mapping tool at www.seattle.gov/dpd/onlineservices.com.

Definition of "Uses"

• Artists' studio/dwelling (ASD) : A combination working studio and dwelling unit for artists, consisting of a room or suite of rooms occupied by not more than one household.
• Custom and craft work (C&C) : A food processing and craft work use in which nonfood, finished, personal or household items, which are either made to order or which involve considerable handwork, are produced. Examples include but are not limited to pottery and candle making, production of orthopedic devices, motion picture studios, printing, creation of sculpture and other art work, and glassblowing. The use of products or processes defined as high-impact uses shall not be considered custom and craft work.
• Live-work unit (LW) : A structure or portion of a structure: (1) that combines a commercial or manufacturing activity that is allowed in the zone with a residential living space for the owner of the commercial or manufacturing business, or the owner's employee, and that person's household; (2) where the resident owner or employee of the business is responsible for the commercial or manufacturing activity performed; and (3) where the commercial or manufacturing activity conducted takes place subject to a valid business license associated with the premises.
• Performing arts theater (P/A/T) : A theater and spectator sports facility intended and expressly designed for the presentation of live performances of drama, dance and music. (Under the definition of Entertainment Uses)
  • Option #1: If the definitions above are too restrictive for the type of work being done, "Light Manufacturing" and "Caretaker's Quarters" would be another option.

• Caretaker's quarters (CT) : A use accessory to a nonresidential use consisting of a dwelling unit not exceeding 800 square feet of living are occupied by a caretaker or watchperson
• Manufacturing : a use in which articles are produced by hand or by machinery, from raw or prepared materials, by giving to those materials new forms, qualities, properties, or combinations, in a process characterized by the repetitive production of items made to the same or similar specifications. Items produced are generally sold directly to other businesses, or are sold at wholesale. The retail sale of items to the general public is incidental to the production of goods. For the purpose of this definition, uses listed as food processing and craft work or high-impact uses are not considered manufacturing uses. Manufacturing uses include the following:
  • 1. Manufacturing, light (LM) : a manufacturing use, typically having little or no potential of creating noise, smoke, dust, vibration or other environmental impacts or pollution, and including but not limited to the following:
    • Production, assembly, finishing, and/or pack aging of articles from parts made at another location, such as assembly of clocks, electrical appliances, or medical equipment.
    • Production of finished household and office goods, such as jewelry, clothing or cloth, toys, furniture, or tents, from materials that are already refined, or from raw materials that do not need refining, such as paper, fabric, leather, pre-milled wood, wool, clay, cork, fiber, semiprecious or precious metals or stones or other similar materials.
    • Canning or bottling of food or beverages for human consumption using a mechanized assembly line or food processing for animal consumption.
    • Printing plants with more than 5,000 square feet of gross floor area.

• Option #2: For home occupations in single family and multifamily zones, please see DPD CAM 236, Home Occupations Allowed in Residential Zones at http://web1. seattle.gov/DPD/CAMs/CamDetail.aspx?cn=236.

Category of Zones

Single Family Zone :

• SF 5000, SF7200, SF9600 (SF)

Multifamily Zone :

• Lowrise 1, 2 or 3 / Residential-Commercial (L/RC)

Commercial Zone :

• Neighborhood Commercial 1 (NC1)
• Neighborhood Commercial 2 (NC1)
• Neighborhood Commercial 3 (NC1)
• Seattle Mixed (SM)
• Commercial 1 (C1)
• Commercial 2 (C2)

Industrial Zone :

• Industrial Buffer (IB)
• Industrial Commercial (IC)
• General Industrial 1 (IG1)
• General Industrial 2 (IG2)
• Downtown (DTWN)

GETTING STARTED

You can visit the ASC and sign up to speak with a land use planner or a permit specialist. There may be other site-specific issues and application procedures depending on the zone in relationship to the size application of the "use" for each zone. The ASC is located at 700 Fifth Ave., Suite 2000. You can also contact the ASC at (206) 684-8850. Its hours of operations are Monday, Wednesday, Friday: 7:30 a.m. - 5:30 p.m. (by phone: 8 a.m. - 5 p.m.); and Tuesday, Thursday: 10:30 a.m. - 5:30 p.m. (by phone: 10:30 a.m. - 5 p.m.).

OTHER HELPFUL CONTACTS AND RESOURCES

Helpful Contacts :

• Applicant Services Center: (206) 684-8850
• DPD Cashier: (206) 386-9780
• Microfilm Library: (206) 233-5180
• Tech Support: Building Code (1:00 - 4:15 p.m.): (206) 684-4630
• Tech Support: Electrical Code (7:00 a.m. - 4:30 p.m.): (206) 684-5383
• Tech Support: Energy/Mech Code (1:00 - 4:15 p.m.): (206) 684-7846
• Seattle Fire Department: (206) 386-1450

Helpful Resources :

• DPD GIS: www.seattle.gov/dpd/onlineservices
• DPD Land Use Q&A: http://web1.seattle.gov/dpd/LUQnA/
• CAM 100, Getting a Multifamily or Commercial Constructio Permit from DPD: http://web1.seattle.gov/DPD/CAMs/CamDetail.aspx?cn=100
• CAM 102, Getting a Small Business Use & Construction Permit from DPD: http://web1.seattle.gov/DPD/CAMs/CamDetail.aspx?cn=102
• CAM 236, Home Occupations Allowed in Residential Zones: http://web1.seattle.gov/DPD/CAMs/CamDetail.aspx?cn=236

Links to electronic versions of DPD Client Assistance Memos (CAMs), Director's Rules, and the Seattle Municipal Code are available on the "Publications" and "Codes" pages of our website at www.seattle.gov/dpd. Paper copies of these documents, as well as additional regulations mentioned in this CAM, are available from our Public Resource Center, located on the 20th floor of Seattle Municipal Tower at 700 Fifth Ave. in downtown Seattle, (206) 684-8467.

• General Neighborhood Information
• Real Estate Information
• Neighborhood Profiles
• Neighborhood Resources

Seattle is a city of neighborhoods, each with its own individual character, perks and amenities. Understanding the personality and opportunities each neighborhood offers is critical to finding the right space, whether you are looking for a work studio, live/work space, rehearsal space, office space or performance space. This chapter provides general neighborhood resources and detailed information on each of Seattle's neighborhoods.

The majority of information found in this chapter is from the City of Seattle Department of Neighborhoods website, additional information was obtained from the City of Seattle Office of Economic Development and the City of Seattle Department of Planning and Development.

With nearly 145 square miles of cityscape, Seattle has something for everyone. Some neighborhoods initially seem too far from the local art scene and other artistic activity, while others may provide an abundance of resources at an astronomical price. Despite our attempt to include as much information as possible, the best way to get a true feeling for any of these communities is to walk or drive the streets and talk to area residents and business owners. This, combined with your own exploration, will help you decide if a neighborhood meets your needs.

This first section of this chapter identifies general resources that will help you navigate issues such as transportation, safety, districts, and pricing to allow you to easily compare and contrast features of each neighborhood. The Neighborhood Profile section provides neighborhood boundaries, a description of the neighborhood as described in the official neighborhood plan and examples of arts organizations that currently occupy space in each neighborhood.

TIP: Take advantage of existing community resources such as area business owner, residents and neighborhood service centers to learn more about a neighborhood.

General Neighborhood Information

There are several important features and resources in each of Seattle's neighborhoods that is important for you to consider while searching for space.

Transportation

Access to transportation is an important consideration in your search for space. Not only do you and other artists, performers, and employees need adequate access to transportation it is incredibly important for audience members, patrons, or customers. It becomes especially important if you are moving from an area of high population and arts density to an area of lower population and arts density because your new space needs to be easily accessible even if the space has adequate space for parking. If your space restricts access you or your organization may falter or fail. Currently in Seattle the development of light rail may provide opportunities to create or refurbish spaces in communities that are becoming accessible and therefore are normally more affordable as the neighborhood begins the gentrification and or development process. The two main transportation providers in the Seattle area are King County Metro and Sound transit. Visit their websites to research route maps, fares, and trip planners at: King County Metro:http://metro.kingcounty.gov/ and Sound Transit at: http://www.soundtransit.org/

Safety

Safety is a concern for obvious reasons, not only do you want to feel secure that you, your belongings and art are safe in a space - if you have audience members or patrons visiting our space you want to provide a safe place for them to come. Sometimes more affordable spaces are located in neighborhoods that may be or may appear to be less safe then other more expensive neighborhoods. It is important to take precautions to ensure your safety and the safety of others. The Seattle Police Department website offers several valuable tools. They have crime statistics based upon zip code and also offer tips to decrease the likelihood of criminal activity. Visit their website at: http://www.seattle.gov/Police/. The most valuable tool to evaluate safety is your own gut feeling, when you visit neighborhoods listen to your feelings about the neighborhood and space. Additionally, talk with neighbors and people in the community they oftentimes provide an invaluable resource.

Miscellaneous City of Seattle Resources:

There are several programs/tools offered by the City of Seattle that may assist you in your space hunt in a variety of ways -

• Office of Economic Development - Business Development Districts: OED's Neighborhood Business District Program promotes a healthy business environment for neighborhood business districts and business organizations, and is designed to help grow and strengthen the business community in its respective neighborhoods. OED funds projects and activities to improve business districts, including capital improvements, farmers markets, and training for business group members. OED also supports a variety of low interest real estate loans. For more information on OED programs, visit their website: www.seattle.gov/economicdevelopment/n_c_devt.htm
• Department of Neighborhoods Historic Preservation: DON manages historic preservation in Seattle and has designated six historical districts, in addition they have inventoried historic space in Seattle. Visit their website at: http://www.seattle.gov/neighborhoods/preservation
• Seattle Parks and Recreation: The parks and recreation department manages the placement of art and have recently developed a strategic plan for arts which may prove helpful in understanding the future of arts in particular areas. Visit their website at: www.seattle.gov/parks/Arts/default.htm
• Cultural Overlay District: The Cultural Overlay District Advisory Committee made recommendations to the City Council in September 2008 for the development of Cultural Overlay Districts. This clearly may prove to be a valuable resource depending upon how the recommendations are implemented. Visit the CODAC website for more information at //www.seattle.gov/council/codac/default.htm.

Real Estate Information

Residential

With few exceptions, Seattle real estate prices are rising rapidly. In 2006, 53 of the 86 neighborhoods in King County had a median home price of $350,000 or more. And Seattle average home prices in many neighborhoods are well above the $400,000 mark.

Home prices in Seattle neighborhoods with prestige will cost a pretty penny, as these 2004 median prices will tell you. Madison Park's median price range was $905,000 and Laurelhurst wasn't at $600,000. Queen Anne - with its beautiful views - had a median price range of $500,000 and private Magnolia ran in the $700,000 range.

If you're on a budget and still wish to buy a home in Seattle, don't despair. There are neighborhoods with more affordable home prices in Seattle. But you'll need to look south of downtown to find them. South Seattle real estate prices in communities like Beacon Hill, Rainier Beach, and Georgetown had a 2006 median price in the $340,000 to $390,000 range.

Rental prices vary widely across the city, but the average month's rent for a one bedroom apartment in 2008 was $730.

Commercial/Industrial

Price per square feel varies widely in the commercial and industrial markets. It is best to hire a Real Estate broker with substantial commercial/residential experience to help you negotiate a fair lease or purchase price. Visit Chapter 7 & Chapter 8 for detailed Real Estate Information.

Neighborhood Profiles

Seattle is a city compromised of many neighborhoods each with their own unique character and amenities. While there is some discrepancy as to how neighborhoods are identified and categorized for the purpose of this manual the DON neighborhood plans will serve as the template for neighborhood identification.

Neighborhood Geographic Location

This section is intended to serve as a starting point for your neighborhood search. The 38 neighborhoods are divided into 6 geographic categories, Northeast, Northwest, City-west, City-east, Southwest, Southeast. As previously mentioned the best way to research neighborhoods is to go to the neighborhood, walk around and talk to residents. To begin narrowing down neighborhoods you are interested in looking for space a good starting point is the neighborhood plans. These plans have been an ongoing process between the neighborhoods and the City of Seattle. The plans are a good resource because they give an overview of the character of the neighborhood as well as the goals for growth and development. Visit these neighborhood plan links to begin your search: http://www.seattle.gov/neighborhoods/npi/factsheets/

http://www.seattle.gov/neighborhoods/npi/plans.htm

Northeast Neighborhoods:

• Broadview Bitterlake/Haller Lake
• Aurora Lichton Springs
• Crown Hill - Ballard Hub Urban Village
• Greenwood - Phinney Ridge Residential Urban Village
• Greenlake Residential Urban Village
• Wallingford Residential Urban Village
• Fremont Hub Urban Village

Northwest Neighborhoods:

• Lake City Hub Urban Village
• Northgate Urban Center
• Roosevelt Residential Urban Village
• University Community Urban Center

City-west Neighborhoods:

• Ballard Interbay Northend Manufacturing Industrial Center
• Queen Anne Residential Urban Village
• Uptown Urban Center
• Belltown Urban Center Village
• Pike/Pine Center Village
• Eastlake Residential Urban Village
• South Lake Union Hub Urban Village
• Denny Triangle
• Commercial Core
• First Hill Urban Center
• Pioneer Square Urban Center
• Chinatown - International District Urban Center

City-east Neighborhoods

• Capitol Hill Urban Center
• Central Area

Southwest Neighborhoods

• Admiral Residential Urban Village
• West Seattle Hub Urban Village
• Duwamish Manufacturing Industrial Center
• Delridge Neighborhood Plan Area
• Georgetown
• Morgan Junction Residential Urban Village
• South Park Residential Urban Village
• West-wood Highland Park Residential Urban Village

Southeast Neighborhoods

• North Beacon Hill Residential Urban Village
• North Rainier Hub Urban Village
• Columbia City
• MLK @ Holly Street
• Rainier Beach Residential Urban Village

Neighborhood Resources

After you have determined the neighborhoods you are interested in pursuing, the DON website offers an excellent resource on their website. It is an interactive map that allows you search for a variety of information such as arts and recreation, community, education, parks, permits, public safety, transportation and utilities. The breakdown of the neighborhoods is slightly different from the above categorization, and is divided into 13 sections. Each of section corresponds to the above geographic categorization. Some on the neighborhoods are listed individually such as Ballard due to the high concentration of amenities as well as its larger geographic footprint. Visit the link on the DON website at: http://web1.seattle.gov/MNM/ Also, visit the neighborhood service center closest to your prospective space to access valuable neighborhood centric resources. To find the closest Neighborhood Service Center, visit the DON website: www.seattle.gov/neighborhoods/nsc/.

• Tax Terms
• Tax Cycle
• Property Taxes
• Resources for Tax Payers

Both owners and tenants pay taxes on the properties in which they live and work. Taxes are based on the value of the property, as determined by the King County Assessor's Office.

In Washington, property taxes are a source of income for the state, counties, cities and other taxing districts (i.e. schools, fire department, etc.) to pay for community services. For this reason, property taxes are taken very seriously. The consequences for not paying them will not only harm you personally, but will leave your community without the necessary resources to operate efficiently.

Tax Terms

Key terms you will need to know for this chapter include:

• Assess : To place a value on property for tax purposes.
• Assessment Level: The rate at which property is assessed.
• Assessed Valuation or Value: The result of multiplying a property's fair market value with its assessment level.
• Equalized Assessed Valuation or Value: The result of multiplying the assessed valuation of a property with the equalization factor.
• Equalization Factor: A factor determined each year by the Washington Department of Revenue to ensure assessments are equal between all counties in the state. This is also known as the "multiplier."
  Levy: The total amount of funds requested by a taxing district.
• Property Tax: The local tax on the value of real property, land, buildings and homes. These taxes are a major revenue source for funding local services such as schools, libraries, health services, public works and parks.
• Tax: A mandatory payment to the government, used to fund services.
• Tax Base: The number of resources (i.e. buildings, parcels of land, etc.) available for taxation.
• Tax Code: The specific geographic area taxed by various taxing bodies/districts (i.e. school district, forest preserve, police, sanitation, etc.)
• Taxing District: Local government agencies authorized to tax property within their geographic boundaries. Examples: school districts, park districts, police and fire departments and municipalities.

Tax Cycle

Assessing property taxes is a complicated process that begins with the tax assessor and ends with the taxpayer. Various government agencies play specific roles at each stage. The cycle can be divided into four steps, which we will discuss in the remainder of this section.

Placing an Assessment
Placing an assessment on a property is a multi-step procedure that includes the appeals process.

The assessment procedure begins with establishing land value. Appraisal theory and state law require land to be valued as if vacant. This value is determined by analyzing sales of comparable bare land. The next step is to study sales and market trends of improved (developed or built-on) properties in a selected area. This sales analysis is used to determine total market value based on square footage, year built and other characteristics of the property. From this total value, we subtract the amount determined for land. The balance is allocated to improvements.

Real property valuations are made by the staff of accredited real estate appraisers from the King County Department o f Assessments. The total valuation represents 100% of fair market value. Market value is the amount of money a buyer, willing but not obligated to buy, would pay to a seller willing but not obligated to sell. For residential parcels, fair market value is determined by analyzing recent sales of comparable properties in the same area. Commercial properties also may be appraised using this method or by using the income or cost approach. The appraisal method used will be the one that offers the best evidence of market value.

The Assessor values property on a cyclical basis according to a revaluation plan filed with the state Department of Revenue (external link). At a minimum, real property must be revalued each four years. King County began an annual revaluation program in 1995.

When any change in valuation is made, you will be mailed a Value Change Notice. This notice shows your old and new total values and a division of value between land and improvements. (Improvement refers to buildings, structures or enhancements to bare land.)

Property Tax Valuation Disputes:

If you feel a mistake has been made in valuing your property, contact The King County Department of Assessments at http://info.kingcounty.gov/about/contact/default.aspx . Staff are available to answer questions.

Public Information Hours:

8:30 - 4:30 Monday, Tuesday, Wednesday, Friday

9:30 - 4:30 Thursday

You can also appeal to the King County Board of Equalization/Appeals. To do this, you must file a completed petition form within 60 days of the mail date on the front of the Value Change Notice you receive or through July 1 of the year before the tax is due, whichever is later. The Board of Equalization/appeals is independent of the Department of Assessments. You must present proof that the Assessor has erred in the appraisal. The information you present to the board should include sales of comparable properties in your area. You should also submit other pertinent information that demonstrates the difference between the Assessor's value and the correct value.

If you do not agree with the county board's decision, you may appeal to the State Board of Tax Appeals (external link). You must again present proof that the Assessor has erred in the appraisal.

Assistance may be obtained from the King County Property Tax Advisor.

Information Needed to Appeal

To appeal a valuation to the King County Board of Equalization/appeals, you must show the Assessor has erred in the appraisal. You must clearly show that the assessed value does not reflect market value. The evidence should consist of sales of comparable properties in your area or information on conditions not known to the Assessor.

You must supply adequate documentation to support your claim if your appeal is based on conditions of which the appraisers were not aware -- for example, the land will not percolate or is not suitable for building. You also may request copies of comparable sales information used to value your property.

You do not have to be represented by an attorney to appeal your property assessment.

You may appeal the county board's decision to the Washington Board of Tax Appeals. Like the county board, the state board considers only questions of value. Property owners also can pursue litigation in court.

Questions about appeal procedures can be directed to theKing County Board of Equalization/appeals or the Department of Assessments.

Property Taxes

Determining the Amount of Property Tax

The costs of state and local government determine how much property tax will be levied. These include operating costs of schools, city and county government and other taxing districts such as the Port of Seattle, library, hospital, fire and sewer districts. A large part of each property tax dollar goes to pay off bonds for such capital costs as school buildings and other public projects.

Establishing Tax Levies

The state constitution, statutory levy limits set by the legislature and excess levies approved by the voters are used to calculate the total property tax levy. The tax rate on your property is the figure resulting from dividing the dollar amount required for the taxing district by the total value of property within the district and then adding up the rates of the various districts in which your property is located. The assessed value of your property, multiplied by the combined rate, produces a tax amount which is your fair share of the total property tax levy in your area. The King County Treasurer issues tax statements and taxes are paid to the King County Treasury Operations.

Legal Limitations on Property Taxes

There are four restrictions or limits that affect how high property taxes can go. Each is described next.

The 1% constitutional limit: The primary limitation on property taxes was established by the 55th amendment to the Washington State Constitution in 1972. Article 7, Section 2 of the Constitution and RCW 84.52.050 limit the total regular property tax levy to a maximum of $10.00 per $1,000 of the market value of property. Excluded from this $10 limit are levies for ports and public utility districts.

Statutory maximum rates for districts: RCW 84.52.043 establishes maximum levy rates for the various types of taxing districts (the state, counties, cities and towns, fire districts, and the like). In addition, this statute establishes a maximum aggregate rate of $5.90 per $1,000 of assessed value for counties, cities, fire districts, library districts and certain other junior taxing districts. The state levy for support of common schools is not subject to the $5.90 limit, although it is subject to the constitutional $10 limit.

The 101% limit: In 1971, Chapter 84.55 RCW established a limitation on the increase in regular property taxes for taxing districts. The current limitation each year for most districts is 101% of their highest lawful levy since 1985, plus an additional amount to allow for new construction within the district. The 101% limit applies to the total amount of property tax for a taxing district, not to individual properties.

With majority voter approval, districts may raise the 101% limit in order to exercise more levy authority under statutory and constitutional limits.

Excess levies: Most districts can submit propositions for additional property tax levies to a vote of the people. Local school districts have no regular levy authority (although they are allocated funds from the statewide school levy) so they receive a substantial portion of their funding from voter-approved excess levies. Excess levies must be authorized by a 60% majority of the voters, except for school levies which only require a simple majority, and such levies are not subject to any of the limitations described above.

The Assessor uses the taxing district budget request, the total assessed value of the taxing district and the limitations to set the levy rate . Rates are expressed in dollars per every thousand dollars of assessed value.

When Levy Limits are Exceeded

The regular levy for each taxing district is reviewed by county authorities for compliance with the 101% limit, the district's statutory rate limit and the $5.90 and 1% limits before the levy is made. If the statutory or 101% limits are exceeded by an individual district, then their levy is reduced to a lawful amount.

The statutes establish a district hierarchy for rate reductions if the aggregate limits are exceeded and rates are reduced accordingly.

Calculating Your Taxes

You can estimate what your property taxes will be if you know the "assessed value" of your property and the tax levy rate.

For example, if the assessed value of your property is $200,000 and the levy rate is $13 per thousand dollars of value:

&nbsp	VALUE	200 ($200,000 divided by 1,000)
&nbsp	x LEVY RATE	x $13
&nbsp	--------------------	--------------------
&nbsp	TAXES	= $2,600 estimated tax

Paying Your Property Taxes

King County Treasury Operations is responsible for collecting taxes. Contact them at 206-296-0923.

Tax Rate

&nbsp	2009 Codes and Levies (.PDF)
&nbsp	2008 Codes and Levies (.PDF)

King County Taxing Districts

&nbsp	2009 King County Taxing Districts Codes and Levies (.PDF, 161KB)
&nbsp	2008 King County Taxing Districts Codes and Levies (.PDF, 280KB)

Resources for Tax Payers

King County has a website dedicated to providing information about taxes and services to tax payers at: http://www.kingcounty.gov/taxes.aspx

Other Tax Information in Washington State:

The primary income for the State of Washington is Retail Sales Tax which if you are selling art, wares, or tickets you will need to collect sales tax. For more information, visit: http://dor.wa.gov/content/FindTaxesAndRates/RetailSalesTax/

If your organization is registered as a non-profit organizations 501C3 there are several tax exemptions which you are eligible, information can be found from the Washington State Department of Revenue at: http://dor.wa.gov/docs/pubs/industspecific/nonprofit.pdf

Additionally, the Shunpike www.shunpike.org helps all kinds of small and mid-sized arts groups better manage the business aspects of art. In doing so, we aim to create a vibrant and diverse local arts community where arts groups of all sizes can thrive.

• Evaluating It
• Lease Issues
• Buying Issues

You've found the property of your dreams. Now, it's time to evaluate the property, and make an offer. This chapter helps you to do that.

Evaluating It

One of the first steps in finding a property is to evaluate how well it suits your needs. Pull out the Space Layout Requirement Worksheet and the Space Assessment Worksheet you completed in Chapter 1: Getting Ready. If you haven't completed these worksheets, then you may want to do so before proceeding with this section, especially if you are still trying to figure out what type of space you need.

If you've identified your needs, ask yourself the following questions as you assess the space:

• What fixtures, appliances and/or equipment are included in the price: mirrors for dance studios, welding tables, vent hoods, refrigerator, stoves, lighting, etc.?
• Have there been any problems with the property in the last 2-5 years? If so, what? The Department of Planning and Development can provide you information on the permitted use of the space and reported code violations. You can also use the property research GIS tool on the King County website at: http://www.kingcounty.gov/operations/GIS/PropResearch.aspx. On this site you can research property information by searching the parcel number. Under the "where to get more information" section you can fund information about comparable sales, easements, property tax, property surveys, etc. Even if there are no violations, that doesn't mean that the property is in tip-top shape.
• What were the heating and utility expenses during the last year?
• How much are property taxes and insurance costs for the space? If you are buying, this information is often contained in the agent's listing information. If you are leasing, ask the building owner/manager. The King County Department of Assessments can provide you with the previous year's property taxes.
• Has the seller removed lead paint and pipes from the property? If so, is there a de-leading certificate from a government agency?
• How much does the current tenant pay for the space, and what costs are included/excluded in their lease?
• How long has the property been on the market and/or vacant?
• How long has the current owner owned the property?
• How long has the current tenant leased the property?
• What have other spaces of comparable size and character in the neighborhood sold/rented for?
• What major repairs or improvements have been made in recent years? Is there a warranty for the products or materials? If so, what does the warranty cover, and for how long?
• When do major repairs (i.e. replacement of the roof, new boiler, etc.) need to occur?
• Get a Multiple Listing Services (MLS) printout of the property (residential).
• If you have children, visit the area schools.
• If you have other needs, special requirements or concerns, ask about them.

Now that you have found and assessed the property, you have two choices:

1. Keep looking, or
2. Make a move to claim the space as your own.

If you are purchasing a space, you'll write an offer and complete the Purchase and Sale Agreement. If you are leasing, let the negotiations begin.

Whatever route you decide to take . . . good luck!

Lease Issues

Residential

Negotiations involving residential spaces are usually pretty straightforward: You pay what is quoted, though you might try for a price reduction. Ultimately, your main concerns with a residential lease are:

• The landlord's type of insurance for the building. Does it cover your art activities? Do you need to get more insurance coverage? If so, what type? See Chapter 20: Insurance for more information.
• Get any approvals the landlord gives you for using the space in writing. Do not accept a verbal agreement.

For more information about residential leases, see Chapter 6: Residential Leases.

Commercial / Industrial

Negotiations begin when the landlord presents you with a draft lease. Read it, ask questions, and request changes, deletions or additions before you sign. Never sign unless you have read the entire lease.

Before you begin the negotiations, list rental priorities and terms on which you are flexible. Each clause has an associated value, and some will be more valuable to you than others. For example, if you want a gross lease in order to know your monthly expenses in advance, and the landlord is willing to give you one, be prepared to make concessions in other areas. Because this clause has some value to you, maybe paying a higher rent or signing a longer lease are points you can use as leverage during negotiations.

The draft lease might go back and forth between you and the landlord several times, with changes made on each occasion. Your real estate agent and/or attorney will be very helpful in the negotiation process. If you have undertaken a thorough search, and know market values, you will know when you have reached a fair deal.

Unfortunately, not all lease negotiations work out. If you cannot reach an agreement within your budget, or with clauses that meet your needs, be prepared to walk away from the space. Find an alternative space that can work as a back-up: Knowing that you have other options will give you confidence during negotiations.

Below are questions to ask your potential landlord when reviewing the space. Note the replies. When reviewing the draft lease, make sure that the landlord's verbal answers are consistent with what is written. Depending on the complexity of your lease, get assistance from your attorney or real estate agent (at the very least).

• What uses will the landlord allow or not allow in the building? This gives you a sense of the other users. If the landlord wants no noise, and you are a pianist, you need to consider whether the space is appropriate for your use. Likewise, if you are considering living in the space, and the landlord specifies no residential use, keep on looking.
• Who is obligated to maintain the premises and repair damage? You don't want to be responsible for damage caused prior to your tenancy.

Financial questions to ask:

• What is the rent?
• Is this a gross or net figure?
• Who is responsible for property taxes, utilities and other charges? If it is the tenant, what are the additional charges above and beyond the rent?
• If this is a net lease, what are the property taxes in the area?
• What portion of the common areas are you paying for, and what are you allowed and not allowed to do in the common areas?
• During what hours will utilities and services be provided? Many commercial leases specify that electricity, heat, water and elevator service will be provided during business hours only. You might need these services 24/7. Make sure if you work during "off" hours, that the services you need will be available.
• How many years is the landlord willing to rent the premises? Usually, the longer the lease, the greater your stability. In addition, longer leases may provide you with more leverage in negotiations.
• What will the rent increases in each year of the lease be? Will there also be increases in the additional charges (CAM, property taxes, insurance, etc.)?
• How will additional charges (CAM, property taxes, insurance, etc.) be divided between the different tenants?
• Will the landlord grant you the option to renew the lease when the term expires? This option is advantageous, and should be included in the lease.
• Are you allowed to sublet or assign the lease to another party if you decide to leave before the tenancy terminates? If you sublet your space to another party, you are still responsible to the landlord for rent and all other charges should your tenant leave without paying. In an assignment, you transfer your rights and obligations under the lease to a new tenant and are released from these responsibilities - legally and financially. The lease should give you the right to do either of the above, and deny the landlord the arbitrary power to withhold consent for a replacement tenant.
• What other options are open to you should you need to terminate the lease, and are not interested in subleasing or assigning the space? Perhaps include a clause that stipulates that, with a certain number of days' notice and possibly a termination payment, you will be allowed to end the lease. Make sure any agreement you make is clearly described in the lease.
• If you are leasing the space as a business or nonprofit, does the landlord expect you to guarantee the lease personally? This addresses whether you are going to co-sign individually for the lease, which would entail you becoming personally and financially responsible if the business or organization defaults on the lease.

For more information about the ins and outs of commercial and industrial leases, see Chapter 7: Commercial and Industrial Leases.

Buying Issues

You have decided to move forward and make an offer on the space. Think about what you are willing to pay, and under what conditions and terms. Also, ask the following:
• How soon do you want to take possession of the property?
• What compensation should you get if you can't take possession of the property by the stated date?
• What repairs do you require?
• If you are purchasing a multi-unit building, do you want the tenants to move by the time you take possession of the building, or can they stay?
• What equipment or appliances would you like to purchase with the property? Do you want a washer and dryer, welding tables, dancing bars, etc.? If so, how much are you willing to pay? Or do you not want these items at all, and how much do you want knocked off the price?
• Who will pay which closing costs?
• For residential properties, review the seller's disclosure form (called Form 17) and look for problems. By law, sellers are required to disclose in this form any latent or hidden defects or problems with the property that s/he knows exists and will affect the property's value. Your real estate agent and/or attorney should review this document as well. Click here for an example of a disclosure form.

Once you have thought about what you will and will not do to obtain the property, you will then sign and detail your offer. Once the seller signs your offer, it becomes a legally binding contract called the Purchase and Sale Agreement, or P&S. This contract is a legal agreement between you and the seller that binds both parties to the sale of the property and prevents the seller from selling it to someone else while the contract is in effect.

After you've made an offer, and the contract has been signed by both parties, the seller's agent will require you to make a deposit in order to hold the property. These funds are known as Earnest Money, and -- depending on the stipulations of your contract -- might be forfeited if you fail to live up to the terms outlined in the agreement. Failure to fulfill the contract's terms can also result in you being liable for damages incurred by the seller if you fail to meet your obligations.

The P&S contract is one of the most important documents you'll sign during the entire purchasing process. Failure to live up to its terms can have serious financial and legal consequences. Your agent should assist you so that you can make an offer you can fulfill. Have your attorney negotiate the terms of the contract as well.

When drafting the contract, address the following to protect your rights to either void or renegotiate it:

• The building inspection does not meet your requirements. Define your standards, and what you will not accept. For example, you'll lower your offer if the roof needs to be replaced in the next 2-5 years.
• You are unable to secure financing to purchase the property by a set date.
• Damage or vandalism to the property occurs, or is discovered after the P&S is signed.
• The appraisal of the property is below the selling price (this might affect your ability to secure financing for the property).
• The survey of the property does not meet your requirements. For example, the survey reveals the lot is 100 square feet smaller than quoted.
• The deed has liens or other problems.
• Include an attorney approval period, during which both sides can make changes to the contract on almost everything except the price, dates and real estate agent's compensation (if applicable).
• Any additional issue that would prevent you from purchasing the property.

Buying a property is one of the most expensive purchases you will probably ever make, so take your time to think about what you can and cannot compromise on before making an offer. Once the property is yours, so are the payments and any problems that come with the space.

For more information about purchasing properties, visit the purchasing information chapters 8 - 12.

• Costs
• Inspection Reports
• The Process
• Art Questions for Your Inspector
• Structure/Exterior
• Electrical
• Mechanical Systems
• Heating and Air Conditioning
• Plumbing
• Basement and Foundation
• Kitchen
• Interior
• Inspection Results
• Ch. 17 Resources

Before signing on the dotted line, conduct a building inspection in order to assess the physical condition of the property, and to identify deficiencies and repairs. In most cases, your lender will require an appraisal of the property. While the appraisal might tell the lender if the property is worth the mortgage, an inspection ensures that the property is worth your investment by giving you an idea of the property's condition.

An inspection is an objective visual examination of the physical structure and mechanical systems of a property, from the foundation to the roof and all of the components in between. Building inspections should be conducted by a state licensed Property and Building Inspector. While other professionals - architects, structural engineers, municipal inspectors and general contractors - can assess property, their results are not considered an official property inspection.

Washington State inspectors are regulated by the Washington State Department of Licensing, through the Property Inspectors License Act and Administrative Rule. For more information about hiring and working with inspectors, review Inspectors in Chapter 4: Professional Services. You can also contact the Washington State Department of Licensing at http://www.dol.wa.gov/business/homeinspectors/hinews.html.

Please Note: Only residential inspectors are regulated by the State of Washington, Commercial Inspectors are not, ensure your inspector has experience inspecting the type of property you are purchasing.

Usually you hire an inspector for a property you are seriously thinking of purchasing. In addition, you should also get an inspection on properties with long-term and expensive leases, which stipulate your responsibility for maintenance and upkeep or repairs.

An inspection is important for three primary reasons:

1. It reveals to you the condition of the space and any potential problems.
2. This in turn gives you an idea of the additional monies you might need to bring the space up to standards.
3. Problems discovered during the inspection could be used to negotiate a lower price.

Inspectors will look for water damage, drainage and landscape grading problems, and cracks in the ceiling and walls. Ask your inspector what specialized and optional tests they offer in addition to the standard inspection, such as radon, lead, carbon monoxide or termite/wood destroying organism (WDO) inspections. The inspector is not required to complete a WDO exam, but should tell you if one is warranted.

The inspector will provide a written inspection report addressing all systems and components of the property, usually within two business days of completing the inspection. Any aspect of the property not inspected should be itemized and noted in the report , along with an explanation. The report should detail the condition of each aspect of the property and its mechanical systems (i.e. the electrical, heating, plumbing, the septic system, etc.); clearly describe the problem; and, if known, explain why the problem occurred. The best reports will tell you how to correct the problem, as well as estimate the cost to repair.

At the conclusion of the inspection, the inspector should sit down with you for at least an hour to discuss his/her findings.

Costs

The cost of a property or building inspection varies widely, and can be influenced by the property type and size, time of year, type of inspection, and inspector's experience. The average cost of an inspection in the Seattle area can be as little as $250 for a single-family property, up to $2-4,000 or more for commercial properties, depending on size.

Because the price of an inspection is typically based on a cost per square foot, be cautious in choosing an inspector. Many newly-licensed inspectors must respond to market pressure when they first start out, and keep their prices low. Cheaper does not always mean better.

A good inspection company is usually booked 3-5 days in advance, and charges more than the minimum. Most single-family property inspections start at about $350 when inspected by qualified professionals. Prices vary more drastically for commercial and industrial spaces.

There are no special licensing requirements for commercial property inspections in Washington State. When choosing someone to inspect a commercial or industrial property, ensure that they have at least five years of experience inspecting such spaces, and have completed inspections for at least 50-100 properties. If you have used or know of a competent inspector for residential properties, ask him/her to refer someone experienced with commercial spaces.

For more information about hiring and working with inspectors, review Building Inspectors in Chapter 4: Professional Services.

Inspection Reports

At minimum, your inspection report should provide descriptive and inspection information on the following:

• Heating and central air conditioning systems (depending on weather),
• Plumbing and electrical systems,
• Interior walls, ceilings, floors, windows and doors,
• Condition of the roof, attic and visible insulation,
• Foundation, basement and other visible structures,
• Exterior condition, and
• Grounds or lot information.
• Pest Infestation - although this is not a standard inspection protocol, ask if you inspector is certified to inspect for pests as this is an important piece of information for the health and status of the property.

Insist that your inspection includes estimates of repair costs for any damaged areas and systems, in order to estimate any additional funds required to bring the property up to your standards and space requirements.

Inspectors generally issue two types of reports: checklists and narrative reports. Checklist reports highlight features and systems checked during the inspection, and include basic notations about the property's condition. Used alone, checklists are often inadequate. If your inspector uses this format, it should contain at least 400-500 inspection items. Better checklists tie you into an encyclopedic-like manual of 200 pages or more of background information and explanations of deficiencies.

Narrative reports can be extremely long -- 60-80 pages or more -- but provide substantial information on the property. Computer-generated written reports might not require the inspector to address nearly every aspect of the property like an extensive checklist does.

Examples of inspection reports

• Example I : http://www.heimer.com/inspections/sample_report.html
• Example II - Residential and commercial reports : http://www.real-estate-inspections.com/commercial-building-inspection-reports.php
• Example III - Examples of many reports: http://www.reporthost.com/samples.asp

The Process

Attending the property inspection is critical. Inspections usually take between 3-4 hours, depending on the size, type and age of the property. During the inspection, follow the inspector around as much as possible (s/he may go into crawl spaces or on the roof) and ask as many questions as you can. Bring a note pad and camera, and take notes and photos. Find out as much as possible about the property.

When the inspector arrives, s/he should have a ladder, flashlight, other measuring equipment -- and experience. The number of properties the professional has inspected indicates skill level. Inspection industry standards consider 5-10 years in practice the minimum for a competent, qualified inspector.

Nearly all buildings, even new ones, have problems, and might require repairs. The goal of the inspection is to discover whether or not the property has major deficiencies (needs a new roof, foundation problems, etc.) and, if so, what it will cost you to correct them. The final report will tell you which repairs need to be completed before you move in, and which can be postponed.

The remainder of this section discusses the types of problems your inspector will be looking for when examining a space. This discussion is involved, so click here for a basic checklist to evaluate potential properties. For additional information on the inspection process, read Inspect your Inspector checklist.

Review the detailed portion of this section to better understand what your inspector is looking for in a property, and to better evaluate spaces you view during your initial visit. This will also prepare you to ask questions about a property's compatibility with your artistic and financial needs, especially if extensive repairs are warranted. Neither the following discussion nor the checklists should be substituted for a professional inspection.

• Click here to review a glossary of inspection industry terminology.

TIP: Check out the HGTV television show, House Detectives for additional information on how the inspection process works. You can also find information on HGTV's website.

TIP: Inspectors can only report on visually detected problems. If the seller does not disclose any major problems with the property, you might end up paying for the undiscovered repairs yourself. A property inspection is not a guarantee or warranty.

TIP: While an inspector might provide an estimate of the cost of repair, be wary of property inspectors who offer to repair problems found during the inspection.

TIP: You can use the information obtained in the inspection report to negotiate a lower selling price or lease. The downside is that this could cause the seller to reject your offer. Think about the consequences: Do you say nothing and take on paying for additional repairs, or do you renegotiate?

Art Questions for Your Inspector

Discuss these questions, which are specific to your art practice and art space needs, with your inspector:

• Does the property's electrical system meet your energy needs? Bring information on your equipment's energy requirements for your inspector to review.
• Will the floor support heavy equipment (visual), installation of sprung floors (dancing), etc.?
• Does the property's ventilation system support your needs? Can a ventilation system be easily installed or upgraded to support these needs?
• If applicable, ask if and where certain residential features (kitchen and bath) can easily be incorporated into a commercial space.
• Can the space be opened up and/or closed off by removing or erecting walls? Where are the load-bearing walls?
• If you have a performance organization will the space support your patrons (adequate plumbing for bathrooms, entrance and exit support, etc.)

Your inspector might not be able to provide specific solutions to all issues that may arise from these questions. You might need to speak with other space related professionals, such as an architect, structural engineer or trade professional (general contractor, plumber, electrician, etc.). However, your inspector can give you an idea about the capabilities and needs of your space and, most importantly, its condition.

Structure/Exterior

You and your inspector should walk around the outside of the property to scan the exterior, chimney, roofing, gutters, siding, driveway, retaining walls and landscaping. Your inspector will look for deterioration or recent repairs that might indicate problems, and check that rainwater and yard runoff is channeled away from the property's foundation via gutters, downspouts and splash blocks. Water-collecting around the foundation can cause flooding in the basement or structural problems. When reviewing the interior space, the inspector will also check for water seepage.

S/he will look for signs of broken or chipped masonry (stone and concrete), big cracks, flaking and peeling paint or attempted paint cover-ups, old windows, issues with the integrity of the siding, and cracks in roof tiles and retaining walls, and will note any large trees where falling branches could damage roofing and electrical lines. In addition, tree roots can be a potential problem if they start pushing against the property's foundations; trees should be at least five feet from the building.

Your inspector will determine the kind of siding on the property and look for rot or insect damage. When a wood structure, stucco building or brick veneer building sits right on or within eight inches of the earth, certain structural problems can develop.

The roof is one of the most important elements of a property, and can be very expensive to replace. Ensure that your inspector pays particular attention when assessing the roof. In general, all roof lines should be relatively straight; when you stand back from the property, you should see a straight line with absolutely no dips or curves. The presence of slants and curves is a good indication that the roof is in need of repair.

If possible, the property inspector will get on the roof to more closely inspect its condition and flashings. Flashing is the flexible material placed between the actual roof surface and anything that penetrates it, such as a pipe, chimney or -- on a flat roof, the parapet walls. Ninety percent of roof leaks are due to deteriorated flashing. The inspector should also examine the chimney, skylights, antennae and anything else connected to its surface.

When it isn't feasible to get on the roof, the property inspector should use binoculars to gather as much information about its condition as possible. In addition, the inspector will look closely at those areas known to be susceptible to water damage, such as near the chimney, pipes, flashing, and areas around torn roofing. S/he will also check these areas carefully during the interior inspection.

TIP: Roof problems constitute nearly 60% of all lawsuits pertaining to construction issues.

TIP: Most people don't understand the importance of regular property maintenance to prevent rot. Don't be surprised if you need to invest some money into fixing up the property; this could be as small as painting the front porch, or as large as replacing the roof.

Electrical

Find out what type of circuitry is present in the property. Some wiring, such as knob and tube circuitry (used in pre-1920 buildings), might need to be completely replaced when you do an electrical upgrade. Buildings built before 1960 are typically underfed electrically, and might not meet your needs; this is especially true if you work with high-energy use equipment such as welding machines.

Investigate the cost of upgrading the electrical service and wiring. By law, inspectors must inform you if a property has solid aluminum branch circuitry. This type of wiring must completely replaced for any type of property.

Pay special attention to the use of extension cords and other outlet expansion methods. This usually is an indication of an inadequate number of outlets and circuits in the space. Check that the fuses, circuit breaker, wiring and receptacles can support your needs, as well as how many amps and the size of electric service to the building. The inspector will look for burned wiring, overused circuits, improper wiring connections, improperly installed wiring and other components of the electrical system.

Mechanical Systems

The inspector will look for adequate heat and/or air conditioning. Ask them to check the age and life expectancy of all systems such as water heater and air conditioning units, so that you will know if and when replacements will be due. Furnaces usually have a life expectancy of about 12-20 years, while air conditioning systems last for 10-12 years.

In addition to checking the systems, the inspector will look for buried oil tanks, asbestos and other environmental concerns. Most buildings built before 1978 will probably have lead paint and asbestos somewhere on the premises. The U.S. Environmental Protection Agency recommends leaving them alone if they are contained and in good shape, as they will not pose a considerable threat if in this condition.

If, however, the lead paint begins to peel, the asbestos insulation is deteriorated pipe-wrap (which looks like gray cardboard or plaster wrapped up in old cotton cloth), or you plan a major renovation, you will need to hire experienced professionals who can work with and handle these substances safely and properly. For more information about lead-related illnesses, visit the Washington State Department of Public Health and U.S. Environment Protection Agency's (EPA) Websites. Information about asbestos can also be obtained from these sources.

Other environmental and health issues the inspector will look for include:

• Copper piping installed before 1990 -- specifically the lead content in the sweat joints.
• Supply piping installed before 1975, which was typically galvanized and may have calcium or magnesium (which is harmful to your health).
• Water service lines installed before 1987, which might contain lead pipes. See the EPA's Website for information on dealing with lead pipes and lead in household water.

Heating and Air Conditioning

The inspector will check for satisfactory distribution of heat and conditioned air. At least one source of heat per room (i.e. vent, radiator, etc.) is required; the heat source must be permanent to the room, and if it is forced air passing through an attic or crawlspace, the pipes should be insulated. S/he will also check that heat and air conditioning distribution piping or ductwork is in good condition (not clogged, no holes, etc.).

A 15-to-20-year-old furnace may need to be replaced due to its age. Flickering flames, a series of flames in the furnace or rust problems indicate that it's time for a new furnace. This might also be a sign of a damaged heat exchanger, which is unsafe. S/he will also check for leaky boilers, which are normally a sign that replacement of the unit is warranted.

Proper heat distribution is important. To get an idea if the boiler or furnace can provide sufficient heat, it should be 50-100 BTU per square feet of space. The size is found usually inside the front panel of the equipment. If the system has less than 40 BTUs per square foot, you will have a heating problem in the winter.

If the building has an abandoned oil tank - above or below ground - it might need to be removed. Vapors from the tank are flammable.

The central air conditioning system should be tested after a 24-hour period during which the weather has been at least 65 degrees Fahrenheit. This will ensure that it is cooling properly. Unfortunately, if you are reviewing a property in the winter, the inspector probably won't be able to adequately check the A/C. Make sure you check the unit when summer arrives. Ice build-up in the unit is typically an indication that the unit needs refrigerant, and that you must service the system.

Plumbing

The inspector will check to see what type of pipes are in the property, and make sure that all faucets get water and that drains work properly. Water pressure should also be checked. One way to evaluate the water pressure and drainage system is to turn on all faucets and flush the toilets; this way you can see if the water trickles out, the drains are backed-up or the toilet bowl has a hard time flushing.

Pipes made of lead or galvanized steel may need to be replaced. Your inspector should check the water for excessive levels of lead and other contaminants. For more information about clean water issues in interior spaces, visit theU.S. Environmental Protection Agency's Website, as well as the resource section of the Alliance for Healthy Homes.

The inspector will look at the tiles and caulking around the shower and tub to if see they are firm, or if they have been or need to be repaired. S/he will also check for moisture problems in the walls and floors near any water sources on the property, near the plumbing and near windows, and ask about any past leak and mold problems.

While the inspector will normally use a moisture meter for this, signs of staining are also a reliable indicator that moisture problems exist. Touching stains to see if they are still wet is also helpful. If you see stains on the floor, wall or ceiling, inquire about them immediately.

Basement and Foundation

Look for signs of water stains or other damage, and ask If the basement has had a history of flooding. Water seepage and dampness indicates problems with the foundation, and might lead to mold. The basement floor should have a drain; check to make sure it works.

Mold can cause allergic reactions, rashes and other serious health effects if not properly eliminated. For more information about mold issues in interior spaces, visit the U.S. Environmental Protection Agency's Mold Page Website, and the resource section of the Alliance for Healthy Homes' Website.

Check the basement crawl space to assess the condition of the foundation walls and the structure's framing. If the inspector finds problems, an engineering analysis will be required; these can cost between $500-$1,000 for residential spaces, and up to $5,000-10,000 or more for a commercial property, depending on the property's size. You are responsible for covering this fee.

An engineering analysis is usually required if foundation cracks, fire or termite damage, or another specific issue requires closer examination. It might take 1-2 weeks to receive the results. If you need an engineering analysis, hire a structural engineer designated by the State of Washington as a Licenced Engineer or P.E. See Chapter 4: Professional Services for more information about structural engineers.

Kitchen

For residential spaces, the inspector will check how old the appliances are, and make sure they function properly; most appliances have a 12-year life expectancy. S/he'll look under sinks and around dishwashers and refrigerators for flooring issues caused by water seepage. In addition, s/he'll check for leaky pipes and dampness, and for adequate electrical outlets above countertops to accommodate smaller kitchen appliances.

If you wish to convert a commercial space to live/work use, have the inspector identify any potential problems with the area where you will install the kitchen.

All outlets by wet areas must be GFCI-protected. GFCI stands for Ground Fault Circuit Interrupter, and is a safety device designed to protect you from harmful or deadly electrical charges.

Interior

Pay attention to the condition of the property's interior. Crooked walls and floors might indicate recent settling, while clouded, double-pane windows might call for replacement.

Regarding residential spaces, ask your inspector to check the type and condition of the flooring beneath any carpeting. In properties with accessible, floored attics, the inspector will look for roof leakage. Inquire about the type and level of insulation, as well as utility bills. Ask about the use of asbestos and urea formaldehyde foam insulation, which can be hazardous to your health, as well as lead paint on the walls and windows. Make sure your inspector checks for all of these substances in the space.

If children will live or work on the premises on a regular basis, find out if the property features any lead paint; lead can cause lead poisoning. Properties built before 1978 typically have lead paint, so be certain that your inspector looks both for lead paint and lead pipes. Discuss this with the inspector before the inspection. Ask the owner if s/he knows if the property has lead paint, or if it has been removed.

Take special precautions when remodeling spaces that have lead paint and asbestos insulation. These substances are typically not a problem when contained properly, and the U.S. Environmental Protection Agency recommends leaving them alone if they are in this condition. If, however, the lead paint begins to peel, the asbestos insulation becomes frayed and deteriorated, or you plan a major renovation, you will need to hire experienced professionals who work with and handle these substances safely and properly.

For more information about lead-related illnesses, visit the Washington State Department of Public Health Website, as well as the U.S. Environment Protection Agency's (EPA) Website. In addition, the Alliance for Healthy Homes' Website has extensive information and resources on both lead and asbestos, as well as other space-related health issues.

Ventilation is important. In residential spaces, improper ventilation in the attic can lead to roof deterioration. Commercial spaces might have specialized ventilation systems that need to be checked by a ventilation expert. For more information on ventilation issues for commercial spaces, review Chapter 22: Safe and Healthy Spaces.

As with the exterior of the property, ensure that the interior is checked for signs of insect damage and infestation, and rodent problems.

Inspection Results

After you have examined the space and received your inspection report, you might decide:

• To withdraw your offer, as there are too many problems;
• To keep the space, and either have the seller agree to fix the problems or lower your offer to fix the property yourself;
• You still have questions and concerns, and have your inspector or other professional further investigate the space.

If you choose to pursue the property, read Chapter 15: Property Taxes. If you need to renovate: visit Chapter 13: Important Information from the City of Seattle Department of Planning and Development

Chapter 20: Rehabbing Your Space and Chapter 22: Safe and Healthy Spaces may assist you.
If you plan to keep looking, read Chapter 14: Seattle's Neighborhoods to get ideas on where to go in the City.

TIP: Obtain an inspection report from the inspector. The report should indicate that all areas of the property have been checked, and outline in detail the condition of each area of the property and its mechanical systems. A good report will provide an estimate for repairs.

Resources

Association of Construction Inspectors
Professional organization of inspectors that specialize in construction.

National Association of Certified Home Inspectors (NACHI)
A national searchable database of certified home inspectors and a photo gallery of various sections of the house that need to be reviewed during the inspection.

The American Society of Home Inspectors (ASHI)
Offers information about the inspection to homebuyers and a database of area inspectors associated with ASHI.

• Record Keeping
• Surprises
• Tax Deductions
• Depreciation
• Selling Property

• Insurance Terms
• Regulation
• Residential Issues
• Commercial / Industrial Issues
• Insurance Policies
• Credit and Insurance
• Types of Insurance
• Insuring Art and Equipment
• Ch. 19 Resources

Buying insurance can be expensive, but living and working without it can cost much more in the long run. Insurance protects you from financial ruin in the event the building in which you live or work, and the contents of that space, are damaged and/or lost. Insurance can also defend you in a lawsuit.

This chapter discusses various aspects of insuring your space, including understanding insurance policies, types of insurance policies, insuring artwork and equipment, and purchasing insurance.

Insurance Terms

To grasp the ins and outs of an insurance policy, you must first understand the industry's language. Basic insurance terms:

Benefit : The amount of money paid by the insurance provider when you suffer damage, injury or loss covered by your policy.

Claim: A notice by you or other injured parties to the insurance provider that a loss (injury, damage or destruction of property) has occurred, and that you are seeking payment of benefits.

Clause: A section of the policy that deals with a specific subject. For example, an Exclusion Clause might detail which hazards and perils the insurance provider will and will not reimburse you for.

Coverage: The amount of protection against damage, injury and loss the insurance policy will provide.

Exclusions: Conditions or circumstances that the provider will not cover. For example, your homeowner's policy might exclude floods. Exclusions are listed in the policy.

Deductible: The amount of money you must pay before your insurance provider will provide coverage.

Hazard: A specific situation or condition that increases the likelihood of damage, injury or loss. For examples, an icy sidewalk or building located in a high crime area (which has an increase chance of being burglarized).

Indemnity: The amount of money you are reimbursed by the insurance company when you suffer a loss. This amount is predetermined and outlined in your policy.

Policy: The written document (contract) between you and the insurance provider that details the type of coverage you have, the benefits you will receive, the amount and payment cycle of the premium and the hazards and perils the insurance company will and will not cover.

Premium: The payment required to maintain your insurance coverage for a certain period of time.

Peril: The cause of the damage, injury or loss.

Rider: This is an extension added on a policy that deals with a specific issue or condition of coverage, such as how to cover an artist's studio.

Risk: The degree of chance that damage to property, injury or loss will occur.

Term: The period of time (number of days, months or years) that your insurance policy is in effect. The term has a specific start date and end date.

For more insurance terms, check out Insurance Finder, Insure.com and Life Ant.

Regulation

The Washington State Office of the Insurance Commissioner: http://www.insurance.wa.gov monitors and regulates the insurance industry in Washington. Its primary objective is to protect state residents and ensure insurance providers can pay benefits to those who file claims.

The Office of the Insurance Commissioner can assist you in obtaining information about an insurance provider's license. You can also file complaints about insurance companies to the Division, as well as contact them with insurance questions 24 hours per day. For more information call 1-800-562-6900 or email the office at cap@oic.wa.gov

Residential Issues

If you want to work in a residential space, insurance issues can become complicated. Not only are you balancing the requirements of a lease or mortgage company, but you are also dealing with zoning laws and building codes that regulate use of residential space. Added to this already complex formula is the need to protect your property from damage or loss at a price you can afford.

It might be difficult to locate an insurance policy that will cover your live/work arrangement. Some providers will cover the living portion of the space, but not the workspace -- or exclude certain art or business activities from coverage. Other policies might cover both needs, but cost too much. Don't panic: Understanding the issues involved in insuring residential space enables you to better locate the type of policy that meets your needs, in terms of both coverage and costs.

When it comes to insuring a workspace in a residential setting, providers consider two primary issues:
1. Does your use of the space require special and/or additional coverage?
2. Are you using the space for commercial purposes?

If you own your space, read and understand the fine print of the homeowner's policy. Some policies will specifically exclude coverage for certain activities such as welding or operating a business on the premises.

If you convert your third bedroom into a small clay studio, and teach art workshops out of your home, you might be in danger of not being covered if a disaster strikes. This can occur if the insurance company views either activity - the teaching or the studio -- as a business, and voids the policy.

This may also be the case if you are renting a space in another residential building -- for example, if you rent the room in your neighbor's coach house as a rehearsal space. In addition, if your workspace is in an outbuilding such as a coach house or work shed, your homeowner's policy might not cover the building at all, and separate coverage for this space might be required.

Some providers offer insurance that specifically covers an art studio in residential spaces. This type of insurance policy is often known as an artist studio rider, and can be added as an addendum to an already-existing homeowner's insurance policy. Some home-based business policies specifically cover arts and crafts ventures.

Whether you do or do not collect income from your artwork can also determine if your primary homeowner's insurance policy will be honored. Some policies allow for hobby use, meaning there is little to no financial gain from the activity. However, the moment you began making money from the activity on a consistent basis, your "hobby" might be considered a business, and your coverage voided. Certain hobbies might be excluded from coverage under a hobby clause.

In the above example, if you rent the coach house studio, you still must check the property owner's policy to make sure the building is covered, and that your activities in the space are not excluded. Even if you do not sell your artwork, the homeowner's insurance provider might view the rental arrangement as a business and void the policy, leaving you at risk in the event of a disaster. In addition, you will probably need to obtain additional insurance to cover your personal belongings, art work, equipment and supplies.

If you are renting a live/work or residential-only space, obtain adequate coverage to protect both your art and other property (clothes, furniture, equipment, etc.). Although a conventional renter's insurance policy will cover your basic belongings, make sure your policy does not exclude artwork, supplies and expensive equipment. If so, you may need to obtain additional coverage.

Just as if you owned the space, make sure the building owner's policy is not voided if you run a business out of your unit, or use the space for certain activities (i.e. welding, dance studio, etc.). If you are renting a residential space, take these precautions regardless of the type of space you are using (house, flat, apartment, etc.).

Ask your landlord which type of coverage s/he has on the building, and make sure they agree -- preferably in writing -- to your use of the space. If you use the space in a manner inconsistent with what the lease allows, you might not be covered in the event of a calamity. You could also face eviction.

For more detailed information on insurance issues associated with leasing residential property, see Chapter 6: Residential Leases

Commercial / Industrial Issues

The primary difference between insuring commercial or industrial space and insuring residential space is price, with commercial and industrial insurance almost always more expensive. When renting commercial or industrial space, ask the building owner and/or manager about which types of policies s/he has, amounts of coverage, and any exclusions that might affect your use of the space. In addition, if you are renting a commercial space, obtain your own policy that specifically covers your space, equipment and artwork.

If renting in a multi-unit building, check the owner's policy. Many insurance providers will not cover certain hazards and perils unless they can insure the entire building. In addition, if you have a net lease you might be expected to assist in paying these costs, which could become expensive due to other tenants' activities. Ensure that your use of the space is compliant with the lease. For more detailed information on insurance issues associated with leasing commercial and industrial property, see Chapter 7: Commercial and Residential Leases. For example, perhaps you operate a small office with two employees, but your neighbor runs a large restaurant that is always busy. The risk from high public use of the restaurant space might inflate the price of the liability insurance. You might be expected to help shoulder the cost of a service you do need.

If you are purchasing a commercial space, expect your insurance premiums to be higher. Depending on whether the space is owner-occupied or leased to others, you might face a variety of insurance policies, which are covered later in this chapter.

TIP: Being under-insured involves risks. Read the fine print to be sure you have the type of coverage you need.

TIP: Also be careful about over-insuring.

TIP: Most property insurance policies do not cover artwork. You might have to add an insurance rider or get an entirely different policy to cover your work.

TIP: If you are considering purchasing a space, see Chapter 8: Buying Real Estate and Chapter 11: Models of Ownership for more information.

Insurance Policies

Insurance policies are complicated, and sometimes involve copious amounts of "fine print" and technical language through which you must muddle. When purchasing a policy, you need to ask plenty of questions to make sure the policy you are buying provides you with the type of coverage you want and need.

Purchasing insurance and deciding which provider to choose can be a confusing and overwhelming task, given the number of options available. The insurance market is highly competitive, so shop around.

When comparing policies, evaluate the same aspects of both policies: deductible amounts, exclusions, inclusions, limits, caps and other stipulations. Perceived bargains might actually leave you under-insured, once you take a closer look. Or, you might over-pay for services that can be found at a less expensive price.

Key things to consider when reviewing a policy include:

• The company's reliability
• Exclusions
• Clauses in the package
• Limits on the coverage
• Deductible amount
• Whether it is a replacement cost or actual cost policy
• Whether it will cover all your needs
• If you get multiple policies with the same company, and/or discounts
• Discounts the company offers

Premiums

While you policy-shop, remember that the premium is based upon the risk the provider associates with the property, and how the space is used. While rates for a commercial property will most likely be higher than those for a residential space, providers look at a host of other issues when determining the cost of your premium, including:

• Is the building owner-occupied?
• Does the building have a single tenant, or many?
• How will the space be used (residential vs. commercial)?
• Are security and safety systems in place (sprinkler systems, security guards, etc.)?
• What is the building's age and location?
• What is the building's proximity to emergency services such as fire stations?
• What other types of businesses and organizations are in the building?
• What types of activities will occur in the building?

The insurance provider will also examine your claim history and the number of years you have been with the company. Taken together, these factors will influence the type of insurance package you purchase, and the amount you must pay for the coverage.

Other major factors that influence the cost of your premium include:

Amount of the Deductible: The deductible is the amount you pay when a loss occurs. For example, if you have property insurance with a deductible of $500, and a camera worth $950 is stolen, you pay the first $500 and your insurance will cover the $450 remainder. Typically, a higher deductible translates into an overall lower cost for the policy. Considering that you may only make a claim when a major issue arises, a high deductible may be a good option when obtaining coverage.

Replacement Cost vs. Actual Cash Value: Let's consider the same camera, which you bought new for $950 four years ago, which has depreciated in value and is now worth only $650. Due to inflation, it would cost $1,200 or more to purchase the new model. With a replacement cost policy, you will be covered for the full cost of replacing the item with a similar item of the same type and quality. In other words, the insurance provider will give you $1,200 to spend on a new camera.

An actual cash value policy will only reimburse you for the value of the item at the time it was stolen or damaged. In this scenario, you would only be reimbursed $650 for the camera; $550 short of what you need in order to replace the stolen item with one of comparable performance and value.

Premiums for replacement cost insurance are more expensive, but depending on the cost of replacing your equipment, might be worth the expense. Even with a replacement cost policy, however, the policy might have payment caps that limit the maximum costs you will be reimbursed per incident on any particular item. Using the above example, although it costs $1,200 to replace the camera, if the policy has a limit of $1000 per incident for each camera, the most you could collect is $1000.

Occurrence vs. Claims Made: Another clause that affects the cost of your policy is whether your coverage is a claims-made or occurrence policy. The primary difference between these two types of coverage deals with the timing of filing claims. With a claims-made policy you must file your claim during the time period that coverage is in effect. For example, say you only have two weeks left on your policy when a major storm hits, knocking a tree on your roof, which requires the entire roof and bay window to be replaced.

In order for you to be covered by a claims-made policy, you would have to file the claim before the plan expired in two weeks. However, suppose the storm caused structural damage that you did not discover until months after the policy ended. If you were covered by an occurrence policy you would be protected, because the incident occurred while your policy was in effect.

Again, a claims-made policy would not cover the damages because you discovered the problem and filed the claim after the policy ended. As you can imagine, the ability to go back months, even years to file a claim on an expired policy comes with a significant difference in price.

Costs

Insuring space can become expensive, which often deters artists from obtaining the proper coverage for their spaces. While you may not be able to afford the crème de la crème of insurance packages, you should try to obtain at least a basic coverage that will replace your belongings in the event of catastrophe or theft. This is especially crucial if you have expensive artwork and/or equipment in your space.

Shop around when looking for insurance. Many companies have a variety of options at a variety of prices. Some non-profit or professional organizations also provide reduced insurance coverage to their membership. In addition, many small business organizations offer group rates to their members. On-line services such as Direct Quote, Insweb and Select Quote provide information on several insurance packages from a variety of providers upon completing a questionnaire.

For space, coverage can range in price from a few dollars a month to a few thousand per year. Some basic renter's insurance policies can be as low as $20 per month, while art studio insurance policies that provide coverage for artwork off-site and in transit can be around $100 per month. Certain types of policies offer a standardized coverage package for a set price as long as your space and/use falls within their guidelines. This is typically true for specialty coverage.

Your premium's price depends on so many factors that the best way to find what it will cost you to insure your particular space is to start your search and comparison process.

Purchasing

There are three principal channels through which insurance is sold - brokers, agents and direct sellers.

• Insurance Brokers: Brokers sell the products of many different insurance companies and therefore can offer an array of choices. Be aware that no one broker represents all companies, so if you would like a selection of quotations to choose from, you should consult with more than one broker and ask which companies each represents. The primary benefit to using a broker is that they have access and information about a variety of insurance products from several companies at once.
• Insurance Agents: Agents represent the products of only one insurance company. Companies that use their own agents to sell their products are called "direct insurers". Agents may not be able to offer the consumer as wide a range of products as a broker. However, depending on your needs, most direct insurers offer a broad enough selection to meet the needs of most consumers at a competitive price. Some agents may also offer "in-house" discounts that a broker cannot.
• Direct Sellers: Also called "direct-response insurers," these sellers work like insurance agents in that they generally only sell products from their particular company. The difference is that direct sellers sell their insurance products over the telephone from a central location, rather than through local agents or offices. Geico is an example of a direct seller insurance provider. A big downfall of direct sellers is that face-to-face contact with the provider is almost non-existent. The upside is that these companies can often offer lower prices to the consumer.

Today many insurance providers are selling insurance over the Internet, offering quotations in rapid time and in some cases even selling policies on-line. Be careful when shopping for insurance over the Internet. When comparing prices and services, make sure you are comparing apples with apples and oranges with oranges.

Each policy is different and the lowest price may not suit your coverage needs. The goal is to make sure you and your property are protected when and if you make a claim. Remember to ask the right questions and as many as you need too before you buy.

Credit and Insurance

In Washington State, insurance providers can use your credit report when determining the price of your insurance. In addition, providers can use your credit history to decide whether or not to provide you with insurance or to renew and/or cancel an already existing policy. While many insurers will use other factors to determine your rates such as where the property is located or how the space will be used, Washington state law stipulates insurance companies can base their decisions solely on your credit rating, however they must notify you in clear concise language if they decide to take the following actions based upon your credit score:

• Cancel, deny or non-renew coverage
• Give more limited coverage
• Limit benefits, such as eligibility for dividends
• Do not offer the best rate available
• Add a premium surcharge or do not offer a discount

The upside to this practice is that if a provider is unwilling to cover you individually, your organization or your business, they must offer you alternative coverage through another insurer. Unfortunately, in situations where you were denied a renewal on an existing policy or it was cancelled, the alternate policy does not have to provide the same amount of coverage or identical terms and conditions as the original policy. This is also true in cases where you were seeking to establish a new policy and the provider denied you coverage.

If an insurance provider uses your credit information to determine your premium rate, they must inform you of this at the time of your application. For detailed information about the laws concerning insurance and credit, contact the Washington State Office of the Insurance Commissioner at 1-800-562-6900 24 hours per day.

TIP: When comparing policies, make sure you are comparing apples with apples. What may look like a bargain may actually leave you under-insured once you factor in all the costs, deductions and stipulations.

TIP: Financial planning guru Suze Orman offers a host of resources to help locate and buy insurance coverage, especially health and life insurance.

Types of Insurance

The remainder of this section explains select insurance policies to cover space or artwork. If you are considering purchasing a space, you might benefit from reviewing Types of Mortgage Insurance in Chapter 8: Buying Real Estate. Additional information on insurance issues for condominiums and co-operatives is also covered in Chapter 11: Models of Ownership.

Home-Based Business

A home-based business policy might be a sound option for coverage if your studio is in your home. Many homeowner's policies exclude coverage of an in-house art studio. And while an artist's rider might be available as an addendum to an already-existing homeowner's policy, your studio coverage might be excluded, depending on the production methods you use -- for example, a blowtorch for handmade glass beads -- or whether you offer classes.

Consistent sales of your artwork, or operation of an official small business in your space, might void the homeowner's policy, as the insurance company views these as commercial activities occurring in a residential space. In these scenarios, a home-based business policy might be necessary. Each insurance provider determines which businesses are covered under their policies. Businesses might include consulting practices, interior design, real estate, small-scale manufacturing, arts and crafts, etc. In addition, these policies also provide some level of property and liability coverage. You might need to supplement your policy with additional, specialized policies. Look into a home-based policy if you know you will be running commercial activities out of your home, as they are considerably cheaper than commercial liability policies.

Homeowner's or Hazard

These are required for both commercial and residential mortgages, and protect your property against loss from fire and other hazards. Typically, the lender requires coverage to reflect the loan amount. For example, if your mortgage is $150,000, then you would typically need $150,000 in insurance coverage.

Obtain enough coverage to replace your property and its contents as well. Ensure that your policy covers your artwork and other property, to what extent, and under what conditions.

For additional information about home owner's insurance policies, review Types of Mortgage Insurance. Chapter 8: Buying Real Estate.

Liability

Along with your property insurance, obtain general liability or casualty insurance to cover you in the event that someone accidentally sustains an injury in your space and sues you. The insurance company will provide the attorneys to defend you and the monies for any settlements.

Liability insurance also protects you if you are inadvertently responsible for damage to other people's property. For instance, if you accidentally start a fire in your studio that damages three other studios, the tenants in those studios and the building owner will expect compensation from you. Your liability policy will cover you in such a situation. Most homeowner's insurance policies will provide a level of liability coverage if you own a residential space. However, if you are a renter, you might need to obtain separate liability coverage.

If you are operating a commercial space such as a gallery or theater, and your premises are regularly open to public access, you must obtain a commercial general liability policy, or CGL. It is wise to have your liability policy written as a primary coverage policy. If you have a variety of policies through several companies, chances are that some portion of your coverage will overlap. In the event of a claim, your providers might spend valuable time bickering over which company pays what. If you have a liability policy written to provide primary coverage, the provider of the primary coverage policy will be the first to address and pay a stated claim. If a balance remains, your other provider(s) will then take effect and pay all or a portion of the balance.

Property

Whether you lease or own your space, it is highly recommended that you obtain property insurance, which will cover any damages or loss of the building and its contents. Under a property insurance policy, coverage for the actual building will typically be limited only to damage and/or replacement of the roof or interior/exterior walls. The property's floors, electrical systems, ventilation, etc. will not be covered. In addition, property insurance covers ordinary risks such as fire or vandalism, but often excludes damages caused by floods and civil riots. The building's plumbing, heating and ventilation systems are also often excluded from coverage.

If you a purchasing a building, consider investing in a replacement cost policy -- even though it might be expensive and difficult to obtain. When you declare the costs to rebuild, include information about the building and the actual construction costs. A contractor or appraiser can help you determine the cost of rebuilding the property.

In addition, if you lease a space and make major improvements during your occupancy, notify your insurance company so that your policy will be adjusted to reflect these improvements. For more information about insurance issues in a leased commercial or industrial space, review Chapter 7: Commercial and Industrial Leases.

Renter's Insurance

If you rent your living space in a residential property, you will want to at least obtain a renter's insurance policy, which will reimburse you for your possessions if they are lost, stolen or damaged by fire or other calamity. Some policies provide both liability and property coverage, while others might cover the cost of temporary shelter if an emergency forces you to leave your space.

As with home owner's insurance, your policy might be voided if you are running a business out of your space. Because many policies have caps placed on the reimbursement amount of some items, you might need to get an additional policy or rider to insure expensive art equipment and/or art work. Check your policy to see if your artwork and/or equipment are covered outside of the space, to what extent, and under what conditions. Renter's insurance policies vary, depending on the amount of coverage you have and location of the apartment. However, policies can be obtained for a little as $20 per month.

Other

Building Equipment and Vital Systems Insurance covers building systems such as heating, ventilation, air conditioning and plumbing. It does not cover normal wear and tear that leads to the replacement of equipment and/or systems, but does cover unexpected problems such as a boiler explosion. Coverage of these systems is normally excluded from a property policy, so you must purchase this separately. Consider this policy if you have an expensive ventilation set-up or other system.

Business Income Insurance , also known has Business Interruption Insurance, takes effect when you are unable to work due to problems with your space. For example, a fallen tree leaves a gaping hole in the roof above your studio-based photography business, making your space is unusable for three months. If the incident causing temporary suspension of business operations is covered by your Business Income Insurance policy, the policy will cover your loss of income during the repair period.

Trade Fixtures and Inventory: While your property insurance will cover the building should a disaster strike, it might not cover your equipment and supplies. Say you run a small theater, and a fire destroys your expensive lighting systems and bolts of costume fabric. Even if the damage is repaired rather quickly, you will still be unable to put on productions until you get the funds to replace the lighting and buy more fabric. In this situation, insurance for your fixtures, lighting, inventory and fabric would take effect and reimburse you for your loss.

TIP: Each type of policy covers a different situation. Depending on what your space is used for, you might need several policies.

TIP: Have your commercial liability policy (CGL) written as the "primary" policy, so that when a claim is made, the CGL provider will be the first to address the claim. Any additional policies that cover the claim will become secondary, and cover whatever reimbursements need to be made after you have reached your coverage cap with the CGL policy.

Insuring Art and Equipment

It can be difficult to find insurance that covers your art, especially if you do not have an established market presence. Insurance is about being able to place a clear monetary value on your property; despite your own feelings about the value of your work, unless you have proof that your work commands a certain value in the marketplace, you will run into difficulty convincing an insurance agent that the price of your piece is worth receiving compensation for the amount you dictate.

Because most providers do not like insuring items that have an ambiguous value, many policies will only compensate you for the actual costs of the materials. If you spent $20 in paints and canvas to create your masterpiece, you can expect to receive only $20 in compensation. Your time and the "emotional" value you place on the piece will not be considered in the reimbursement. In addition, you often will not be compensated for works in progress.

However, do not fret. Although hard to find, there are plans out there that will cover your artwork. Besides covering your studio or creations, some policies will cover your work when it is in transit, being shipped to another location (i.e. exhibitions, museums, moving, etc.).

Some policies provide coverage for specific art practices (jewelry making, dance studios, musical instruments, metal workers, etc.), while others protect art exhibitions or vendors and their wares at art fairs and other special events. The types of policies available are nearly endless. Collectors, gallery owners, museums and dealers can often find insurance that covers the entire price of any artwork in their possession. In the eyes of the insurance carrier, artwork in the hands of a collector or gallery owner has an established market value, which the provider can easily put a price tag on.

In addition to covering your work, consider coverage for your equipment -- especially if you have expensive or irreplaceable equipment such as film and video cameras, computers, kilns, foundry equipment, or musical instruments. Consider this type of policy when your basic property coverage or renter's insurance policy is insufficient, or excludes the item you want to insure.

Many basic property policies will only cover an item as long as it remains on the premises of the insured space. This could become problematic if your equipment needs to leave the building often and costs a substantial amount. A specialized policy will also work in this case for a variety of off-premise art activities (i.e., a film shoot or music or arts festival).

For example, imagine you are a professional photographer, and your basic property policy sets a limit of $250 to replace a damaged or stolen camera. You have a professional model camera that costs nearly $1,500, and is used outside the studio frequently for shoots. Given your unique requirements - replacement of an expensive piece of equipment, and the need to have the equipment insured even when not on the premises -- a specialized equipment policy is needed.

In many cases, these policies will cover you for theft and damage of the item, even when you are using it off-premises. In addition to special equipment policies, you can also find policies that will cover your artwork/equipment when it is in transit or being shipped to exhibitions/performances and becomes lost or damaged.

TIP: To learn more about the types of insurance policies available to cover mortgages, For more information Chapter 8: Buying Real Estate.

Resources

Aon Huntington Block
Customized insurance policies for a variety of art space-related needs, with special emphasis on museums.

Chubb Group
Insurance for museums and cultural institutions. Must purchase insurance through agents.

Collector's Risk
Provides specialized insurance policies to galleries, museums, art dealers, and private and corporate collections.

Fireman's Fund Insurance
Offers a fine art policy that provides coverage for individuals in the fine arts and the entertainment industry. Policies can be customized to cover equipment, damage while in transit, theatrical property, etc.

Flather & Perkins Insurance Co.
Liability and commercial events, trade shows and art-related events. Fine Arts packages for works in progress, and damage claims.

Francis L. Dean Associates, Inc.
Dance studio insurance.

Hartford Financial Services Group
Offers customized packages for art space insurance, as well as home-based business and small business policies. Policies must be purchased through an insurance agent.

Hub International Insurance
Formerly known as Kaye Fine Arts, this company provides insurance coverage for artists' own work, and coverage for collectors, galleries and other art-related insurance needs.

Insurance Information Institute
Q&A's on how to find an insurance broker, and helpful articles for businesses in Illinois. Website is geared toward demystifying the insurance industry.

InsureEvents.com
Insurance brokers for the arts and entertainment industries. Art-related events, museums, institutions and galleries. Also offers touring artist insurance and a variety of liability coverages.

Managing Agency Group
Offers the American Craft Council Insurance Program, which provides replacement costs of buildings, raw materials, equipment, drawings and papers, etc., as well as protection from theft.

Marsh, Inc.
Through its Fine Art Practice, Marsh creates programs exclusively for art galleries and dealers, private and corporate art collectors, exhibitions, museum and university collections and other fine art related risks. They also insure artists' works and studios.

MusicPro Insurance Agency, LLC
Offers coverage for instruments and equipment, liability for studios and tours, etc.

RLI Insurance
RLI's In-Home Business Policy offers coverage for a variety of art and craft practices, including art studios, galleries, and artists' supplies.

• Electricity
• Heat
• Telecommunications
• Waste Disposal
• Art Waste
• Water
• Conservation
• Ch. 20 Resources

Heat, water and electricity are necessary utilities for using and functioning in a space. Other utilities essential to your art practice and business include telecommunication services and waste removal. This chapter provides information on each of the major utilities, including contact information for service providers, as well as payment options and other helpful programs.

The best way to estimate potential utility costs is to ask the current owner, your real estate agent or another tenant. You should ask to see a recent bill. Heating costs during the spring and summer months will be significantly lower than in winter, while electric costs can increase during the summer months due to air conditioning. Because of these seasonal fluctuations, try to ascertain the total cost of the utilities over a one-year period. Also, research your payment options, as some utility companies offer flexible billing systems that accommodate fluctuating utility costs.

Electricity

The only Seattle-area electricity provider is Seattle City Light. The following sections are based on Seattle City Light requirements for residential and commercial use.

The Seattle City Light website has comprehensive information about their services for residential, commercial, business industrial, construction management, remodelers and developers, and streetlights.

Seattle City Light now offers four methods to open or close an account.

1. By Phone
   • 206.684.3000
   • Toll Free: 1.800.862.1181
   • TTY: 206.684.3225
2. Online
   • Transfer Service To A New Address within City Light service territory.
   • Open New Account
   • Close Existing Account
3. By FAX
   • Print and fax the completed form to 206.684.3347.
4. By US Mail
   • Print and mail the completed form to:
     
     Seattle City Light
     Customer Service Center
     700 Fifth Avenue, Suite 3300
     P.O. Box 34023
     Seattle WA 98124-4023.

Whichever method you choose to open or close your City Light account, you must also select a Meter Reading option.

• Option A. You may ask City Light for a Meter Reading. A minimum of three days advance notice is required to schedule the reading. A $33.00 fee will be added to your account. Please call 206.684.3000 to schedule the reading.
• Option B. You may ask City Light for a free estimate of your Meter Reading.
• Option C. You may provide your own Meter Reading, using the picture on the form. How To Read Your Meter

If you are opening an account, your first bill will include a $16.00 account service charge.

Payment Options to Consider:

• Budget Billing Plan where you average payment for your winter and summer electric bills over the year; you can apply for the Budget Billing Plan with the online form.
• Automatic Bill Payment Plan where you authorize your bank to pay your utility bills.

To apply over the phone or for more information, please call 206.684.3345 or 206.684.3000.

For more information, including Seattle City Light Assistance programs, visit their website at http://www.seattle.gov/light/

Heat

There are three principal forms of heating: natural gas, oil and electricity. Each type has its advantages, when you consider installation, maintenance and fuel costs. Other factors to consider include cleanliness and noise generated by the heating system. The main providers of heat in the Seattle area are:

Natural Gas: Puget Sound Energy www.PSE.com.

Electric: Seattle City Light: http://www.seattle.gov/light/

Oil: Sound Oil: www.soundoil.com.

In most cases the heating system in the space that you either purchase or lease is already installed and operating. It is important to evaluate the heating costs for your space as they may vary widely. Each if these companies offer assistance in case of emergency, visit their website for more information.

If you find that you need to update your heating system there are several important issues to consider. The heating requirements of your space can depend on several factors, including:

• Weather
• Age
• Size and layout of the space
• Insulation levels and air-tightness
• Amount of solar energy harnessed through windows
• Amount of heat given off by lights and appliances
• Thermostat setting
• Other operational factors.

All of these components together determine how much heat (or air conditioning) you need.

If you lease a space, find out what type of heating system is in the building, and its annual cost. It is desirable to have a thermostat in your space so that you can control the temperature. It's also helpful if your space has a meter, so that you only pay for the service you use. Ask the landlord if you will be charged for heating and, if so, how those charges will be determined.

If you are buying a space and want to change or upgrade the heating system, consider which type of heating would best suit the building and your use. Ask yourself:

• Is the current system still suitable for the space?
• Does it need to be repaired or updated? If so, what would it cost?
• Should you convert to another type of distribution system? If so, what would be the cost and advantage/disadvantage?
• What sorts of activities will be taking place in the space? For example, if you need to run a natural gas-operated kiln, a heating system that utilizes natural gas might be most practical.

If possible, hire an expert to inspect your new space and thoroughly assess the heating system. Converting the existing heating system to another type might make the most sense, but this can be a costly investment. Consider whether this conversion will provide future savings on your heating costs, and determine how long it will take to see a return on your investment. Many options are available to you, and once the system is converted you will not have to do it again.

The most common heat systems include:

• Electric Baseboard Heaters : Easy to install, low-maintenance, and equipped with individual controls that let you turn off the heat in empty rooms and save energy and money. However, operating costs are very high.
• Forced Air Systems : Driven by a central oil, electric or gas furnace that warms up the air and distributes it into the space through ducts. Costs the least to install, but is not the cheapest to operate. These are also known as central heating and air or HVAC (heating, ventilation and air conditioning). Can be expensive to install in older buildings, if you have to put in the necessary ductwork.
• Hot Water Boilers/Radiant Heat : Steam heat is circulated through pipes to radiators that literally "radiate" heat through the room. The water is heated either by gas or oil. Hot water heating is the most efficient system to operate, and the most comfortable, but is costly and does not convert for air conditioning use as gas furnaces can. In addition, this system can be expensive to incorporate into the property if the pipes are not already installed.

All heat distribution systems have advantages and disadvantages, including cost and efficiency levels. Only a professional should make the final recommendation as to which system will best suit a particular space and your needs and activities. Consult an HVAC specialist, general contractor or architect.

Telecommunications

Your medium affects your telecom needs. If you work with digital imaging, you might need high-speed Internet access. If you are an actor who is often attending rehearsals and auditions, a cell phone would be wiser than a land-line telephone. Most providers offer both residential and business services as well as Internet access. Some, such as Comcast or Qwest might even offer cable/digital television connections or satellite services.

To assess your total telecommunication needs, ask yourself:

• What do you need for your basic communication services? What are the pros and cons of a land-line telephone vs. a wireless; dial-up or digital Internet access, fax machine/modem system or a cellular phones and pagers?
• If you have a combination telephone/modem/fax machine, would you like to use one phone line to cut down costs, or separate lines to avoid congestion? Ask the service provider about installing two phone numbers on one line.
• Do you need basic dial-up, high-speed Internet access or DSL? Basic dial-up allows you to use only the Internet or the telephone at one time, unless you have separate phone lines. DSL lines allow simultaneous telephone and Internet use. DSL can also be accessed through a television cable provider, and can run simultaneously with your television.
• Can the space you are considering handle the type of telecommunication services you need and want? What will it cost to upgrade the space to fit your needs?
• How long will it take for installation?

Deregulation has added extra steps to the process of getting your service connected. Make sure you know:

• Who will turn on your service, and when;
• to whom you can report connection and/or other problems;
• Which company handles billing

To protect costumers the City of Seattle has the Office of Cable Communications. If you have questions about services or service providers and their responsibilities this website is a great resource. Always read the fine print when entering into any kind of contract. Most of these companies offer initial rates that increase after a certain amount of time or contracts that require you to be a customers for several years make sure that you understand what you are signing up for and that you can pay for the services for the duration of the contract.

Waste Disposal

In the City of Seattle, Seattle Public Utilities provides garbage, recycling, and yard/food waste services for residential and commercial customers. Garbage, Recycling and Yard Waste collection are required for all residential properties. The City of Seattle has set guidelines as to items that are banned from being collected as garbage. The Seattle Public Utilities website outlines all of the rules and regulations as well as offers garbage collection pricing based upon garbage can size, as well as collection dates. Visit their website.

Art Waste

The U.S. Environmental Protection Agency (EPA) regulates the disposal of hazardous waste and industrial wastewater discharge through the 1976 Resource Conservation and Recovery Act (RCRA), enforced by the states. In Washington, the Washington State Department of Ecology enforces the Act.

Each category of hazardous waste producer includes a distinct set of rules and regulations that dictate how to dispose of waste. The EPA defines artists as Commercial Generators; this classification also applies to art businesses, academic institutions, community centers, and printmaking or photographic studios. Commercial generators are defined and regulated by the quantities of hazardous waste they generate.

There are four categories of commercial waste producers:

• Large Quantity Generators : Produce more than 1,000 kilograms (2205 lbs.) of hazardous waste per month. Very few small art studios fall into this category
• Small Quantity Generators : Produce more than 100 kg (22 lbs.) but less than 1,000 kg (2205 lbs.) of hazardous waste per month.
• Conditionally Exempt Small Quantity Generators: Produce less than 100 kg/month (22 lbs.) of hazardous waste, or less than 1 kg/month (2.2 lbs.) of acutely hazardous waste. Generators in this category must identify all hazardous waste they produce, treat their waste on-site or insure the waste is sent to an approved disposal facility.

• Household Hazardous Waste Generators : Exempt from federal hazardous waste regulations. This exemption allows individual citizens, including home-based artists and hobbyists, to discard materials into municipal waste streams. The EPA maintains that enforcement of laws and management of wastes generated by consumers in their households isn't realistic.

Though you might not be obligated by law to dispose of these materials as hazardous waste, the materials generated here nevertheless contribute to environmental degradation and health problems. Visit the Washington State Department of Ecology website for more information on hazardous waste disposal at: http://www.ecy.wa.gov/waste. In addition, review Chapter 22: Safe and Healthy Spaces for additional information on how and where to dispose of hazardous art waste in Seattle.

The City of Seattle offers several sites to dispose of household hazardous waste. Here is a link to the website: http://www.govlink.org/hazwaste/house/disposal/othersites/ for more information about locations, fees and hours.

Water

Seattle Public Utilities supplies water to all the businesses, residents and manufacturing industries in the city and surrounding suburbs. Seattle Public Utilities also handles your sewage bill, which is a percentage of your overall water usage.

Water bills are calculated on a meter. Metered customers have a water meter attached to the property that tracks use of service. Water rates vary for peak and off peak rates as well as by location and range between $4.99 - $11.90 per 100 cubic feet.

For properties with meters, a rate taker will record the amount of water usage on a monthly basis. Billing are sent out every two months and include, garbage, water and sewage charges.

For more information about water and sewage service, visit Seattle Public Utilities website at http://www.seattle.gov/util/services/

Conservation

Water conservation is a smart practice. Below are the top five actions you can take; these tips are provided by the California Urban Water Conservation Council and the U.S. Environmental Protection Agency:

• Stop Those Leaks ! Check indoor water-using appliances and equipment for leaks. Silent leaks allow water and your money to go down the drain. Studies have shown properties often waste more than 10% of their water due to leaking.
  One way to spot a leak is to turn off all your plumbing fixtures, including the valve to the washer, and look at your water meter. If your meter is moving, then you're losing water through a leak. Also check around sinks and hot water faucets. Look for large wet areas in the lawn or sidewalk during dry periods.

• Replace your old toilet : Toilets are the largest users of water in your home. Homes built before 1992 often do not have water-efficient toilets. A water efficient toilet only uses 1.6 gallons of water per flush - less than half the amount used by older and conventional models. To find out when your toilet was made, check the manufacturer's stamp, located on the inside of the tank. Fix running toilets, as they are a major contributor to water waste.

• Replace your clothes washer : The clothes washer is the second-largest water guzzler in your home. You can minimize this waste by purchasing an Energy Star™-rated washer that has a rating at or below 9.5. Washers with this rating use 35-50% less water, and 50% less energy, per load. The Consortium for Energy Efficiency (CEE) has developed a set of specifications for water-efficient washers, and has compiled a list of these and other energy efficient appliances.

• Plant the right plants : Whether you are putting in a new landscape or slowly replacing the old one, select plants and grasses that are appropriate for the Northwestern climate. This area of the country is home to a variety of beautiful prairie grasses and other native botanicals.
• Water only what your plants need : Watering your plants or lawn when it isn't needed, and at inappropriate times, are wasteful. It's best to water plants during the nighttime hours, when evaporation is reduced. Be attentive: If you are manually watering, set a time limit.

TIP: If you are renting or leasing a property, make sure you know how you will be billed for utilities, especially if you are leasing a commercial or industrial space. See Chapter 7: Commercial and Industrial Leases.

Resources

Consortium on Energy Efficiency (CEE)
Offers resources and information on energy-efficient products.

This chapter discusses the ins and outs of rehabbing both residential and commercial spaces. Of particular importance is the section on converting storefronts into live/work spaces..

• Preparing
• Budget
• Professional Assistance
• Hiring Professionals
• Building Permits
• Work Not Requiring a Permit
• Work Requiring a Permit
• Live/Work Spaces
• Art Space Issues
• Residential Rehab
• Floor Plan Options
• Commercial Rehab
• Leased Space
• Noise Issues
• Space Checklist
• Storefronts to Live/Work
• Ch. 21 Resources

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Preparing

Three fundamental things you must think about before beginning a rehab project:

1. Your budget
2. Which professionals you will hire
3. What permits you will need

You also must inspect the property's condition to ascertain improvement costs. See Chapter 17: Inspections for more information.

The remainder of this section focuses on steps you must take when preparing to make your rehab dream a reality.

Budget

Set a budget
Setting a budget at the beginning of the project enables you to make informed choices when searching for products and materials. Whether you do-it-yourself or hire someone else, conduct preliminary research on materials and labor costs to make sure your budget is realistic.

Shop around
As you have probably been told a thousand times, do not buy the first thing you see. Once you find the material or service you are looking for, shop around. You can often find the same items at a cheaper price, just by doing a little legwork. The Internet also gives you access to materials you may not be able to find locally.

Shopping around also means comparing the costs and skills of professionals. Try to hire professionals who can implement your project, meet your rates, and compliment your personality.

Be willing to compromise
The chic bed and bath boutique has exactly what you want, but another establishment has a really close replica at only half the cost. Compromise! Rate items-to-buy in order of importance to get an idea on what you will and won't compromise on.

Upgrading products and materials?
Stick with your budget. If you only have finances to cover a certain amount of rehabilitation, then pick materials and products that will fall within that amount. Picking a wide range of affordable materials and products allows you to upgrade and cut back at will. When selecting materials and products, consider the quality as well as price. Sometimes cheap will cost you more in the long run if you have to replace an item sooner than expected.

Asking the contractor to do additional projects?
The contractor is there to do a specific job, not to be your personal handyperson. Every extra task you ask of them comes with a price tag. If you just can't change that light bulb yourself, or must have the contractor fix a leaky pipe, inquire about the cost of the service beforehand and get it writing, preferably in a new contract order or as an addendum to your existing one. You don't want to be surprised when you get the final bill and find the "can you do that?"'s have put you over budget.

Allow for unforeseen discoveries
No matter how much advance planning you put into a construction project, structural, electrical or mechanical problems can be "discovered" once the project is underway. Although they were not part of the original scope of work, once revealed, they must be dealt with. The best strategy to prepare for these unexpected costs is to add a contingency to your budget: at least 20% of the total construction cost. You might be able to reduce that amount to 15% if you thoroughly plan during the pre-construction phase by getting a general contractor or a building inspector to review your plans. Still, as rule of thumb most initial rehab estimates are low.

Utilize the services of a home and building inspector
Especially if your rehab involves extensive remodeling and/or construction. Inspectors are licensed by the state to know "construction detailing."

Architects are trained building and space designers, but inspectors check "workmanship" -- where quality and expense lie in the details. Your interior design person can coordinate and harmonize the design aspects, but your inspector will know how it should be done.

Consider making all contract payouts subject to a professional inspection. If the work is inadequate or dangerous, the inspector can tell you, and you can make the decision on whether or not to pay your contractor, have the work corrected or seek services from another contractor. Expect to pay your inspector around $200 or more for each payout inspection. In addition, get a written and signed report from your inspector.

TIP: If your rehab project is for a business or nonprofit organization, ask your accountant to review the budget. See Chapter 4: Professional Services for resources on hiring an accountant.

TIP: Every dollar spent locally typically creates $5-14 in your community, while every $1 spent at a chain store means most of the money leaves town immediately.

Professional Assistance

The condition of your space and type of remodeling plan will determine which design and construction professionals you'll need. These professionals include architects, building inspectors, general contractors, interior designers, structural engineers, space-planners, plumbers, and electricians.

If you are contemplating structural changes, you will need a licensed architect or structural engineer. For non-structural changes, a general contractor, architect, interior designer or other space-planning consultant will suffice. Design professionals can often connect you with the appropriate construction personnel to assist with your project.

If you are not using a design professional, you must decide which professionals your project needs. If your proposed changes involve more than three trades (plumber, electrician, etc.), you might consider hiring a general contractor, who will choose and coordinate all of the necessary subcontractors.

Definitions of the three primary professionals who may be involved in your remodeling project:

• Architect: A professional trained in both space and building design. Architects have at least a bachelor's degree in architecture, but might possess a master's. They are required to earn continuing education credits on a yearly basis, and are licensed by the State. An architect is necessary if structural changes to the property, or architectural and/or construction drawings, are required. They can help you obtain necessary building and construction permits and locate qualified construction and/or trade professionals. Architects practicing in Washington State are regulated by the Washington State Department of licensing and the Washington State Board for Architects.
• General Contractor A professional who can build and implement construction projects. Once your project has been designed, they can turn your ideas into reality. Some projects can easily be handled by a general contractor without a design professional or architect's assistance. General contractors can help you obtain necessary building and construction permits and locate specialist trade professionals such as electricians or plumbers. In Washington, general contractors are regulated by the Washington State Department of Labor and Industries. They are required to pass several trade exams, and must be licensed to operate in the State. There are two types of contractors, general and specialty. For more information and to find a registered contractor, visit the Labor and Industries website at http://www.lni.wa.gov/TradesLicensing/Contractors/HowReg/default.asp
• Interior Designer A professional trained in the design of interior spaces, with at least two years of academic training. If you don't need any structural changes, an interior designer might be your best bet. Interior designers often specialize in certain types of spaces, such as kitchens and baths for residential spaces or offices and manufacturing facilities in the commercial setting. In order to practice, designers must pass an exam developed by the National Council for Interior Design Qualification and annually earn continuing education credits. Washington State does not require registration or licensure for interior designers, therefore, ensure that you check references and thoroughly research your interior designer. For additional information on other real estate-related professionals, review Chapter 4: Professional Services.

TIP: When entering into a remodeling contract, have your lawyer review the material, especially if it is complicated and the project involves a substantial investment. See Chapter 4: Professional Services to find resources on hiring a lawyer.

Hiring Professionals

The best way to find qualified professionals is through word of mouth and referrals from family, friends and colleagues. The Internet also provides information on potential service providers, though you will need to do research to ensure they are qualified and have the skills to meet your needs. Professional trade associations are another viable option for locating competent help.

Trade websites such as Contractors.com, Contractor.Net and National Contractor provide additional information on hiring contractors, as well as extensive databases that sometimes offer customer ratings. Hardware and home design/improvement companies such as Home Depot list trade professionals with whom they work; check the store nearest you for a list of these professionals.

Questions to ask potential service providers include:

• Has s/he worked with clients with space rehabs similar to yours ? If so, how many, and for how long? If possible, review their work samples. Is the appearance of these projects similar to your own goals and vision?
• Is it possible to speak with some of their past clients? Ask for references from 3-5 recent clients to gain valuable insight into this professional's work habits and skills. While ability is important, personality conflicts can also derail your project or make the process unbearable.
• Who will work on the project? Who will supervise the work? How many workers will be on-site? If the person you are working with hires an outside trade professional, known as a subcontractor, to complete the electrical wiring or other work, find out who the subcontractor will be, and who will perform the actual work.
• How do they work? Find out about his or her work style and ethic. Will s/he provide weekly feedback on the project? Contact you primarily by email, phone or in-person? When is s/he available to speak with you about the project? What is their plan of action in the event that problems arise with the project? Will s/he point out where the project can be improved, and where cutbacks can be made? Or will they strictly do what you ask?
• What type of insurance does the professional service provider carry? Most business professionals carry general liability insurance to protect their property (and possibly yours) from damage. Have your service provider describe their coverage as it applies to your project. Although not required to do so, many architects and engineers also carry professional liability insurance -- similar to malpractice insurance for physicians -- to protect them from claims regarding errors with their work.

• What type of warranty does the contractor provide? The industry standard for a general contractor is to warranty his or her work for a period of one year. However, legal limitations on insurance preclude architects, engineers and designers from offering warranties. Some building products carry longer warranties, which are provided by the manufacturer. For example, a roofing product might have a 20-year warranty. Be aware that the contractor's warranty is only for the material and labor that s/he provided. If you purchase a faucet yourself and have the contractor install it, then the contractor will not warranty the faucet, but may only warranty the labor and installation. In addition, product or contractor warranties may be void if the product is installed slightly "out of standard" (i.e. too many screws or nails, etc.). This can also be the case if a non-appointed third party (i.e. you) completes repairs to the product or adjusts it once your contractor has left. So, it may be wise to wait for the proper professional to repair the item.
  In the meantime, document, document and photograph. Documentation can entail keeping track of your complaints in writing and making sure your contractor has a copy of your complaints. Sending paperwork and complaints to your contractor via certified mail are also ways to ensure you have adequate documentation.
• How are you billed? Make sure you have an understanding how you will be billed before the actual work begins. Do you want to be notified if they begin to go over budget? Do you want a weekly update of how much has been spent? Do you want an itemized bill?

Some warning signs you should look for when interviewing a potential service provider include:

• You are pressured into signing a contract with scare tactics. For example, "This deal is good for the next 2 hours only!"
• Your requests for references are ignored or not readily offered.
• The references you receive cannot be contacted.
• You cannot verify their license and/or insurance.
• The professional does not have a portfolio of completed projects to showcase their work.
• The professional refuses or is vague about giving you a price quote.
• Unwillingness to sign a contract which includes the start and completion dates, remedies to delays, etc.
• Requiring an unusually large down payment for the job. More than 20% of the overall cost is a red flag.

Building Permits

Here is another place in the process where the Cultural Space Liaison in the Office of Arts & Culture can be useful. If you are planning on approaching the city for a building permit to create or renovate a cultural space, you should start by contacting the Cultural Space Liaison (see the Cultural Space section of this website for contact information).

Depending on the type of changes you make to the space, you may need to have a variety of work and building permits as well as drawings for the project. While the professionals you hire should inform you of the permits you need, the property owner (you or the landlord) is responsible for obtaining the correct building permit.

A building permit gives you, your insurance company, your neighbors and the City assurance that specific minimum standards are met in constructing, altering, or repairing your home by complying with the Seattle Building Code. These standards are based on well-established health, safety, and environmental considerations intended to protect the integrity of the buildings, safety of inhabitants and visitors, and the overall welfare of the public.

However, if you are not sure exactly what you want to do with your space, keep the following in mind as you plan your project:

• Some work requires a building permit, and
• Some work does not require a building permit.

Work Not Requiring a Permit

The following work does not require a building permit to complete:

Minor repairs and decorating such as painting, wallpapering, patch plastering, replacing moldings, laying carpeting, floor or wall tiling, other floor treatments (linoleum, wood), repairing and resurfacing wood floors.

Minor repairs and replacements such as:

• Replacement of windows or doors (same size, location and type)
• Replacement of shingle roofing. Roof's slope must be at least 5-in-12.
• Replacement of siding on residential buildings. Building must be 3 stories or less with 4 units or less.
• Fences less than 5 feet tall.

Historic Status: If your building is a Seattle Landmark or rests within a Historic District, you will need to get permission from the Department of Neighborhoods Historic Preservation Program to make any changes to the roofs, windows, doors or exteriors walls which are visible from a public street.

Work Requiring a Permit

Work that falls into this category requires a building permit. Some of the work may or may not require drawings . You will need to check with DPD about whether drawings are needed. The following work requires a permit:

• Changing, replacing, or removing walls, columns and beams, as well as required exits or sources of natural light and ventilation.
• New construction, major repairs, renovations and demolitions.
• Installation of new boilers, furnaces, plumbing fixtures, garages, additions, porches, and decks.
• Erecting fences over 5' in height (all fences regardless of size require a permit for buildings with landmark status)
• Building amechanical, supply or exhaust ventilation system
• Building, replacing, or enclosing and heating a new or existing porch system
• Changing from a single family to multiple family building
  Reducingthe number of dwelling units (Deconversion)
• Complete modernization or conversion
• Construction or alteration of plumbing systems
• Demolition ofany building
• Erecting chimneys
• Alteration to source of required natural light and ventilation
• Finishing rooms in the attic or basement
• Installing new driveways
• Installation, replacement or extension of warm air furnaces in all building types
• Replacing siding with masonry veneer or face brick
• Replacing existing masonry
• Replacing roof (if slope is greater than 5-in-12)
• Alteration or expansion of electrical system
• New additions (upper floor, 1st floor expansion, greenhouse, etc.) or dormers
• Building an attached garage
• Building a carport

Live/Work Spaces

Whether or not you need a permit and/or drawings depends on the building type and the project you want to undertake. Read the previous three sections to determine if your project requires a permit.

Key permit issues to keep in mind when rehabbing a live/work space include:

• You will need a permit for any type of major structural change to the building.
• If your project is a single family residence that you live in, you may be ale to submit your own plans and/or drawings for a permit.
• All non-residential buildings require permits
• If you are in a zoned artist live/work space, you will more than likely need a permit as well as drawings signed by a State licensed architect or structural engineer. This is because most zoned artist live/work spaces are located in commercial and business zoning districts.

Art Space Issues

Artists' workspaces have special needs that should be considered when planning to rehab a property, especially when creating a live/work arrangement.

Depending on the type of work you do, pay special attention to how your art needs can be integrated into the space safely. Ventilation and storage and disposal for hazardous/toxic materials are particularly important. In addition, you can explore ways to incorporate eco-friendly materials and technologies into your space, especially now that they are becoming increasingly available and affordable.

Ventilation

Ventilation is a key component for any space where art activities occur, especially when fumes, vapors or dust are involved. Proper ventilation is needed to ensure that the air you breathe is free from toxic, airborne materials, as well as prevent a buildup of vapors, which could catch fire or explode.

When looking at a space, make sure you find out if any ventilation is already in place. Keep in mind that installing proper ventilation in an existing property is several times more expensive than installing it when the building is first built or renovated.

If you are rehabbing your space and your production methods require special ventilation, work with an industrial hygiene and ventilation expert to design and/or install a proper ventilation system from the beginning.

For more in depth information on ventilation systems and how to maintain them, review Chapter 22: Healthy Spaces

Hazardous Waste Storage and Disposal

Storage and disposal of hazardous materials is a primary concern for any art space, but especially if you are in a live/work environment. As you think about rehabbing your space, pay special attention to where you can locate activities that require toxic practices or emit fumes and gases. You also want to make sure you have a proper place to store hazardous art materials, such as acids, and dispose of waste.

For more in depth information on issues associated with working with hazardous materials, review Chapter 23: Healthy Spaces you should also review Chapter 20: Utilities, which provides information on disposing of hazardous art materials.

Green Living and Working

As you begin thinking about rehabbing a property, you may want to consider how you can incorporate green technology into your space. These building materials and techniques will enable you to have an eco-friendly space that is healthier for you and the environment. Many green design techniques and material choices can be adapted for a variety of spaces.

Review Chapter 23: Green Practice for more information on making your space and art practice eco-friendly.

Residential Rehab

Traditional residential spaces are ideal for many artists. Not only do they provide an instant live/work set-up, but it is typically easier to lease or secure financing for a purchase. With a bit of ingenuity and resource management, artists can incorporate work activities into these spaces either by building a workspace from scratch, modifying the space, or furnishing it wisely.

This chapter discusses three primary types of residential space:

• Detached single-family homes,
• Traditional multi-family units (apartments, condominiums, townhouses, etc.), and
• Commercial spaces converted to residential use.

Multi-family units can be as small as a two-flat, or as large as a courtyard building with many apartment units or condos. Converted commercial spaces often have open-space floor plans, which are typically not divided into individual rooms. The classic one-room "loft" is an example of a converted commercial space. In addition, new zoning laws now allow some commercial spaces to be converted into artist live/work spaces. Each type of residential space can be purchased or leased, and each has it own pros and cons.

As discussed in Chapter 13 Seattle's Zoning Ordinance places restrictions on the type of work-related activities that can occur in residential districts. Single-family and multi-family residential buildings typically have the most restrictions, while converted commercial lofts, located in business and commercial districts, allow for a greater number of art production methods. This is especially true for buildings zoned to allow legally defined artist live/work space.

In addition to the City's restrictions, multi-unit buildings generally have their own individual restrictions concerning permissible uses of the space. If the unit is a rental, the lease generally outlines any stipulations placed on the space. If the space is purchased as part of a condominium or cooperative, the building will normally have a set of by-laws, rules and regulations, known as the CC & R (conditions, covenants and restrictions), that list any restrictions on activities.

Be aware that by-laws may limit your work-related activities, as well as the type (if any) of signage you can display for your business, if applicable. Review the by-laws and CC&R before purchasing or leasing residential space to ensure your proposed use is permitted. If you are considering a space in a shared live/work or work-only environment, review Chapter 11: Ownership models for more information on space issues associated with this type of organizational structure.

After you have decided on the type of space you want, the next task is to determine the compatibility of your work activities with your living requirements. Think of your artistic production as a roommate that has its own space needs. Just like a human roommate, this roommate has "stuff," and will overtake the entire residential space unless given a designated space of its own. Count each artist who lives with you as two people, in order to accommodate their work space needs.

Make a realistic inventory of your workspace needs. Measuring your present or previous workspace will help you come to a reasonable estimate. See Chapter 1: Getting Ready for worksheets to help you figure out your space requirements.

Once you have found an appropriate residential property, groom the space to fit your needs. The remainder of this section discusses ways to adapt residential space for artistic use.

Floor Plan Options

You can adapt residential space to meet your needs by creating new space, repartitioning existing space, working with an existing floor plan, or using an open-loft floor plan. This section examines the pros and cons of each option.

Creating New Space
This option is available primarily for single-family residential buildings. An existing structure can be expanded, either through construction of an addition or by finishing unfinished areas such as the basement, attic, attached garage or back porch. New construction affords the most design flexibility in terms of creating appropriate workspace, but is also the most costly.

Finishing attics, basements and back porches might mean accepting some constraints in planning, but is less costly to achieve. The primary challenges to these spaces are:

• Heating,
• Adequate ventilation, and
• Fire exits.

All of these spaces will probably need to be insulated, and may require heating and cooling systems. Skylights in attic spaces can capture daylight, which makes them well-suited for work requiring natural light. Basements are well-suited for receiving deliveries, removing material and using large or heavy equipment.

Re-partitioning Existing Space
Creating new spaces is not possible in multi-unit buildings, yet one can still maximize space. If the residential space has multiple rooms, the "work roommate" can be assigned to one. If there are not enough rooms, or the rooms are too small, you may have to alter the layout. One extreme solution involves gutting the entire space and rebuilding an entirely new floor plan custom-tailored to your needs although this is only an option if you own the space.

At the other end of the spectrum, simple changes such as relocating doors or removing/adding a wall can be sufficient. Before you permanently alter your residential space, consider what the future intended use of the space might be for you or the next owner. Combining two adjacent bedrooms into a single studio might give you additional workspace you require today, but reduces the number of bedrooms when it comes time to sell tomorrow.

Common ways to change an established floor plan include:

• Erecting new walls to subdivide large rooms;
• Removing existing walls to combine smaller rooms;
• Relocating doorways to alter traffic flow within the space; or
• Adding French doors between rooms to allow for separate or combined uses.

Traditional Floor Plan
If you cannot make permanent or physical changes to the space, you will need to stake out territory for your work roommate within the existing floor plan. Until very recently, the living room of a residence was considered the main living space in residential properties. The living room is generally the largest room, has the best windows, and is located closest to the main entry. Putting this room to the best use means evaluating which needs are most important to you -- living or working.

If your personal needs are most important, consider using the living room as your all-in-one eating/seating/sleeping space, and give your work roommate the back area or bedroom. If your work needs are more important, your work enterprise can be set up in the front living room, and your living quarters compressed to dormitory proportions in the back portion of the residence. These choices do not require physical changes to the space, only furniture and storage solutions. If you are in a single-family home or townhouse, then the attic, basement or garage may be a viable option for your workspace.

Open-Loft Floor Plan
Residential loft units created from former commercial buildings generally consist of a single, open space, with only bathrooms and closets enclosed. These spaces can range in size from several hundred to several thousand square feet. Unlike a traditional apartment layout with windows on several sides, this one-room floor plan typically only has one wall of windows.

This set-up makes it difficult to create private and separate rooms in all except the largest units. The City's building code requires all habitable rooms (living room, bedroom, dining room, etc.) to have openable windows that can provide ventilation. This law is based on the belief that fresh air and natural light are necessary for a healthy living environment.

Depending on ceiling height, it might be possible to create elevated sleeping or working areas that divide the space vertically. This can be accomplished either permanently with construction, or temporarily with furniture.

It is also possible to incorporate curtains, folding screens or moving wall panels to divide part of a one-room space to separate space uses. If you use this option, make sure the dividing equipment follows the building code and does not touch the ceiling. These furniture solutions have the added benefit of being easily relocated to expand or reduce the size of individual spaces, as needed.

Commercial Rehab

Commercial space is adaptable, sparse, and available for lease or purchase. Limitations on rehabbing commercial space usually depends more on your and the landlord's financial commitments than on the physical limitations of the space itself. The flexibility a commercial space offers can be a long-term asset for your work or live/work needs.

As a general rule, true commercial space is located primarily in areas zoned business, commercial or manufacturing. Although most work-only activities are permitted in these areas, we advise reviewing the property's zoning to ensure that your proposed uses comply with zoning laws. Also, the landlord might prohibit a live/work use of a particular space.

Often, a wide variety of business and personal activities occur in a commercial property. Therefore, examine other tenants' uses to determine whether your activities will conflict with theirs, or vice versa.

The landlord might restrict certain modifications -- for example, changes to the structural framework of the building, outside walls and windows -- in order to safeguard the bare bones of the building from permanent alterations. Usually, these limits are more flexible when it comes to altering interior walls and mechanical systems.

As a general rule, commercial spaces have open floor plans with structural support columns located throughout. Interior, non-structural walls might have been added to partition the space into private offices, meeting rooms and other individual rooms. Non-structural walls can be removed, altered or extended to customize the space.

In some cases, commercial space may consist of a small, stand-alone building where only you will use the entire building. This arrangement provides the greatest flexibility for making internal modifications to customize the space. In most cases, however, commercial space is available as part of a much larger commercial structure that contains other users and activities. Tenants and owners share common building elements such as entrances, loading docks, hallways, stairs, elevators, and -- in some cases -- restrooms.

Written guidelines, created by the building owner or manager, typically regulate the use and modification of common areas. This is true even if the users are also the collective building owners.

Leased Space

If the space is leased, the landlord might make basic physical changes, such as installing carpet or painting walls, as part of the negotiated lease terms. When these changes are extensive, the tenant usually completes the remodeling with consent of the landlord (who authorizes any proposed alterations) and pays for these upgrades either directly or as additional charges to the monthly rent.

Most people will not need to substantially alter a leased space. Raw spaces, and those that have been unoccupied for some time, are most likely to require modification. This can also be true if you need to incorporate a new use into a space, or have a long-term lease. For example, you have entered into a 10-year lease for your expanding dance school. To bring the space up to par, you might need to incorporate special floors, dance bars, mirrors, a sound system, etc.

Or, say you move into an open-space warehouse with several other artists, and plan to operate a photography studio. You might have to erect walls to partition off separate studio spaces, create a dark room, etc.

In addition, you might find yourself as the first user in a space that has been vacant for a long time, or is being converted to a new commercial use. If the space will ultimately house multiple users with different activities, know where common hallways will be established, and what impact upcoming construction will have on the access, security and functionality of your space during the conversion process. A written or drawn attachment to a lease agreement or purchase contract will protect you if disputes arise.

You will almost always incur costs for "as is" commercial space. While the landlord may factor in your changes as part of the lease negotiations, ultimately you will shoulder the burden. Spending time finding a space that requires the least amount of remodeling is the best financial strategy.

TIP: See Chapter 7: Commercial Leases for more information about renovating leased space.

Noise Issues

If you are new to using commercial space in a multi-user building, you will soon realize that acoustic separation between users is generally non-existent. Unlike a residential property, in which neighbor noise might be limited to footsteps, voices and electronic audio, commercial spaces often have running compressors, wood working equipment, music studios or other sources of loud noise and vibrations.

If acoustics affect your art, find out who your potential neighbors might be before committing to the space. As with residential tenants, commercial tenants move in and move out regularly; ask the landlord how much time remains on the leases for those spaces adjacent to yours. Also, address in your lease negotiations what will happen if a noisy tenant moves in after your lease begins. If you are buying the space, consider insulating the space from noise.

Also, make sure to disclose the amount of noise you anticipate making so as not to cause problems after you move in.

Space Checklist

Ask yourself the following questions to determine whether changes to your potential space are necessary or wanted. This is a comprehensive list and so not all of the items will be pertinent to your situation or needs

Access

• Is a freight elevator available? Is it adequate?
• Does the building have a loading dock? Is it adequate?
• Are the doors wide enough for you to move in and out of easily?
• Is there adequate parking and/or transportation access?
• Is the spaced zoned for patronage?
• What is the maximum occupancy of the building?

Building Capacity

• Is the space large enough to meet your needs?
• Is the building zoned for your intended use?
• Are the ceiling heights adequate for your needs?

Electrical Power

• Is the existing electrical capacity adequate?
• Are there sufficient electrical outlets?
• Can the electrical system be upgraded, if necessary?

Environmental

• How has the property been used for the past 60-100 years?
• Has the property housed toxic materials? Were they removed?
• Are there lead paint or pipes? (This is important if you will be rehabbing your space extensively, as you will need to hire professionals to safely remove the materials, and if you will have children living or visiting the space often. Even small amounts of lead are harmful to children. See the U.S. Environmental Protection Agency Website for more information about lead poisoning and related illnesses.)
• Is there a Phase I Environmental Risk Assessment readily available? (This assessment tells you if any dangerous substances have been used at or in the building.)
• Does the space have carbon monoxide alarms?

Expansion Opportunity

• Is there room within the space to expand?
• Is there room within the building to expand?
• Is it possible to "downsize" the space through subleasing?

Heating/Air Conditioning/Ventilation

• Do the heating and cooling systems accommodate your live/work needs?
• Are natural and mechanical ventilation systems adequate?
• Can you easily upgrade these systems to fit your needs, if necessary?
• Can the space support special ventilation, if necessary?

Light

• Is the amount of natural and/or artificial light adequate?
• Is additional light required?
• Is the amount of natural light too extreme? Is interior shading required?

Security and Safety

• Are the space and building sufficiently secure?
• Is there adequate fire protection? Enough fire alarms, fire exits, etc.?
• Does your insurance carrier for personal property have requirements for the number of exits, smoke detectors, fire extinguishers, or other items as a precondition for coverage? If so, does the space meet those requirements? If not, can these features be easily incorporated into the space? ( See Chapter 19: Insurance)

Storage

• Is storage within the space adequate, or is off-site storage necessary?
• Will enclosed storage rooms be required, or can furniture systems be used?

Water

• Is access to water available and/or adequate?
• How many and what types of fixtures are available: bathrooms, emergency showers, etc.?
• Are slop sinks available? How many exist, and where are they located?

Waste Collection

• How often and when is waste collected?
• What type of waste can the collection service handle?
• Can the service provider handle solvents, paint thinners, metal and other art and hazardous waste materials, such as acids and photography solutions?

TIP: If you are anticipating extensive work on your space, visit the DPD Applicant Service Center before you lease or purchase a space in order to determine if your intended activity is permitted in the space, and the permits, if any, you will need to acquire before work on the space can begin. The DPD Applicant Service Center (ASC) is located on the 20^th floor of the Seattle Municipal Tower in Downtown Seattle.

Storefronts to Live/Work

Life in a storefront can be an unparalleled experience, ripe with many opportunities. Some of the best attributes of storefront properties include:

• Older spaces offer unique architectural features not found in newer units. These buildings often used more elaborate, expensive and durable materials and ornamentation than most residential buildings at the time, such as cast iron columns, prism glass transoms, colored structural glass sheathing, porcelain enamel metal panels and hand-polished, distortion-free plate glass display windows.
• Their glass front windows, which make for dramatic, sun-bathed interiors and a distinctive street presence.
• Size. Most are larger than standard homes, and have high ceilings usually finished with decorative tin tiles.
• Built-in flexibility that accommodates many uses.
• Their placement right on the sidewalk, which reserves more space for the backyard than a stand alone house (which has a front yard requirement).

TIP: Ensure that the Storefront is zoned for live/work by visiting the DPD Applicant Service Center or DPD website.

While storefronts have many appealing attributes, designing live/work space in a storefront calls for ingenuity. Some of the features that make this option attractive can be disadvantageous. Issues concerning privacy, moderating internal temperature, controlling noise and security must be considered. The large interior space and lack of side windows can also be problematic in meeting building code requirements for ventilation and sunlight for residential spaces.

You might find it challenging to keep up the exterior ornamentation if the manufacturer of the particular features no longer exists, or a suitable replacement cannot be found.

You will need to keep in mind issues when considering a storefront/live work conversion such as daylight vs. privacy, security, weatherproofing, and sunlight.

Regardless if you are in the market for a residential space, an art studio, rehearsal space or a theater rehabbing a space is a serious under-taking make sure that you fully understand all of the rules, regulations, requirements and costs BEFORE signing and lease or purchasing a property!!

Resources

American Society of Interior Designers (ASID)
Offers a product and resource directory.

Furniture.com
Provides the room planner feature, an on-line layout and design system.

HGTV.com
The on-line companion to the HGTV (Home and Garden Television) cable network. Offers an extensive collection of articles, information, and resources for designing space, as well as many do-it-yourself projects.

National Association of the Remodeling Industry (NARI)
Organization of professionals who work in the remodeling industry. Website offers a database of members and professionals, articles, and information about rehabbing.

This Old House
The on-line companion to the This Old House television series. Offers general housing tips, remodeling and energy-related topics.

• Safety in Art Workspaces
• Safety Surveys
• Emergency Plans
• Emergency Equipment
• Ventilation
• Planning
• Local Exhaust Ventilation
• Know Your Materials
• Hazardous Ingredients
• Material Safety Data Sheets
• Protecting Yourself
• Eliminate Hazards
• Substitute Materials
• Control Exposure
• Skin Hazards
• Ingestion Hazards
• Respiratory Hazards
• Personal Protective Equipment
• Repetitive Motion Disorders
• Computer-Related
• Back Injuries
• Hazardous Art Waste
• Types of Waste
• Disposal Requirements
• Reducing Hazardous Waste
• Children in Art Workspaces
• Reproductive Health Hazards
• Resources

Work-related health problems can be a serious concern for artists. Hazardous conditions and materials found in many industrial workplaces can also be found in many art workspaces. When hazards are identified in an industrial workplace, safety training and information may be required -- but these resources are less often available to artists who work alone or in small groups. Lack of awareness of these hazards, combined with poor access to safety information, training, and protective equipment, can make an art workplace especially dangerous.

Other factors can also make art spaces hazardous. Artists may work or practice for extended periods of time, often far beyond the usual work day or work week hours. This can be especially dangerous if they work in hazardous settings or in close contact with hazardous materials. Even if health and safety precautions are usually followed, artists might focus on preparing for a show to the detriment of their health and safety.

Although many art-related hazards may not appear especially dangerous at first, they can lead to serious health problems that can affect an artist's life and ability to work. Painters can develop neurological and other disorders from long-term solvent exposure. Musicians can develop permanent hearing loss from exposure to loud music, even in acoustic settings. Pottery artists may find that they are unable to continue work at the wheel because of Carpal Tunnel Syndrome or other hand-wrist problems from extended work schedules. These work-related disorders can disable visual and performing artists during their most productive years, when work activities and the associated exposures may be at their peak.

Work-related disorders and injuries in the arts are preventable. This chapter focuses on ways to eliminate or reduce hazards in your art practices and workplace. Information provided here is meant to be general in nature. However, your art-related activities and setting are likely to have some unique safety issues, so explore this chapter's Resource section to research ways to ensure your work is free of recognized hazards.

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Safety in Art Workspaces

Regardless of the kind of work you do, or materials you use, common safety concerns to address in all art workspaces include:

• Electrical Supply : Must adequately meet work requirements. Overloading electrical circuits is a hazard that can lead to fire or electrocution. All lights and other powered equipment should be properly grounded. Install ground fault circuit interrupters (for AC) when using powered equipment within six feet of potential water spillage areas. All electrical work and wiring should be completed by a licensed electrician. In addition, wiring must meet the requirements of the local building code and National Electrical Code in order to avoid electrical hazards.
• Running Water : Sufficient water supply must be available for routine clean-up after work, for decontaminating the skin or eyes after accidental contact with hazardous materials, and for use in emergency spills.
• Ventilation : Adequate and consistent amounts of fresh air are necessary for any workspace, especially for those art practices that produce fumes, dusts or other toxic materials that could be inhaled. Such practices include printmaking, painting, metalworking, foundry, photography, jewelry making, welding, and woodworking. Work areas, such as basements and attics, with limited access to fresh air might pose greater hazards. Ventilation is discussed in more detail later in this section.
• Pollution : If your work produces toxic gases, fumes, dusts or other materials that can be transported to other parts of the building, you need to ensure that these pollutants are removed from the air and vented safely above the roof of the building. These materials should not be released near anyone's windows, doors or air intakes.
• Lighting : Lighting is necessary in the workspace to adequately light the workspace to prevent vision problems, to ensure that hazards and emergency conditions are easily visible and to accurately render the art work in color quality and shade and shadow. Accurately installed and used lighting is also especially important for performing arts spaces.
• Heating : Good exhaust ventilation of a studio's contaminated air can require additional heating capacity. While it may be tempting to use portable space heaters for these purposes, these heaters can be fire hazards, especially if you work with flammable materials such as solvents or wood dust. In addition, some portable space heaters can produce carbon monoxide or other hazardous byproducts, if not properly maintained. Your existing heating system may have the capacity to heat the additional air needed. If not, heating professionals may be needed to calculate your additional heating needs and advise you about options for adding heating capacity.
• Emergency Drills : Although frequently disregarded, regular emergency exit drills are essential. Familiar tasks can quickly become difficult in an emergency situation. When developing a plan, eliminate or adapt tasks that require you to use keys or clear space before you are able to exit. All tenants, including household members in live/work spaces, should regularly participate in these exit drills.

Safety Surveys

A Safety Survey conducted by an experienced safety professional is one way to spot and address safety issues such as guardrail placement, machine safety, noise levels, ergonomic concerns and other hazards that might have escaped detection. Early elimination of these hazards can prevent a lifetime of avoidable health problems and lost productivity.

You can obtain a safety survey from one of these sources:

• Occupational Safety and Health Administration : OSHA provides free consultative services in every state.
• Insurance Company Loss Control Programs : Many insurance companies will conduct a safety survey of your space upon request. These surveys will usually only highlight major hazards, and might not address specific risks associated with art materials and processes. However, many insurance professionals, especially those in specialized industries, are usually familiar with a wide array of resources for evaluating work processes and materials. Prepare and discuss with them the specific processes and materials that you use in your studio -- especially if other artists work in your building.
• Private Industrial Hygiene or Safety Consultants : This service can be expensive, but is especially useful if you run a business or facility where multiple art uses occur and/or are utilized by many people. The American Industrial Hygiene Association and the American Society of Safety Engineers have lists of consultants available in each state.

Emergency Plans

Emergency planning is typically associated with larger workspaces and public venues. However, smaller art workspaces and live/work spaces can also produce many of the same emergency conditions. Whether the area is large or small, proper workspace safety requires an organized program that includes regular inspections, hazard evaluation and control measures, emergency planning, education, and training. Information on developing a formal safety program that can be adapted for your particular space can be found in a number of sources, including the University of Illinois at Chicago's Health in the Arts'' on-line library.

When developing a plan, remember that fire is not the only emergency that can occur in your space. Natural disasters, electrical failure, chemical spills (such as large solvent spills), release of toxic fumes or gases, chemical contamination, and medical emergencies (i.e. injuries, heart attacks, etc.), all require emergency planning. You need to be able to safely stop any process, no matter how complex or sensitive, and prepare to evacuate the building or seek help quickly. Failure to have pre-planned emergency procedures could result in an even greater emergency.

Your emergency plan should include at least the following:

• Emergency escape procedures and routes.
• Procedures for shutting down critical processes before evacuation. All shutdown procedures must emphasize speed and safety. For example, solvent-containing materials must be quickly placed in flammable storage cabinets or solvent waste disposal cans.
• Procedures to account for all occupants after the emergency evacuation. For example, do you all meet by the tree in the front yard? The café down the street?
• Rescue and medical duties for those who can perform them.
• A method for reporting and documenting fires and other emergencies.

Emergency Equipment

In Seattle, most safety equipment can be bought at a safety supply house such as Safety and Supply Company - A safe workspace should have the following equipment easily accessible:

Fire Extinguishers
Fires are still the leading cause of injuries and deaths in homes and workspaces. Fire extinguishers should be easily accessible to each workstation where flammable materials or equipment are used or stored.

Select extinguishers based on the type of fire hazards likely to occur in your space. Using the wrong extinguisher can actually spread the fire and/or endanger the user.

The U.S. National Fire Protection Association (NFPA) classifies fires into four general categories:

• Class A fires involve ordinary materials such as burning paper, lumber, cardboard, and most plastics.
• Class B fires involve flammable or combustible liquids such as gasoline, kerosene, grease, oil and common organic solvents used in the studio.
• Class C fires involve electrical equipment such as appliances, switches, panel boxes, power tools, hot plates and certain kilns. Water is usually a dangerous extinguishing medium for Class C fires because of the risk of electrical shock.
• Class D fires involve combustible metals, such as magnesium (found in some pigments), titanium (used in some pigments, jewelry and metal coating), potassium and sodium (also pyrophoric organometallic reagents such as alkyl lithiums, Grignard agents and diethylzinc). Handle these fires with extreme care! These materials burn at high temperatures and will react violently with water, air, and/or other chemicals. Be sure to consult with fire professionals about appropriate precautions and emergency actions for these fires.

The most common types of extinguishers available include:

• Water Extinguishers : Also known as APW extinguishers (air-pressurized water), these are suitable for Class A fires only. Never use these extinguishers on grease fires, as they might spread the fire rather than extinguish it. Water extinguishers should not be used on Class D fires, because the burning material might react violently with water. In addition, water extinguishers should not be used on electrical fires because of the risk of electrical shock.
• Carbon Dioxide Extinguishers (CO2) : Suitable for Class B and C fires and/or a combination of fire types. They contain CO2 gas that is highly pressurized and when applied, it works by depriving the fire of oxygen. Carbon Dioxide extinguishers have an advantage over chemical extinguishers because they do not leave behind a residue on the extinguished materials.
• Dry Chemical Extinguishers : Usually suitable for Class A, B and C fires and/or a combination of fire types. They are filled with a chemical foam or powder that is pressurized with nitrogen, and leave a non-flammable substance on the extinguished materials (CO2 extinguishers do not).
  Dry chemical extinguishers come in two common forms.
• ABC Extinguisher: A multi-purpose extinguisher filled with mono-ammonium phosphate, a yellow powder that leaves a sticky residue (which may be damaging to electrical supplies).
• BC Extinguisher: Filled with sodium bicarbonate or potassium bicarbonate, and leaves a slightly corrosive residue.

Your space might present the potential for a variety of fires. Be sure that the appropriate precautions and extinguishers are available for each application. In some cases, you might need to investigate extinguishers created for specialized uses.

• More information on fire prevention by the National Fire Protection Association Website.
• More information about fire extinguishers.

Combustible Storage
Oily rags, paint rags, oily waste, solvents and similar materials subject to spontaneous combustion should be kept in approved waste cans and emptied regularly. Small amounts of solvents or solvent-containing materials (less than a pint) can be evaporated if other and better alternatives are not available. Evaporation should take place either outdoors or inside a local exhaust hood where no one will be exposed to the solvent vapors. Combustible materials should always be stored away from exits and equipment using heat or flames.

Sprinkler System
Sprinkler systems were once expensive and unusual in small art studios. However, new systems, using flexible tubing that tie directly into the space's water supply, have made sprinkler systems more affordable and easy to maintain. If your work involves a lot of combustible materials, heat or fire sources, seriously consider installing a sprinkler system.

Emergency Alarms, Smoke and Carbon Monoxide Detectors
All tenants should be able to detect emergency alarms at all times and locations. Special systems should be installed for occupants with hearing or visual impairments. Smoke detectors should be installed throughout the space, particularly near areas where flammable materials are used or stored. Install carbon monoxide detectors if the heating system is old or consistently turned up to provide additional heat and ventilation. CO2 detectors should also be near all portable gas space heaters, as well as combustion-generating equipment such as welders.

Emergency Eyewash and Shower
Most studios must have a way to irrigate the eyes with clean, cool water for at least 15 minutes after a hazardous material (liquid or solid) has come into contact with the eye. In many cases, it is also important to have instant access to shower or wash facilities for chemicals spilled on the skin. Portable eye wash kits can be purchased for first aid needs, but any facility with eye or skin hazards should have at least a sink with flowing water that can be accessed in an emergency by a victim with limited or no vision.

First Aid Supplies and Training
First aid kits should only contain materials to aid injured persons until they can be transported for emergency care. These kits should be large enough to accommodate the number of users in the space, and should only include items such as clean bandage material large enough for compression of bleeding, tourniquets and other materials that tenants have been trained to use. Inappropriate use of tourniquets and other first aid materials can be harmful. Small bandages and other supplies needed for routine minor injuries should be stored in a separate area so that the first aid kit remains fully stocked for emergencies.

The American Red Cross regularly offers first aid courses. Build first aid kits that are specifically suited to the types of injuries that could occur in the space: i.e., chemical burns from acids, serious lacerations from saws, etc..

Poisonings and Toxic Emergencies
Contact information for the Washington State Poison Control 1-800- 222- 1222 a physician, emergency room, fire and police departments should be prominently displayed on the outside of the first aid kit and near each phone.

Ventilation

Proper ventilation is key in lowering the concentration of airborne materials dangerous to inhale. Ventilation can also prevent the build-up of flammable work materials in the air, which could lead to a fire or explosion.

Unfortunately, common residential heating, ventilation, air-conditioning (HVAC) systems are not designed to exhaust the airborne toxic chemicals, gases, vapors and dusts produced by many art processes. Residential HVAC systems usually re-circulate most of the air inside a space, and exhaust only a small portion outside. While re-circulating interior air helps prevent costly heating and cooling of fresh air from the outside, it also re-circulates any hazardous contaminants in that air. If the air is re-circulated to other parts of the building, these hazardous materials can also be dispersed to distant parts of a building and harm people.

Installing proper workplace ventilation in an existing facility is often much more expensive than installing ventilation when the building is first built or renovated. If possible, ensure that proper ventilation is mapped out and installed from the beginning. If you are moving into a space with existing ventilation, be prepared to improve or maintain this system and absorb the cost. Remember that this cost has a long-term benefit - your health.

Planning

For projects that require an extensive ventilation system, hire a ventilation engineer experienced and trained in industrial ventilation. Input from both parties is required to design an effective system; you might not know which types of ventilation systems are appropriate, and the engineer might not be familiar with the chemicals and processes you are using.

A common problem with designing ventilation systems for art spaces is pinpointing where hazardous activities might occur. Use of toxic materials should be limited to specific areas and fixed workstations to promote efficiency and economy. For example, if you are designing a printmaking studio that specializes in etching, it would be impractical to install slot hoods in every work area; rather, plan the space to restrict use of acids and other etching materials to certain locations.

Your workspace's hours of operation are also important. If your space is only open at certain times of the day, the ventilation system can usually be shut down during off-hours. If you are designing a space that will have multiple uses, make sure everyone understands how to operate the ventilation system.

There are two types of ventilation systems used for hazardous substances: dilution ventilation and local exhaust ventilation. Dilution ventilation involves bringing in clean air from outside the workspace to dilute contaminated air. The contaminated air is then pushed to the outside, usually with exhaust fans. Local exhaust ventilation traps the contaminants near their source in the work area before they become more widely airborne, and then expels them into the outside air.

The rest of this section discusses the ins and outs of dilution and local exhaust ventilation, and how to Dilution Ventilation

Classic examples of dilution ventilation are windows with exhaust fans (used to remove contaminated air) and open windows that provides fresh outside air. In an arts workplace that produces air contaminants, the exhaust fan should expel contaminated air from the space, pulling it outside. Locate the exhaust far enough away from all air sources so that you do not re-circulate contaminated air or endanger someone else's air source.

• Sample I - Dilution Ventilation
• Sample II - Dilution Ventilation

Dilution ventilation should not be used where large amounts or highly toxic air contaminants are being generated. It is difficult to consistently provide large volumes of uncontaminated air with this system, and to calculate the amount of fresh air required to replace the contaminated air.

If you use this system, work with an industrial hygiene and ventilation expert who can calculate how much makeup air is necessary. Do not rely on your sense of smell as a guide to the effectiveness of the ventilation. Many toxic substances are not detectable at low levels, yet are very harmful.

Checking a Dilution Ventilation System
For a full evaluation of your ventilation system, consult with a ventilation engineer who will use airflow instruments and smoke tubes to track and measure the flow of air, and ensure that design specifications are met and that the system works properly. These tests should be part of your normal maintenance schedule.

Questions to ask to ensure your system works:

• Is makeup air adequate? There must be sufficient fresh air from outside ("makeup air") to replace the air being exhausted. Insufficient makeup air weakens the performance of the exhaust system. This can be difficult to detect, and you will need to work with a professional to get an accurate assessment. If the air quality in the room is poor, the air is hazy, or the contaminants are not being adequately flushed out, makeup air might be insufficient.
• Is the makeup air source positioned properly? If the makeup air source is located too close to the exhaust outlet of a dilution ventilation system, the makeup air can be drawn directly into the exhaust duct and will mix with contaminated air in the room.
• Are the contaminants being drawn away from your face? Make sure that clean air enters the room, passes your face, mixes with contaminants and immediately exhausts them out of the space. A professional smoke tube indicates the direction of the airflow. In place of a smoke tube, you can substitute an inexpensive child's soap bubble-making kit. Watch the direction the bubbles move to see how air flow occurs in the space.
• Are obstructions interfering with airflow? Ventilation can become compromised if the airflow is blocked. For example, a vertical easel can easily block fans or exhaust systems. Carefully position the makeup air source, exhaust fans and your work tools (such as an easel) to prevent interference.
• Is the fan connected properly? Connecting propeller fans in the wrong direction will cause air to blow into the room instead of being exhausted. This is easily detected using the soap bubbles.
• Is the exhaust air being re-circulated? Recirculation of exhaust air means that the toxic contaminants are also being circulated back into the space. Soap bubbles can be used to follow the path of exhausted air and direct them away from fresh air intakes

By following these simple tests and guidelines, you can help ensure that your ventilation system is working. In addition, check the Resource section of this chapter for recommended books and organizations that also might address your ventilation concerns. maintain these systems.

Local Exhaust Ventilation

A local exhaust ventilation system usually consists of a hood to capture contaminants, a system of ducts, and an exhaust fan to transport impurities outside. Air cleaners can also remove harmful types of dust or particulates from the air. If done appropriately, the cleaned air can often be re-circulated, saving money on heating and cooling.

• Sample - Local Exhaust Ventilation

Hood types for local exhaust ventilation systems vary in design, depending on specific use. Canopy hoods are used over electric kilns where heated contaminants often rise. Slot exhaust hoods are used for cleaning etching plates where contaminants can be captured at the workbench. Enclosed hoods are often used for acids that are dangerous to nearby users and materials. Spray booths are used for spraying paint and glazes, as these contaminants can easily float in the air to distant sites. Movable exhaust hoods are used for welding at multiple sites. Sawdust-collecting hoods are designed for woodshops. Many art practices can use either a slot exhaust hood or an enclosed hood to capture hazardous materials and eliminate them from the air supply.

Basic rules for operating local exhaust systems:

• Provide enough clean air to replace exhausted air.
• Enclose the process as much as possible to ensure effective capture of contaminants.
• Place the hood as close to the toxin-producing activity as possible.
• Have as few bends in the ductwork system as possible. Make sure the bends are gradual, not sharp.
• Locate fans outside the room so that all ducts are under negative pressure (like a vacuum), which draws air and contaminants into the exhaust system, and removes them to the outside.
• Do not re-circulate any of the exhausted air, unless you are using a dust collection system designed for recirculation.
• Make sure exhausted air cannot reenter the room or the intake vents for other air systems.
• Schedule regular maintenance.
• When exhausting solvents or other flammable materials, use spark-proof (aluminum) fan blades and place fan motors outside the airflow stream so that sparks from the motor do not ignite the flammables.

Checking a Local Exhaust System
A local exhaust system, such as a spray booth or slot hood, should capture the contaminants before they get into the air that you breathe. If you can smell gases or vapors, or see contaminant dusts or mists floating in the air or settling on surfaces, the hood is not working properly.

You can also use commercial-grade smoke tubes to generate a haze that will help you see the direction of airflow in a room. A less expensive alternative is a child's soap bubble kit. A properly working system will draw the bubbles (or smoke) steadily into the hood. If bubbles pass your face while you are in a working position, the toxic contaminants are being pulled into your breathing zone, where you can inhale them.

If tests indicate that the local exhaust ventilation system is not working correctly, then look for these common problems:

• Is there adequate makeup air? One of the most common problems with local exhaust systems is insufficient fresh air from outside ("makeup air") to replace the air being exhausted. Insufficient makeup air weakens the performance of the exhaust system.
• Is the makeup air source positioned properly? Placing the makeup air source too close to the local exhaust hood can create turbulence and/or blow contaminants out of the hood and by your face. Use soap bubbles or smoke to detect turbulence.
• Are there cross-currents? Local exhaust hoods are often very sensitive to cross-currents caused by heavy traffic around the hood, nearby air conditioners, doorways that are opened or closed, etc. Check the movement of the bubbles or smoke to ensure they flow into the hood in common work conditions.
• Is the activity adequately enclosed? A hood generally performs more effectively when it more completely encloses a work process.
• Is the exhaust air being re-circulated? Re-circulation of exhaust air means that hazardous contaminants are being dispersed back into the space. Again, soap bubbles can be used to follow the path of exhausted air away from the fresh air intakes.

Following these simple tests and guidelines can help you ensure that your ventilation system is working properly. Check the Resource section of this chapter for recommended books and organizations that can also assist in addressing your ventilation concerns. In addition, for a full evaluation of your ventilation system, it is best to consult with a ventilation engineer.

Know Your Materials

Hazardous materials, including art products, can harm your health in many ways. Some hazardous materials can affect body surfaces on contact, or be absorbed by the body through inhalation, ingestion (swallowing) or absorption through the skin. Become familiar with the materials you work with, and how they might affect and enter your body.

• Skin and Eye Hazards : Some substances that come into contact with the skin and eyes can cause allergic reactions, skin rashes, itching, burning, redness, swelling and surface deterioration that can be severe or even life-threatening. Contact with the eyes may also produce itching, burning, redness and tearing. The eyes are particularly vulnerable to these contact injuries because the cornea -- the delicate layer of tissue over the front of the eye -- is important for vision. Damage to the cornea from direct contact with irritating substances such as cleaning agents, solvents, acids or alkalis can, if not treated properly, affect vision permanently.
• Some hazardous materials can also be absorbed through the skin into the blood stream and affect organs. These materials usually pass more easily through scrapes, cuts or rashes. Such materials may also be absorbed though the eyes.
• Ingestion Hazards (Swallowed): Some materials may be absorbed through the gastrointestinal system (mouth, stomach and intestines) and cause serious health problems in other parts of the body. Lead dust in stained glass work, for example, may contaminate the fingers and then be carried to the lips and swallowed if the dust is not washed off thoroughly. This swallowed lead can be absorbed and, over time, harm the brain, kidneys and other tissues.
• Inhaled Hazards: The respiratory system (mouth, nose, throat and lungs) is especially vulnerable to direct injury from hazardous materials. Materials that directly affect the respiratory system may trigger coughing, sneezing, gasping, wheezing, shortness of breath and other symptoms. These effects are familiar to anyone who as entered a smoke-filled room.
• Some materials can also enter the body through the respiratory system. Breathing vapors of mineral spirits or other solvents, for example, may irritate the respiratory system, but it can also be absorbed through the lungs into the bloodstream. Once in the bloodstream, these substances can be transported to the brain, where they can cause lightheadedness, confusion and other symptoms. Over time, with repeated absorptions, some solvents can permanently affect the brain and other organs.

Hazardous Ingredients

Product labels can help you to identify potentially hazardous ingredients in your art materials. However, labels usually only identify active ingredients: substances important to the product's function. In some cases, ingredients that can cause health problems may be among the fillers, fragrances, preservatives and other chemicals that are not involved in the product's function, and therefore not listed.

Labels can also be misleading . A loophole in federal regulations allows some art materials to be labeled as non-toxic when, in fact, their hazardous properties and health effects remain unknown. Fortunately, safety information is becoming increasingly available from other reliable sources, including the Material Safety Data Sheets (MSDS), the Washington State Poison Control and national health and safety information centers such as OSHA.

Health Labeling for Art Materials
In 1988, the Labeling of Hazardous Art Materials Act was signed into law, requiring all art materials to be reviewed to determine their potential for chronic health hazards, and labeled to warn of materials posing chronic health hazards. Unfortunately, this regulation does not require manufacturers to conduct testing of materials. Under-tested art products might be labeled non-toxic.

Art materials that require labeling include:

• Products that actually become a component of the work of art, such as paint, canvas, ink, crayons, chalk, solder, brazing rods, flux, paper, clay, stone, thread, cloth, and photographic film.
• Products that are closely and intimately associated with the creation of the final work of art, such as brush cleaners, solvents, ceramic kilns, brushes, silk screens, molds, mold-making material, and photo-developing chemicals.

Some tools, implements and furniture used to create a work of art, but do not become part of the piece, are not covered by this law.

For additional information on the labeling requirements for art materials, contact the U.S. Consumer Product Safety Commission, Division of Regulatory Management, Office of Compliance and Enforcement at 301-504-7912, or visit their Website.

The Washington State Poison Control Center is an important resource for information on the hazards of materials and products, and on working safely with these materials. In addition to responding to poison emergencies, the Center answers consumers' questions about the hazards and use of materials in the home or workplace. The Center can often access information on substances commonly added to "active ingredients" in many products.

Material Safety Data Sheets
One of the most common sources for health and safety information about a hazardous product is the Material Safety Data Sheet (MSDS), which provides information on the product's chemical composition, uses, hazards, and disposal, among other things. Manufacturers are required to prepare a MSDS for each of the hazardous products they produce, though some MSDSs may contain inaccuracies.

Government agencies that provide independent assessments of hazardous substances include:

• The Occupational Health and Safety Administration (OSHA)
• The National Institute of Safety and Health (NIOSH)
• The Agency for Toxic Substances and Disease Registry (ATSDR)

Review the next section, Material Safety Data Sheets, for additional information

Material Safety Data Sheets

Manufacturers, importers and distributors of hazardous products must provide commercial customers with a Material Safety and Data Sheet (MSDS), in English, upon first purchase of a hazardous product, as well as whenever the MSDS changes. The MSDS provides information on the product's chemical composition, uses, hazards, and disposal, among other things.

Although MSDSs are not required for non-hazardous products, many manufacturers will provide them with a statement indicating the product is non-hazardous. The law does not require manufacturers to provide a MSDS to artists, but most responsible producers will provide them to all of their customers.

While the format of the MSDS may change from producer to producer, all MSDSs must include the following information and sections:

Identity
The product identity should be the same as the name found on the product label.

Section I
This section must include the name, address, and telephone number of the chemical manufacturer or party responsible for providing information about a product's hazards and hazard-related procedures. It must also give the date of the most recent update.

Section II - Hazardous Ingredients/Identity Information
Includes the chemicals and common names of hazardous ingredients. For mixtures that have been tested as a whole, only the ingredients found to be hazardous must be listed. If the mixture has not been tested, all toxic ingredients at a concentration greater than 1% must be listed, as well as all carcinogenic (cancer-causing) ingredients at concentrations over 0.1%. The MSDS does not have to list the percentage of each ingredient in the product.

The manufacturer may also list some ingredients as "Trade Secrets," which means the substance will not be identified.

Materials are considered hazardous if:

• Listed in the Occupational Safety and Health Administration's Z-List of Toxic and Hazardous Substances. See the OSHA Website, or theAgency for Toxic Substances and Disease Registry 's database of hazardous and toxic substances.
• The American Conference of Governmental Industrial Hygienists has assigned a permissible exposure limit (PEL) to the product. The PEL represents the maximum occupational exposure permitted under the OSHA regulations.
• It is found to be toxic, carcinogenic, irritating, sensitizing or damaging to certain body organs.

Section III - Physical/Chemical Characteristics
Lists technical information about the product, such as the boiling point, vapor pressure, vapor density, solubility in water, specific gravity, volatile percentage, evaporation rate, appearance and odor. For aqueous solutions, pH may be included.

Section IV - Fire and Explosion Hazard Data
Contains technical information on the product's flammability, types of fire extinguishers needed, and other special precautions. Information in this section is important in planning for emergencies.

Section V - Reactivity Data
Addresses the product's compatibility with other chemicals, and special conditions to avoid. The stability section indicates whether the product can decompose, and describes conditions under which decomposition would occur. The hazardous decomposition section tells you what hazardous chemicals might be produced when the product is heated or burned. This information is important in determining proper storage of the product.

Section VI - Health Hazard Data
Lists symptoms of overexposure, acute and chronic health effects, emergency first aid measures, and the product's carcinogenic (cancer-causing) properties. The MSDS must state if a chemical in the product has been found to be a carcinogen (or probable carcinogen) by the International Agency for Research on Cancer and/or OSHA.

This section must also notify you if the product is listed in the U.S. National Toxicology Program's Annual Report on Carcinogens, and should list medical conditions that can be aggravated by exposure to the product.

Section VII - Precautions for Safe Handling and Use
Covers such topics as spill control, waste disposal, storage, and handling. Also provides information on special precautions such as what protective equipment to wear in case of spills.

Section VIII - Control Measures
Contains information about such control measures as ventilation, respirators and personal protective equipment (gloves, goggles, and protective clothing). The ventilation section should explain and recommend ventilation systems, while the respirator recommendations should state what type of respirator cartridge should be used. Most MSDSs do not tell you what type of glove to use, so you should consult other sources such as OSHA for these recommendations.

Other Sections
Additional sections in the MSDS provide technical and transportation data, which we will not cover here.

• Sample I of a MSDS
• Sample II of a MSDS

Protecting Yourself

Once you have identified a hazardous material and its possible health implications, focus on preventing exposure. The most effective ways to prevent illness from exposure are, in this order:

• Elimination,
• Substitution,
• Controlling your exposure, and
• Personal protective equipment

Eliminate Hazards

Eliminating the hazardous material is the most effective way to prevent exposure and possible health effects. For example, if you do not have to use a dry chromium-containing pigment, then don't use it!

The easiest time to eliminate hazardous materials in your work is at the beginning of your career, or when you start working with new materials. Finding a way to avoid using hazardous materials is the best way to avoid exposure and the health effects that can follow.

Some materials are just too hazardous to use. These include cancer-causing chemicals such as:

• Asbestos
• Cadmium fumes
• Lead or zinc chromate
• Benzene
• Chromated copper arsenate

For a list of cancer-causing substances to avoid, see the International Agency for Research on Carcinogens.

Substitute Materials

Try to substitute hazardous materials with less dangerous alternatives. Learning to work with the new material or process can take time and patience; again, it is often easiest to start the process of choosing safer substitutes early in your career, so that you can adjust to the materials. Ideally, using a different and safer material will lead to creative explorations and new ideas that are safer to produce. Give safer substitutes time to become part of your technique, and reserve more hazardous materials for those rare applications done with special precautions.

Suggestions for safer substitutes include:

• Use the least toxic solvents possible (i.e. denatured alcohol, isopropyl alcohol, acetone, and odorless mineral spirits).
• Use substitutes for toxic metals such as lead and cadmium (i.e. cadmium-free silver solders, lead-free glazes and enamels).
• Use water-based materials instead of solvent-based ones (i.e. water-based silk-screen inks and water-based paints).
• Use liquid materials to replace powders (i.e. wet clay or water-based dyes, instead of dry clay or powdered dyes).
• Use wet techniques instead of dry techniques (i.e. wet sanding, wet grinding).
• Apply coatings by brushing or dipping instead of spraying.

For additional information, download one of the following charts, which are provided by the Center for Safety in the Arts and offer information on:

• Ceramic Substitutions
• Drawing and Painting Substitution
• Fiber and Textile Substitutions
• Graphic Art Substitutions
• Metalworking Substitutions
• Photography Substitutions
• Printmaking Substitutions
• Sculpture Substitutions
• Woodworking Substitutions

Control Exposure

When eliminating or substituting hazardous work materials or processes is not feasible, your next option is to control your exposure to the hazard. Techniques include installing ventilation or other equipment to reduce exposure, and limiting the time you spend in the environment where exposure is likely.

Examples of exposure controls include using a glove box to contain dusty materials, using a spray booth to trap paint overspray, and keeping containers of volatile liquids covered between each use. Performing activities that do not directly involve hazardous substance exposures, such as stretching canvases or doing computer work away from these materials, also reduces unnecessary exposure.

Skin Hazards

If you work with materials that are skin hazards, prevent contact and prepare for accidental exposures. Some hazardous materials affect the skin directly, while others are absorbed through the skin and harm other body tissues. Although the skin protects against absorption of many materials, skin that is broken (e.g. cuts, scrapes, burns, etc.) may allow materials to be absorbed more easily. Open or healing wounds should be covered during work until they are fully healed.

Guidelines for avoiding contact with skin hazards:

• Cover containers of hazardous products securely.
• Transfer powders carefully to avoid airborne dust production.
• Pour liquids carefully to avoid spilling.
• Use a "glove box" for especially hazardous operations. Simple, inexpensive glove box designs can help prevent both skin contact and inhalation of some hazardous materials. Click here to view an example of a glove box.
• Wear protective work clothes and gloves.
• Wash work clothes separately from your regular clothing to prevent contamination of laundry areas and other clothes. After you wash, follow up with a rinse cycle to help remove any remaining contaminants from the washing machine. This step is especially important in communal wash facilities, as the contamination factor can affect a larger number of people.
• Provide easy-to-use eyewash fountains or portable eye wash kits.
• Provide emergency showers.
• Wash exposed body surfaces at the end of a work period and before contact with other people and non-work related objects (i.e. your car, books, computer, etc.). Never use turpentine or other solvents to clean hands. Instead, use soap and water, or a safe waterless hand cleanser available from a safety supply store. Baby oil (mineral oil) will also remove some paints and printmaking inks from your hands.

Ingestion Hazards

Many hazardous materials can enter the body through the gastrointestinal (digestive) system, where they can be absorbed and distributed to other parts of the body. Swallowing even small amounts of some substances can cause serious health complications, especially when done repeatedly.

Guidelines for avoiding ingestion hazards:

• Food, drink, tobacco or skin treatments should not be used or stored in the workspace where you use hazardous products and art supplies.
• Do not touch you mouth, lips or face with work tools or equipment. For example, paintbrushes should not be "tipped" with the lips.
• Do not touch your lips with dirty fingers.
• Wash your face, hands and affected skin immediately after spills.
• Thoroughly wash hands, face and other body surfaces before smoking, eating, drinking or applying makeup and skin treatments.
• Wash exposed body surfaces at the end of a work period and at the end of each workday before contact with other household members.
• Change clothes and wash up before entering common areas such as the kitchen, bedroom, or automobile where contaminants may be shed and picked up by others.

Respiratory Hazards

Airborne hazardous materials are often among the most dangerous. The respiratory (breathing) system is very susceptible to injuries that can lead to a lifetime of breathing problems. Solvents, metal fumes, pigment dusts and other hazardous materials can not only harm your respiratory system, but may also quickly pass through the lungs and affect other parts of the body.

Seriously reconsider using materials hazardous by inhalation. If elimination or substitution is not possible, then carefully plan your use and control of these hazards. Make sure these control systems are a part of your general safety routine.

Guidelines for preventing exposure to respiratory hazards:

• Do not eat, drink, smoke, apply makeup or chew gum in the work area.
• Dusts should always be wet-mopped, never swept. Sweeping can place dusty materials and hazards back into the air.
• Dusty work surfaces should be wet-mopped daily to prevent dust from drying and becoming airborne later.
• Cement floors should be sealed with commercial cement sealers or paint to make cleanup easier.
• Highly toxic clay, lead, and other types of dust require a special High Efficiency vacuum system, known as a HEPA. Very fine dust particles can easily escape from normal or industrial vacuum cleaner bags and be recycled into your air supply.
• Make sure your ventilation system is appropriate for your level of airborne hazards, and keep it well-maintained. See the Ventilation section for more information

Personal Protective Equipment

Of all the methods to protect yourself from exposure, Personal Protective Equipment (PPE) such as gloves and respirator masks are often the least effective. Simple dust masks and dish gloves will not protect you from common art workplace hazards such as solvent vapors, metal fumes and pigment dusts.

PPE must be properly selected, used, and maintained. These responsibilities usually require training from a certified safety professional. Contact UIC-Health in the Arts at 312-996-7420 for additional information and assistance purchasing PPE

Repetitive Motion Disorders

Repetitive motions, awkward positions and injury symptoms are common in the performing and visual arts. Developing art skills often requires large amounts of practice and repetition of specific motions. Artists might be at special risk from these disorders.

When preparing for a show or deadline, artists often engage in long periods of repetitive practice or work activities. Focusing on the work may distract them from early symptoms, or they might regard pain is an expected part of the creative process.

Tendons, joints, bones, muscles and other body parts will wear from the physical stress of excessive repetitions, and develop inflammation such as tendinitis, myositis, arthritis or Carpal Tunnel Syndrome. Disorders that can develop from overuse are known as Repetitive Motion Disorders or Cumulative Trauma Disorders.

The information and recommendations found here are general and may not be appropriate for your work situation. Health conditions and work settings can make your needs unique. Please consult a physician if you have concerns about these issues.

Causal Factors
Repetitive Motion Disorders are most commonly associated with highly repetitive, awkward and forceful motions, but can also result from simple repetitive movements. Repetitive motions in extreme music practice schedules, writing deadlines and art show preparation can all lead to overuse and injury. Overused body parts often react with mild inflammation; if the inflamed structure is not allowed time to return to normal, then the next day's use can cause additional injury. The gradual and additive effects of these small injuries can lead to more long-lasting effects. For example, vocal cord nodules are a repetitive motion disorder that can develop from voice strain and overuse.

Suggestions to reduce repetitive stresses in the arts workplace:

• Rest affected body parts between necessary, stressful uses.
• Spread practice, production and performance times as widely as possible through the day. Four hours of practice or work at the drawing board is much less injurious if divided into four one-hour periods and spread from early morning to late in the day, than if done in one long session.
• Do not spend breaks using the body parts in other repetitive activities. Typing between piano practice periods, for example, can cause additional stress and injury.
• Avoid forcefulness when possible. Good music teachers often emphasize the importance using relaxed motions. Find ways to efficiently apply only the amount of force necessary for the task.
• Avoid awkward postures. Again, music teachers often begin with a comfortable, sustainable posture (see Computer-Related) that will allow more productivity with less fatigue and risk of injury. Hunched-over positions in drawing, music and writing will likely limit the artist's long-term productivity. Find a way to bend or position the work or instrument to your body, not the other way around.

Early Detection and Treatment
Repetitive Motion Disorders can be disabling and career-shortening, especially if ignored in the early stages. Early treatment of these disorders is usually much more effective than later treatment. If you begin to experience discomfort in a body part while working in a certain position, or after some amount of repetition, you could be developing a repetitive trauma disorder. Follow the tips above, and rest the affected part as much as possible. If the discomfort does not improve, or returns during the repetitive activities, then consider seeking medical attention.

Computer-Related

Computer use has become so widespread in the arts that Repetitive Motion Disorders in this setting are becoming common. Using the computer, sitting for long periods (e.g. drawing board, piano, pottery wheel, etc.) or maintaining an awkward posture can lead to these disorders. Guidelines for setting up a computer workstation focus on back, neck and limb positions that apply to many long-term work positions.

Neutral Work Positions
"Neutral" positions are the least strenuous postures for the muscles, tendons, joints and skeletal system. Your standing neutral position can usually be found by standing and remaining in a relaxed posture for a few minutes. Usually, standing like this leaves the arms and hands resting at your sides, with slight angles at the elbows and wrists. The shoulders are slightly back and the head is level or bent forward slightly.

Using this position as a guide, try to find a sitting position with the back, neck, and arms in the positions established in the standing neutral position. The feet should be on the floor or a stable footrest, and the knees should be level or slightly below the hips. Support the back, hips and upper thighs with a chair that helps you comfortably maintain this position with little effort. This may mean investing in a chair that adjusts to support the "small" of your lumbar back (the forward curve of the lower back leading down to the hips) and the backwards curve of the upper back. The head should be level, or bent slightly forward.

Now, position the work surface or keyboard to within easy reach. Bring your arms and hands up to meet the work surface with the least amount of change to their position. Bend the elbows as needed, but leave them hanging relaxed at your sides. Observe the angle of the wrists when your arms are hanging at your sides. Then, position the keyboard or work surface to allow the wrists to remain as "neutral" as possible. This might mean adjusting keyboard or work table height and position.

Adjusting your chair and work station to support you in a neutral position will allow you return to this position frequently, especially when you are tired. Do not force yourself to maintain this position during all work times. You might want to change positions, use arm rests, wrist rests, or footrests, or recline the chair back at times. You might also want to change to a standing position. You can use the neutral position concepts again to adjust your standing workstation to your body.

Be sure that other features of your workstation (e.g. light glare, ventilation problems, noise, etc.) do not interfere with your ability to return to the neutral positions. Maintaining awkward postures to avoid glare or other factors can lead to physical stresses and Repetitive Motion Disorders.

Back Injuries

Back injuries from lifting are the most costly workplace injuries, and can lead to long-lasting activity limitations. Many back injuries occur when persons performing a task underestimate the weight and the strain of the activity. Miscalculating that a particular task is safe and routine is a leading factor in back injuries.

Simple changes in technique, aging, and unrecognized health conditions can lead to sudden and sometimes debilitating back problems. Protect yourself by avoiding unnecessary lifting. In addition, approach lifting tasks with care, using upright, neutral postures and proper body mechanics.

Lifting Tips

• Eliminate unnecessary lifting, whenever possible.
• If the object is over 40 to 50 pounds or bulky, do not lift it by yourself.
• If the load is in an awkward place, move it into position first, then lift.
• Always face the objects to be lifted.
• Bend your legs, not your back. Use your legs to do the work.
• Use a wide, balanced stance with one foot slightly ahead of the other.
• Use smooth, lifting movements, and do not jerk.
• Try to keep the load close to the body as you move.
• Position the load as close to waist height as possible.
• Do not twist when turning. Turn your whole body by changing foot positions.
• Lower the load slowly by bending your legs, not your back.
• Return to an upright, neutral position as soon as possible.
• Move the load towards you, not away from you.
• Use slides and lateral transfers instead of lifting.
• Reduce reaching distances.
• Place heaviest objects on shelves at waist level, lighter objects on higher or lower shelves.
• Eliminate any barriers between the load and lifter.
• Combine operations, or shorten the distances that material must be moved.
• Use a table if the load must be turned or positioned after initial lift.
• Consider automating the lifting task, or using a mechanical lifting device.
• Reduce the load so that the weights are within these lifting guidelines.
• If the load is to heavy or bulky, get help to lift it.
• Transport loads on a cart by pushing, not pulling.

Hazardous Art Waste

Artists sometimes dump or throw away hazardous materials in the trash, or rinse them down the drain. This is harmful to the water supply and environment, and may also be illegal. Hazardous products may interact with other chemicals in your drainage system or waste receptacles, resulting in unexpected and dangerous consequences. Proper handling of hazardous art materials and waste requires understanding the types of hazardous wastes generated, and their disposal requirements.

Types of Waste

Artists often use materials that become hazardous waste. Some harmful substances are in the art products themselves, while others are used in preparatory products. Characteristics that cause a product to be considered hazardous waste include ignitability, corrosiveness, reactivity and toxicity. Certain chemicals and materials listed by the Environmental Protection Agency (EPA) are also regulated as hazardous waste.

Art wastes that are not considered hazardous include preservative-free sawdust; water-based paints without metals such as cadmium, cobalt, or lead; clay; old canvas or stretchers; scrap metal; and water-based dyes.

Art wastes that are considered hazardous include:

• Solvents : Materials such as oil paints and paint thinners, turpentine, paint removers, lacquers and their thinners, varnishes, inks, plastic resins, and cleaning solvents.
• Aerosol Spray Cans : Aerosol spray containers such as spray paints, adhesives, fixatives, and dyes can pose an explosion risk. Accidents can be caused by puncturing spray cans; explosions have resulted from partially full cans that have been discarded in incinerators.
• Acids and Alkalis : Acids, bases, and mixtures having a pH of up to 2.0 or 12.5 or greater are considered corrosive. pH information can be found on the product's label, obtained from the manufacturer or listed on the product's MSDS. Printmaking processes use large quantities of acids, including nitric, hydrochloric, and phosphoric acids. Glassblowing and stained glass processes often use hydrofluoric acid. Acetic acid and many alkaline chemicals such as sodium hydroxide and potassium carbonate are used in photography.
• Photo Chemicals : Photographic chemicals can include alkalis, silver compounds, ferricyanides phenolic developers, p-phenylene diamine derivatives, formaldehyde, etc. The total volume of photographic solutions generated even by small-scale photo processing can amount to dozens of gallons daily.
• Metals : Toxic metals are present in a wide range of art materials, including paint and ink pigments, ceramic glazes, copper enamels, and glassblowing materials. These include compounds of lead, cadmium, copper, cobalt, chromium, selenium, arsenic, manganese, and antimony. Some state EPAs recommend artists' paints be saved for a collection program rather than handled like house paint, because they contain higher levels of toxic metals than other paints. The Washington State Department of Ecology Website offers information on how to safely discard paint waste.
• Flammable and Combustible Wastes : Combustible wastes are liquids with a flashpoint less than 140 degrees Fahrenheit, ignitable compressed gases, and/or non-liquids that can cause fire through friction, moisture absorption or spontaneous chemical change. Examples include epoxies, rubber cement, solvents, and solvent-based paints and inks. Flashpoint information can be found on the MSDS.
• Reactives : When mixed with water, some materials -- called "reactive" -- have violent chemical reactions or form explosive mixtures or toxic vapors. Examples of reactive include: chromic acid, organic peroxides (catalysts in many polyester resin systems), cyanides (found in photography, electroplating, metalwork and jewelry cleaning) and potassium chlorate (used in making Dutch Mordant).
• Acute Hazardous Waste : Chemicals such as arsenic compounds, hydrogen cyanide, cyanide salts, many pesticides, and vanadium pentoxide are considered acute hazardous waste. These materials may be found in preserved animal and plant product specimens and other art materials.
• Miscellaneous : Other classes of hazardous waste not normally encountered by artists may include radioactive materials, medical waste and pathological waste (i.e. viral or bacteriological waste).

Disposal Requirements

The U.S. Environmental Protection Agency (EPA) regulates disposal of hazardous waste and industrial wastewater discharge as defined in the 1976 Resource Conservation and Recovery Act (RCRA). The responsibility for administering RCRA rests with individual states, through agencies such as the Washington State Department of Ecology.

There are four categories of hazardous waste producers. Each category has a distinct set of definitions and regulations that dictate how to dispose waste. The EPA classifies most artists outside the home, art businesses, academic art institutions, community centers and printmaking or photographic studios as Commercial Generators, which includes Large Quantity Generators, Small Quantity Generators, and Conditionally Exempt Small Quantity Generators. Artists working at home may qualify for those exemptions allowed for Household Hazardous Waste Generators. However, the distinction between household and commercial generators in this situation has been vague.

Though you might not be obligated by law to dispose of your hazardous materials like commercial generators, these wastes are still important contributors to environmental degradation and the resulting health problems. See Reducing and Disposing of Hazardous Art Wastes below for tips on how to responsibly minimize the environmental impact of these wastes.

The Washington EPA's website offers information on disposing hazardous waste. In addition, review Waster Disposal in Chapter 20: Utilities for more information on how and where to dispose of hazardous art waste in the Seattle area.

Reducing Hazardous Waste

Steps you can take to help reduce and dispose of hazardous waste correctly include:

• Returning unused hazardous products to manufacturers, if possible. Some manufacturers provide or fund collection and exchange services for spent materials. The most common example is the return of used printer ink cartridges.
• Minimizing the volume of waste you generate by planning your product use carefully.
• Using recycling programs.
• Set up recycling programs. Artists' groups can organize swap and collection programs.
• Using hazardous waste collection programs . See Waste Disposal in Chapter 20: Utilities for additional information.
• Evaporating small amounts of solvents or solvent-containing materials (less than a pint), if other and better alternatives are not available. Evaporation should take place either outdoors or inside a local exhaust hood where no one will be exposed to vapors.
• Placing non-hazardous materials, including clay, non-leaching or non-dissolving, solid metals and paint residues, in the trash. Glazed pottery can go in the trash if it doesn't give off toxic metals such as lead or cadmium.
• Neutralizing or diluting acid and alkali wastes, and recovering silver from photographic fixer solutions, to make them non-hazardous.
• Following the Material Safety Data Sheet (MSDS) provides the best directions on how a hazardous product should be stored and disposed.
• Taking hazardous materials to a licensed hazardous waste disposal company, if necessary. Individuals, Household Generators and Conditionally Exempt Small Quantity Generators are exempt from RCRA transportation regulations that require (often costly) pick-up by a licensed hazardous waste transporter. The local telephone directory provides listings of hazardous waste disposal transporters and companies. In addition, you can contact the Washington State Department of Ecology. For additional tips and information, review De-toxing your Art in Chapter 22: Green Practice.

Artists and Healthcare

If you suspect that a material or a condition at work is causing you health problems, seek a medical evaluation as soon as possible. Many work-related illnesses and injuries can be treated more successfully and with fewer long-lasting effects when diagnosed early. Artists who lack medical insurance may hesitate in seeking medical care, but delaying evaluation can often lead to larger health problems that could interfere with work.

Since health professionals seldom perceive working in the arts to be hazardous, many art-related illnesses can (and do) go unrecognized. It's your duty to help your healthcare provider understand your exposure concerns. Prepare for your visit by listing your work materials and how you use them, and conditions such as awkward work postures or repetitive motions (practicing, keyboard use, vibrating tool use, dancing, etc.). Copies of product labels, MSDSs, photos or demonstrations can aid your healthcare provider in identifying or ruling out potential causes of your symptoms.

Children in Art Workspaces

Exposure to certain art materials and conditions can be riskier for children than for adults, so protect them. Children should not be allowed in work areas where they could come in contact with potentially hazardous materials by inhalation, ingestion or skin exposure.

Hazardous conditions such as noise, temperature extremes and dangerous machinery should also be avoided. Work areas with these materials or conditions should be separated from children's living areas. Avoid inadvertently tracking hazardous materials into common household areas or cars where children could come into contact with them. See Control Exposure for more information.

Art products used by children should be carefully evaluated to ensure that they do not contain hazards. The U.S. Consumer Product Safety Commission's publication provides further information on children's arts supplies; also, review the Resource section for additional information on children's health and safety issues, and Substitute Materials which includes charts with material substitutes for art products, including those for children.

Key things to consider about children's interactions with art materials include:

• Children are shorter than adults, so they breathe dust, soil and vapors that might hang close to the ground, or be kicked up from the floor.
• Children have more hand-to-mouth behaviors that can increase their exposure to ingestion hazards.
• Children's lower body weight and higher intake rates can result in a greater dose of hazardous substance per body weight if the materials are accidentally ingested.
• Children have developing body systems that can be permanently damaged by some hazardous exposures, especially during critical growth stages.
• Children are less able to understand and participate in prevention activities.
• Children are less familiar with illness symptoms, and less able to verbalize their feelings when they have symptoms.

Reproductive Health Hazards

Some art materials are known or suspected to cause miscarriages, birth defects, infertility and other reproductive problems. If you are considering having children, protect your reproductive health by educating yourself about the materials and products you use.

The U.S. Occupational Safety and Health Administration (OSHA), the National Institute for Occupational Safety and Health (NIOSH) and the Agency for Toxic Substances and Disease Registry (ATSDR) provide up-to-date lists of recognized reproductive hazards and detailed information on the reproductive hazards of specific substances and physical agents such as radiation, heat, noise and vibration. Unfortunately, the effects of many materials on the reproductive processes remain unstudied; therefore, these lists do not include information on chemicals that are rarely used. Regardless, using these resources to evaluate your work exposures can help you take necessary steps to limit your exposure to reproductive hazards.

If you are planning to have children and a substance you use is known or suspected to have harmful effects on reproductive organs or processes, stop using it. Unfortunately, no one knows what levels of exposure to hazardous substances are dangerous to the egg, sperm, or fetus, or to breastfeeding babies. Some hazards cause problems with fertility. If you are having difficulty conceiving, alert your healthcare provider to potential work exposures.

Resources

Agency for Toxic Substances and Disease Registry
Serves the public by using the best science available, taking responsive public health actions, and providing health information to prevent harmful exposures and disease related to toxic substances. Runs a database that catalogs toxic substances.

American Conference of Governmental and Industrial Hygienists
A member-based organization of professionals that advances worker health and safety through education and the development and dissemination of scientific and technical knowledge.

American Indoor Air Quality Council
Nonprofit association of IAQ managers, technicians, investigators, consultants, and professionals.

American Lung Association Health House Builder Guidelines
Document on improving IAQ in newly constructed homes.

Canadian Center for Occupational Health Safety
Provides additional information on chemical and material hazards in the workplace, and a database of these hazards.

Centers for Disease Registry and Prevention
A health surveillance system to monitor and prevent disease outbreaks and bioterroristic events. Maintains national health statistics and the Agency for Toxic Substances and Disease Registry.

Consumer Product Safety Commissions (CPSC)
An independent federal regulatory agency that conducts research, develops product standards, orders recalls, and provides information to the public about a variety of consumer products.

Environmental Scorecard
Source for accessing local environmental and pollution information. Profiles 6,800 chemicals, making it easy to find out where they are used and how hazardous they are.

Indoor Air Quality Association (IAQA)
Promotes the exchange of indoor environmental information through education and research.

Indoor Environmental Quality (CDC/NIOSH)
Resources, documents and topics on workplace IAQ.

International Agency for Research on Carcinogens (IARC)
Coordinates and conducts research on the causes of human cancer and the mechanisms of carcinogenesis, and develops scientific strategies for cancer control.

National Cancer Institute (NCI)
Established under the National Cancer Act of 1937, NCI is the federal government's principal agency for cancer research and training.

National Center for Environmental Health (NCEH)
Promotes health and quality of life by preventing or controlling those diseases, birth defects, disabilities, or deaths that result from interactions with the environment.

National Center for Injury Prevention and Control
A program of the Center for Disease Control. Works to reduce morbidity, disability, mortality, and costs associated with injuries.

National Institute for Occupational Safety and Health
A program of the Center for Disease Control. Responsible for conducting research and making recommendations for the prevention of work-related disease and injury.

National Institute of Health (NIH)
Uncovers new knowledge that will lead to better health for everyone.

National Safety Council
Educates and influences society to adopt safety, health, and environmental policies that prevent human suffering and economic losses arising from preventable causes.

Office of Children's Health Protection (OCHP)
Supports and facilitates EPA's efforts to protect children's health from environmental threats.

Office of Healthy Homes and Lead Hazard Control
Operates a grant program for state and local governments, conducts research and outreach on healthy homes, enforces the lead hazard disclosure law, and develops lead-based paint regulations and policies.

OSHA: Lead in Construction
Before renovating, be sure to check to see if your home has lead paint.

Theatre Safety Network, UK
Websites linked discuss various safety topics pertinent to theaters.

• City Initiatives
• Other Initiatives
• De-toxing Your Art
• Best Practices
• Ch. 23 Resources

This chapter discusses how to make your living, workspace and art practice greener, healthier, and safer for you and the environment. Seattle is a national leader and innovator of "green" practice. Many local initiatives and programs are geared towards creating a greener and healthier Seattle. Some are community-driven or government-sponsored, while others are regional arms of national environmental initiatives. Square Feet Seattle only discusses programs that have a land and/or space-related focus.

This chapter highlights programs and projects that may be useful in securing funding or other assistance in the development of artists' spaces, incorporating green technology into spaces or in generating possible artistic collaborations.

In addition to reading the information presented in this chapter, review this chapter's Resource section, which provides extensive links to materials, resources and professionals to assist you in greening up your space and art practice

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City Initiatives

The City of Seattle's Green Building Program cut its teeth on City-owned green facilities, starting in 2000. The program evolved in 2006 to include a greater focus on greening all of Seattle's built environment.

City Green Building, is a consolidated program now located within the Seattle Department of Planning and Development (DPD). This structure captures green building opportunities with more permitted construction projects and allows internal capacity and program development to support private sector green building efforts.

Other Initiatives

Other national initiatives to make Seattle greener:

Center for Neighborhood Technology
The Center for Neighborhood Technology's (CNT) Website offers a variety of resources and information on green living, sustainable environments, traffic, building codes and more. CNT's primary goal is to build more livable, sustainable, and prosperous urban communities. To learn more about CNT, visit their Website or contact 773-278-4800.

Earthwatch - Seattle
Earthwatch offers volunteer participation in scientific field research projects throughout the world. In addition to travel, some projects have photography and illustration opportunities for which you may be paid.

Earthwatch is a local volunteer group that supports the Earthwatch Institute and sponsors several Seattle-area events each year. Earthwatch Institute offers a series of expeditions. To learn more visit the Website.

Environmental Justice Data
Environmental Justice Data (EJD) profiles the environmental condition of every community in the U.S. Profiles provide information on area health hazards, polluting facilities, and air and water quality, and identifies areas with disproportionate exposure to toxic chemical releases and cancer risks from hazardous air pollutants.

You can obtain a copy of your neighborhood's environmental justice analysis through the EJD website. EJD is a component of Scorecard: The Information Pollution Site.

Environmental Law and Policy Center
The Environmental Law and Policy Center (ELPC) Website provides information on a variety of environmental issues such as energy and transportation alternatives. A Chicago-based advocacy organization, the ELPC's primary goals are:

1. To achieve cleaner energy resources and implement sustainable energy strategies
2. Promote innovative and efficient transportation and land use approaches that produce cleaner air and more jobs; and
3. Develop sound environmental management practices that conserve natural resources and improve the quality of life in our communities.

To learn more about ELPC, contact 312-673-6500, or visit their Website.

Additional Resources
There are many national and international efforts to address sustainability, environmental and green living issues. For more information about nonprofit organizations, visit Guide Star's Website, which provides information on various categories of nonprofits (i.e. artistic, environmental, political, etc.), contact information and web links

De-toxing Your Art

Green living is more than just a space issue: It is a lifestyle choice. Artists are often exposed to many hazardous and toxic materials. Minimizing your exposure and/or production of these substances is important, as it impacts both you and the environment.

Two ways to green up your artistic process:

1. Choose equipment, materials, production methods and products wisely, and
2. Participate in material reuse and recycling programs.

Many products and practices that are toxic to both you and the environment can be either substituted for less harmful materials and methods, or eliminated altogether. Even after you change materials, you must give yourself time to learn how to use the products.

Look into substitutions for:

• Ceramic Substitutions
• Drawing and Painting Substitutions
• Fiber and Textile Substitutions
• Graphic Art Substitutions
• Metalworking Substitutions
• Photography Substitutions
• Printmaking Substitutions
• Sculpture Substitutions
• Woodworking Substitutions

The University of Illinois at Chicago's Health in the Arts' on-line library also offers information on safer art substitutes and artist health-related issues in general. The City of Tucson, Arizona's Health and Safety in the Arts Website features a database on safe handling and substitutions for art materials.

Besides incorporating eco-friendly equipment, materials and production processes into your practice, you can also participate in material exchange programs, which allow you to exchange and/or purchase materials that are considered by-products or waste from particular industries. For example, a textile production company might have excess fabric cuts it needs to sell, or a paper manufacturer may have misprinted stationery.

Look into Material Exchange Programs:

• FreecycleSeattle Connects individuals who are throwing away goods with others who seek them. Provides opportunities to trade in a variety of goods such as furniture, clothing, appliances, computers and everything in between. To participate in the exchange, all items must remain free.

TIP: Review Chapter 22: Safe and Healthy Practices and Chapter 19: Utilities for information on how to properly dispose of hazardous art waste.

Best Practices

Consider how you can incorporate green technology and materials into your live and work areas. Green technology allows you to have an eco-friendly, low-toxin or non-toxic space, which means a healthier environment.

Many of the design techniques, material choices and green technologies discussed in this section can be adapted for a variety of spaces. As you begin using green design and materials in your space, review Chapter 21: Rehabbing Your Space for additional information on permit issues, space layout and design, hiring design professionals, and more. Also consider:

• Products : When choosing products, utilize those obtained by sustainable methods (such as tree farm products) and/or contain recyclable elements. Using products that are locally produced also reduces the pollution created during transportation. Avoid products that use CFCs (chlorofluorocarbons) or VOCs (volatile organic compounds) during their manufacture, installation, maintenance and demolition, and/or emit CFC and VOC gases. While CFC production has been banned in the U.S., some older buildings still have old refrigerators and freezers or other equipment that contains CFCs. VOC gases can cause headaches, nausea and irritation to your eyes and nasal passages. Paints, sealants, carpet, furniture and other products are now available that contain no- or low-VOCs. Most of these products will contain labels indicating if they are as no- or low-VOC. Use appliances, equipment and tools that are energy efficient and environmentally friendly. Energy Star, Waterwise, and GreenGuard are just a few of the companies that test products for energy efficiency, water usage, low-VOC, etc. These organizations offer listings of products that meet their requirements. View the Websites for additional information on guidelines and standards, as well as product lists.
• Building Operation and Management: Look for ways to minimize energy use, such as combining heating and power systems. This process is known as cogeneration, and can lead to energy efficiency and lower heating and power costs. Also incorporate renewable energy systems and minimize unproductive and wasteful energy habits such as leaving on the lights and other equipment when not using them.

The technology and materials that are readily available in the metropolitan area, require a small to medium financial commitment and are considered beneficial to the environmental needs specific to the Seattle area.

You may face barriers in trying to go green, particularly in building code restrictions. For example, the Seattle Building Code does not allow for composting toilets or waterless urinals, and requires at least 1.6 gallons of water per flush. Another example involves requirements for ventilation systems. The Code stipulates that ventilation systems must be designed to accommodate the estimated maximum occupancy load of a space.
So, what does this mean? Essentially, don't give up on trying to incorporate environmentally safe practices into your space because of a few hurdles. Be flexible with your design needs, and make sure that the practice you want still meets the City zoning and building code requirements. This might require working with an architect or other design professional to adequately incorporate green and sustainable technologies and practices into your space.
In addition to the information contained in this chapter, review the American Society of Interior Designers Sustainable Design Resource Center (DRS), which contains articles, case studies and resources on sustainable design. The site also offers directories of green design and building professionals, and of products.

Resources

American Society of Interior Designers (ASID)
Offers a product and resource directory.

American Solar Energy Society
Advances the use of solar energy to benefit people and the environment.

Building Green
Offers a detailed listing of more than 1,800 environmentally building products, with descriptions, manufacturer information, and links to additional resources.

Center for Renewable Energy and Sustainable Technology (CREST)
Information regarding sustainable living and design, including green products and practices, environmental planning, and case studies.

City Green Building
The website includes sustainable design resources, incentives, and examples of best practices.

Community Energy Cooperative
Nonprofit membership organization helping consumers and communities obtain information and services they need to control energy costs.

Consumer Product Safety Commission (CPSC)
Independent federal regulatory agency that conducts research, develops product standards, orders recalls, and provides information to the public about a variety of consumer products.

DOE: Energy Efficiency and Renewable Energy Network (EREN)
Provides access to hundreds of web sites and thousands of online documents on energy efficiency and renewable energy.

Earth 911
Offers extensive resources about recycling. (Also, see SPU website.)

Energy and Environmental Building Association
Promotes energy-efficient, environmentally responsible buildings.

Energy Star
Provides information and listings of energy-efficient and environmentally friendly equipment such as washers and dryers.

Environmental Assessment Association (EAA)
An international organization dedicated to providing members with information and education in the environmental industry relating to environmental inspections, testing, and other areas.

Environmental Building News
Articles, reviews and news stories on energy and resource building practices and healthy buildings.

Environmental Design and Construction Magazine
Articles, news stories, reviews and technical documents on green building and remodeling.

Environmental Health Information Services (EHIS)
Posts the website of Environmental Health Perspectives (EHP), a peer-reviewed journal dedicated to the discussion of the effects of the environment on human health.

Environmental Law and Policy Center (ELPC)
A Midwest public interest environmental advocacy organization working to achieve cleaner energy resources and implement sustainable energy strategies.

Environmental Scorecard
Source for accessing local environmental information, including pollution. Profiles 6,800 chemicals, making it easy to find out where they are used and how hazardous they are.

Florida Green Building Coalition
Nonprofit dedicated to improving the built environment.

Florida Solar Energy Center
A research institute for the University of Florida.

Forest Certification Resource Center
Comprehensive resource on forest management and product certification.

Forest Stewardship Council
Changes the dialogue on and practice of sustainable forestry worldwide.

Global Green
Offers extensive articles and information about green building.

Green Blue
A catalyst to transform the production of goods.

Green Projects Specifications
CSI MasterFormat explains and identifies areas to incorporate environmental specifications into a project.

Green Roofs
Website on vegetative roofs. Topics include an introduction to eco-roofs, their history, technical information, plant lists, and case studies.

Green Seal
Strives to achieve a healthier and cleaner environment by promoting eco-friendly products and services, resource and habitat conservation, and minimization of global warming and ozone depletion.

GreenTools
King County's green building program.

Greenbuilder.com
Offers extensive resources and information on sustainable building and design, including several source books and directories.

GreenGuard Environmental Institute
Certifies low-emitting interior products.

GreenGuard Product Guide
Offers a guide for selecting low-emitting products and materials.

GreenSage
Online resource for green and sustainable building materials and furnishings.

Hardwood Information Center
Offers information and resources about U.S. hardwoods and hardwood products, including information on green and sustainable building products.

Indoor Environment Program
Conducts research to reduce the energy used for thermal conditioning, distribute ventilation air in buildings, and provide good indoor air quality.

Indoor Environmental Quality (CDC/NIOSH)
Resources, documents and topics on workplace IAQ.

International Solar Energy Society (ISES)
UN-accredited NGO present in more than 50 countries.

Leadership in Energy and Environmental Design (LEED)
The complete framework for assessing building performance and meeting sustainability goals. Also, review LEED for Commercial Interiors.

Lighting Design Lab
This is a Seattle City Light education and demonstration facility with resources on energy efficient electric lighting.

Minnesota Sustainable Building Guidelines
Multipurpose design tool focused on sustainable building design issues.

NYCOSH: "The Clipping File"
More than 150 links to news items about safety and health, arranged by topic and chronologically within a topic. Topics include asbestos, cancer, reproductive hazards and much, much more.

Oikos
Searchable database of green building products, with a broad selection of books and publications on green building.

Partnership for Advancing Technology in Housing (PATH)
Dedicated to accelerating the development and use of technologies that radically improve the quality, durability, efficiency, performance, and affordability of America's housing.

PVC Alternatives Database
This Greenpeace database, designed for do-it-yourselfers and professional builders, offers information and resources on available alternatives to PVCs.

Quick Guide to Green TI's

City Green Building's sustainable tenant improvement guides.

Resource Venture http://www.resourceventure.org/
A Seattle Public Utilities service that provides outreach, education and technial assistance to help businesses conserve resources, reduce or prevent pollution and become more sustainable.

Saving Water Partnership
A website to help conserve water at home and at work.

Scientific Certification Systems
Established in 1984 as the nation's first third-party certifier for testing pesticide residues in fresh produce. The company has evolved to become a certifier of multiple facets of the food industry and of environmentally sound management.

Second Use
An eco-friendly used building materials store.

SmartWood
Through independent auditing, certification and the promotion of certified forest products, SmartWood improves forest management by providing economic incentives to businesses that practice responsible forestry.

Smoke Tube
MSA's ventilation smoke tube kits are for use where controlled generation of visible smoke is desired in order to determine the velocity of slow-moving air currents and establish their direction and flow patterns in shafts, mines and tunnels.

Solar Energy Industries Association
Information on contractors, incentives for buying solar, and policy initiatives.

Solar Energy International
Provides education and technical assistance through on-site workshops and online courses.

Solar Energy Topics
Solar Energy 101 from the U.S. Department of Energy.

SPU
Information on recycling and salvage / deconstruction case studies.

Tips for Daylighting
California Institute for Energy Efficiency and U.S. Department of Energy Website that presents guidelines for daylighting, quick references for designers, rules-of-thumb, and how-to's.

U.S. Green Building Council (USGBC)
Coalition promoting environmentally responsible buildings.

Urban Land Institute (ULI)
Provides reasonable leadership in the use of land to enhance the total environment.

Water and Energy
A northwest-based resource on implementing energy technologies and practices.

Water and Waste Water
Information on water recycling and reuse. Has an extensive resource list on water and wastewater.

Water Wiser
Offers extensive information, articles and links on water efficiency, irrigation, grey water harvesting, etc.

Waterless Urinals
The title says it all!

Xeriscape: Greenbuilder.com
Xeriscaping is a landscaping method that conserves water and protects the environment.

Xeriscaping
Information on a form of landscape design that minimizes the use of water and chemicals in the designing of landscapes.

• Conflict Resolution and Mediation
• The Mediation Process
• Mediation Resources
• Examples
• Ch. 24 Resources

Neighbors, tenants and landlords can be welcome acquaintances and friends, or they can become your worst nightmare. Whether they complain about the noise generated by your drumming sessions, or maintain smelly garbage in common hallways, conflicts may arise. Late rent, noisy neighbors, sloppy roommates or unfulfilled promises for repairs, maintenance or improvements can generate frustration, anger, despair and a nagging sense of disorder.

Mediation services can help resolve such issues before you feel forced to move, or they escalate into a legal situation. This chapter discusses the mediation process, and where to go for help when conflicts arise.

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Conflict Resolution and Mediation

Most of life involves people and relationships: friends and lovers, roommates and neighbors, landlords and tenants, or business colleagues. Relationships are fragile. When misunderstandings and differences grow into disputes, and then escalate into conflicts, one or two things will happen:

1. The problem will be resolved; or
2. The conflict will continue.

If you cannot diffuse a conflict on your own, help in settling your differences might be valuable and welcome. Mediation is a voluntary process in which two or more disputing parties work with an impartial mediator to resolve the conflict. Unlike a judge or an arbitrator, whose decisions involve a winner and a loser, mediation is about finding a solution that works for all parties involved.

Before you take your dispute to court, consider mediation. Signs that mediation might be wise:

• The dispute has been ongoing.
• You want to preserve a relationship affected by the conflict.
• The dispute is affecting your daily life.
• You cannot afford the time and cost involved with litigation.
• You would like to speak to the other party so they will hear your concerns
• You would like to resolve the dispute yourself, without a third party and/or legal judgment.

The Mediation Process

Be proactive during the mediation process. Ask questions, listen carefully, be clear in your expectations, and analyze your needs. Through care and caution, you might eliminate problems before they happen.

Unfortunately, sometimes disputes become unmanageable, and escalate into ego contests that make negotiation impossible. Mediation adds structure to the discussion, and focuses participants' energies on the core issues and goal of facilitating resolution.

Mediators:

• Do not make decisions for the people involved;
• Will not cross-examine either party to determine guilt. This is not a court of law;
• Will not provide counseling or psychotherapy for the participants; and
• Do not provide legal advice.

Unfortunately, mediation can fail even if both parties reach a compromise. It is not a quick fix, but needs to be an adequate discussion and agreement about the entire problem and its many aspects. If the conflict is not examined thoroughly, you might only resolve part of the issue, and have to restart the mediation process to address hanging matters. Bring all your concerns to the table to find a long-term solution.

To avoid preventable disagreements, take precautions such as investigating a space or landlord (seller) prior to signing a lease or purchase agreement; this ensures that the space is zoned and suitable for your intended purposes. A common complaint for tenants utilizing spaces in commercial and industrial areas is that utilities are shut off at night and on weekends. A tenant may retaliate by withholding rent, and the landlord might react by taking the tenant to court for eviction and back rent. In this scenario, mediation may have lead to an amicable solution for all involved.

Another precaution: Be clear about the arrangements and expectations between sellers and buyers, landlords and tenants, neighbors and roommates. For example:

• If an artist will use the rental space for work, does the landlord approve?
• If a unit is purchased, will the homeowner association rules allow you to run a business out of your unit?
• If you purchase a building, does the zoning allow for your kind of art production or performances?
• Will the neighbors sign a release allowing you to modify the structure?
• Will the Seattle Department of Planning and Development authorize you to live in a particular area or use the space in a manner not outlined in the City zoning ordinance?

All these questions must be considered carefully when leasing or purchasing a property in order to avert future (and possibly costly) disputes from arising. When mediation does not lead to a resolution satisfactory to both parties, you might need to pursue the matter in court.

Mediation Resources

Mediations may involve tenants and landlords, families, neighborhoods, employers, builders, real estate companies, and many other types of parties. You do not need to have pending legal issues or a lawsuit to seek mediation help. There are many mediation firms in Seattle - ask around and find referrals. Here are just a few to start:

http://www.mediate.com/index.cfm
Transforming Conflict

People value mediation for many reasons, including:

• Safety and convenience.
• The service is free for cases involving civil mediations.
• Mediation occurs within two weeks after all parties involved have been contacted, and takes place on neutral territory at a time all participants have agreed to.
• About 70% of mediations are successful in solving the problem or inducing actions needed to resolve the issue.
• Mediation is an informal process that allows you to articulate the issue in your own words. There is no need to bring a lawyer.
• Mediation is confidential, and your privacy is respected. Mediators will not discuss anything they hear during the process.
• A mediation session is not considered resolved until both parties are satisfied. There is no time limit set on the mediation session. Each session is determined by how much time is needed to work through the issues. .

Examples

The are mediation following case studies. Participants' names have been changed.

Property Owner vs. Developer
Marianne is a writer who works from home. Despite the extra effort it takes for a self-employed artist to obtain a mortgage, she bought a townhouse condo and was thrilled by her transformation from renter to owner. Her happiness ended abruptly, however, as floorboards popped up, cupboard doors refused to close, plumbing dripped, and her coveted balcony doors leaked cold air and rainwater.

For more than a year she complained to the developer and contractor, with no relief. She was put off, put down and ignored. She wrote a string of ineffective letters, each escalating in nastiness. She even had a lawyer write a letter, which was also ignored.

The disruptions to her home and writing space affected her work. Marianne was frustrated, and felt backed into a corner. She assumed that failure to get cooperation from the developer left her no other option but to force repairs through the legal system. Unfortunately, she knew she could not afford to pursue a lawsuit.

Marianne called a mediator for help. Although living with the conditions was becoming physically and emotionally unbearable, she feared she would lose all her money if she sold and moved. The mediator took Marianne's request for help, extending to the contractor an invitation to meet with her and a mediator to discuss this situation.

At the meeting, she and the contractor came to a very detailed agreement that included a walk-through of her home and a list of what would be done and when. In just three hours, two people who earlier would not look each other in the eye were telling jokes and finished the mediation session shaking hands. Most importantly, Marianne was able to get back to work, because the problems with her condo were fixed.

Roommate vs. Roommate
Tom and Jerry were both friends and roommates. Although they were initially excited about living together, they quickly learned that their lifestyles clashed. They had different expectations about what it meant to share space. Tom ate any and everything in the refrigerator, even when it belonged to Jerry. Jerry left spoiled food in the refrigerator until it turned to mush. There was too much noise, not enough cleaning up, and talking on the phone at all hours. Unable to resolve these differences, their disagreements escalated until the pair was referred by the police to mediation following an "incident."

It was hard to understand why these two wanted to remain roommates, but they did. During their mediation session, they sat down with a mediator, each with a laundry list of complaints - some minor, some major. They shouted, they cried, they accused. Eight hours later, they left with a three-page list of do's and don'ts. A year later, Jerry contacted a mediator and set up another meeting. This one was much shorter as the two adjusted the first agreement and amended new items to it.

Landlord vs. Tenant
Lou-Anne lived for three years in a one-bedroom apartment in a small building. She had her financial ups and downs, which happened to be mostly downs. She was quite conscientious in keeping her place neat and clean, and always, always paid the rent, but hardly ever on time. As a freelancer, her income became increasingly sporadic. Eventually, she could not keep up with her bills, and became overwhelmed. When she became two months behind in rent, her landlady filed for an eviction.

Lou-Anne and her landlady were referred to mediation from eviction court. The landlady informed the mediator that she was upset at the prospect of evicting Lou-Anne, but felt she had no other choice as she was losing money on the property. Lou-Anne was terrified at facing a possible eviction, since she did not have any family in the area to assist her financially. Lou-Anne was in the middle of an emotionally charged financial crisis.

As the discussion continued, Lou-Anne described her finances, what she earned, how she earned it, when she was paid and how she spent it. The landlady figured out the main reason Lou-Anne was behind was because she received the bulk of her income in the middle of the month. Lou-Anne had gotten into a financial pretzel by using a credit card to cover day-to-day expenses until her funds came in. She then tried to catch up on her late bills when the money arrived.

The landlady concluded that Lou-Anne, an otherwise good tenant, needed to get her money situation stabilized. Because she wanted to keep Lou-Anne as a tenant, she took the time to find a solution to the situation. With both of them sweating over how to pull this off, they worked out a multi-faceted plan.

The landlady proposed that Lou-Anne's rent not be due until after she received her biggest paycheck, around the 18th of each month. She also volunteered to help Lou-Anne create a monthly budget. While the mediator listened, the two of them came up with a budget and re-payment schedule.

As part of the budget, Lou-Anne and the landlady were able to set up a back-rent payment schedule. It took about two hours, and they went back to court with their written agreement. It provided that, as long as payments were made on time, the case would be dismissed. If there was a default, the landlady could obtain an immediate order for past due money and eviction.

Resources

National Association for Community Mediation (NAFCM)
Provides information and resources on conflict resolution and mediation, including articles, training, programs, grants, etc.

Property Management Resource Center
Provides do-it-yourself legal solutions for consumers and small businesses.

• Living Space
• Work Space
• Storage Space

Artists sometimes face emergencies regarding housing, work space and even storage needs. Your landlord might suddenly evict you, or an unexpected disaster such as a fire might strike. You might not be able to find affordable space, or occupy a new space for some time.

Despite these unfortunate possibilities, you have options. This chapter discusses where to seek help, and provides resources for accessing space.

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Living Space

If you are literally homeless -- i.e., you do not have a place to call home -- turning to friends and family for refuge is your first line of defense. If these resources do not exist, human and social service organizations, spiritual and religious institutions and the City of Seattle work together to assist Seattlites in need.

First explore community-based organizations and religious/spiritual institutions with which you are familiar, such as the American Red Cross or the Salvation Army. If you need immediate assistance, the Department of Health and Human Services (DSHS) is your next best resource for accessing local support. You can contact DHS at http://www.seattle.gov/humanservices/emergencyservices/ or 1-800-737-0617

Consider participating in a shared housing program, in which you live with either a special needs or elderly homeowner. You provide security and companionship in exchange for room and board, which may either be free or a nominal fee. Programs, living arrangement and costs vary

Rooming or boarding houses also offer a possible affordable option when faced with a housing emergency. Costs vary from location to location. Some options might include meals or allow day use of the facilities (showers, cooking, washing, etc.), while others may provide single rooms or dormitory-style living. You can start your search for these types of spaces with the YMCA of Seattle offer a variety of rooming options.

Hostels are another low-cost alternative. Hostels are traditionally short-term rooming houses used primarily by travelers. For more information about hostels, visit Hostels.com, Hostel World or Hostelling International USA.

Seattle Emergency Housing
There are several resources for emergency shelter in Seattle. DSHS has a strong network of area social service providers to connect individuals and their families to local housing resources. Additionally the DESC, Downtown Emergency Service Center has many resources for people in emergent situations.

The following are a few options:

• Emergency Response Shelters (ERS) : Overnight shelters that provide initial assessment of clients, information and referrals. Most shelters for single adults close during the day-time hours. However, shelters that service families normally remain open 24 hours a day. Some ERSs are seasonal, opening during the winter months and other times of intense need. ERSs are meant to provide one or two nights' stay while more adequate living arrangements are made.
• Domestic Violence : Emergency housing is available for victims of domestic violence and their If you have been abused by an intimate partner, call the Washington State Domestic Violence Hotline: 1-800-562-6025.If you have been sexually assaulted, call the King County Sexual Assault Resource Center: 1-888-998-6423

• Transitional Shelters : Here are resources for transitional and emergency housing: http://www.scn.org/crisis/shelters.html

Work Space

Try to temporarily share work space with friends or colleagues. Perhaps you can find someone who uses their studio during the daytime, and you could use it in the evenings for a few weeks. If you can afford to rent short-term space, consider the researching space using following:

• Craigslist
• Spacefinder Seattle
• Seattle Space Space

Storage Space

If you need emergency storage space, many companies in Seattle offer private storage units for rent. You might be able to rent a 5'x10' unit with a 10-foot ceiling for about $100 per month, with rates higher or lower depending on company and location. Most storage facilities have 24-hour security, with surveillance cameras, electronic check-in and staff on-hand for at least part of the day.

Each "tenant" receives personal access to the main building, and has an individual lock and key for their own storage unit. If your work and/or materials are especially sensitive to environmental changes, some companies offer personally managed, climate-controlled units at a higher cost. Check the local telephone directory or Smart Pages.com to find a facility that meets your needs.

Companies such as U-Haul, PODS, Public Storage and Metro Self Storage have Websites that will assist you in checking availability and prices at various locations, and offer rentals of vehicles to assist you in moving your belongings. Comparison-shop for units. Companies that rent vehicles might offer special promotions that combine vehicle rental with free storage, such as U-Haul or Metro Self Storage. Ask about special deals when calling about renting a storage unit.

• Aspects of Successful Facilities
• Assessing Your Organization
• Feasibility Studies
• Funding Your Project
• Organizational Readiness
• Stumbling Blocks to Avoid
• Tips for a More Painless Development Project

Owning your own space can provide stability by helping you to avoid getting priced out of a desirable area. But it can also completely bankrupt you or your organization.

Extensive facility development planning is essential for a successful project. Many people get carried away when they see an empty building that seems "just right"; they forget that the building will take years to renovate, or that they are ill-equipped to deal with all of the headaches involved with construction.

This chapter discusses important issues to consider when planning your facility project, such as:

• Organizational readiness;
• Assessing your organization;
• Stumbling blocks to avoid;
• Aspects of successful facilities;
• Feasibility studies;
• Funding your project; and
• Tips for a smoother development project

This chapter is not a comprehensive guide to developing a facility, but is meant to provide insight into how complicated a facility project can be. By facility, we refer to a building for more than one artist, group of artists or cultural organization, not a studio or home for one artist or family.

If used properly, this chapter should raise more questions than provide answers.

---

Aspects of Successful Facilities

We asked a few well-known Seattlites who are involved in the arts to tell us what they think are essential factors in maintaining quality and sustainability for arts facilities. Their answers focused on four key points:

• Good Design
• Location
• Closely relating programming to finances
• Community relations

Good Design

Some popular cultural facilities are shoehorned into buildings that barely work for them. Bad design can adversely affect your audiences, image, and way of doing business - in short, your success. Good design -- particularly in new buildings or renovations -- can help your organization grow and operate more smoothly. Design issues to consider:

• Where are the windows? Are there any on the street?
• Is the entry visible?
• Is the space interesting and inviting?
• Does the space offer informal gathering spaces?
• Are their specialty spaces?
• Are there multi-purpose spaces?
• What are the building's important amenities?
• Can you easily phase in new construction and renovations into the space?

Location

Location issues to consider when considering a facility:

• Cost
• Foot traffic
• Public transportation
• Restaurants
• Other cultural institutions nearby
• Audience proximity
• Visibility
• Perception of safety
• Image of area
• Parking
• Neighborhood attitude toward arts activities

Some organizations have flourished without having the above work to their advantage.

Programs and Finances

Programming success is dependent on many factors, including the organization's overall financial stability and success. Consider:

• The need to produce programming that turns a profit through sales
• Careful budgeting and good financial management
• Your audience. What do they want, and can you deliver these services in a financially sound manner?
• Facility. Can it be used for multiple uses? What other ways can it generate funding?

Community Relations

Cultural facilities are important institutional assets to their communities. The best cultural facilities understand what it takes to play this role successfully, and do it on a continuous basis. Consider:

• Partnerships
• Meeting community needs
• Outreach
• Membership in community groups

Assessing Your Organization

To better assess your organization's readiness to take on a development project, one of your first undertakings should be to clearly define your purpose. Being able to clearly describe your mission, identity, goals and needs will help you to define your projects, create a prospectus (a fundraising tool), and to possibly obtain funding.

Forcing yourself to document reasons for undertaking a development project might lead to important realizations about your work. At any rate, you will be ready to answer potential funders' toughest questions.

If multiple people, organizations and businesses are participating in the project, have all parties answer the same questions in order to synthesize and unify everyone's motivations, visions and goals.

Assessment Questions

Consider the following when assessing your organization:

1. What is your organization's philosophy regarding:
   • Arts programming?
   • Artistic direction?
2. Describe your organization's:
   • Audience composition and attendance
   • Community image and support
   • Strength of management/governing structure
   • Current activities
3. Describe your organization's economic assets and liabilities, currently and for the past three years.
   • Expenses
     • Personnel
     • Administrative (other)
     • Facility rental/utilities
     • Debt service/taxes
   • Revenues (include sources)
     • Earned (ticket sales, membership, etc.)
     • Grants from public sources
     • Private grants
     • Other
     • Possible futures sources of income
4. Describe other arts facilities in the community, and their locations. Why are these facilities not acceptable for your use?
5. What other building fund drives are currently under way?
6. Describe the current facility your organization is using in terms of:
   • Overall condition
   • Level of technical equipment for your needs
   • Physical location
   • Community image
   • Biggest asset
   • Budget deficits
   • Suitability for your needs

Now clarify the kinds of changes you have in mind, and the assistance you can draw upon in making these changes.

1. Do you want to change your organization's:
   • Programming (level or kind of change)?
   • Management?
   • Community image/support?
   • Funding base?
2. What facility changes do you want and/or need to make?
   • New facility?
   • Major renovation (be specific)?
   • Minor addition(s) or interior alterations?
   • Technical improvements?
   • Correction of a previous "improvement"?
3. What are the space needs of your organization, and any other organizations involved?
4. Do any local arts or community organizations in need of space seem like potential users/renters? What are their needs and use requirements?
5. Will the facility changes require alterations in your:
   • Programming?
   • Management structure?
   • Community support?
   • Financing?
   • Operating costs?
6. Who will benefit from the new facility, and how?
   • Art lovers (the already-committed)?
   • The local community in general?
   • People located in a 100-mile radius?
   • Business - retail, hotels, restaurants?
   • Industry (by attracting new employees)?
7. What kind and degree of support (broken down into capital construction funds, operating funds and political assistance) can you expect from:
   • City/county departments (building/school/planning) and local officials?
   • Community organizations/neighborhood groups?
   • Other arts groups?
   • Corporate and financial leaders in the community, including local merchants?
8. Why do you believe this support is forthcoming?

Evaluating Your Answers

Now that you've pulled together your answers, evaluate what they mean ... and ask yourself some additional questions!

• Will your organization (board, staff and project-planning committee) be able to handle the task ahead?
• Who are your supporters? Include background information on board and planning committee members, as well as key community people who are enthusiastic about your project -- and who can offer concrete assistance.
• Does your committee have sufficient resources -- the professional background, community connections, etc. -- to deal with the arts facility issue?
• Do the audiences, artistic resources and community needs justify the changes you are advocating? What evidence substantiates this?
• Do you need to commission a feasibility study to better answer these questions? (Feasibilities studies examine a specific and/or major issue associated with a development project, and are discussed in greater detail later in this chapter.)
• Do you feel ready to establish yourselves as a public group, publicize your plan in a formal way, and incorporate yourselves into an ongoing committee? In order to do this, you must know exactly what you are advocating. For example, don't just say that you want to build a museum -- be prepared to discuss exactly what kind of museum it will be.

You must be able to articulate what you want, and justify it to consultants, potential funders, people in control of local politics and community leaders.

Feasibility Studies

Refining and realizing your facility concept might require one or more feasibility studies. The remainder of this section highlights different types of feasibility studies and their components.

Arts Program Feasibility Study

Also known as a Market Demand Study, an Arts Program Feasibility Study is a market survey that takes into account:

• Intended programming
• Needs of organization in community
• Use of existing facilities
• Community audience survey
• Audience attendance patterns
• Audience spending

Building Feasibility Study

A Building Feasibility Study helps organizations to determine the type of space ideal for their needs. This type of study can:

• Help you assess the feasibility of relocating to a new space or renovating existing space.
• Determine if your current space maximizes your operational and artistic effectiveness, and help you to evaluate your options.
• Help lay the groundwork for a capital campaign by pointing to specific space requirements, which you can use to help project your capital and operational funding goals.
• Help you to organize your search for space by highlighting absolutely necessary features (i.e. loading docks, elevators, etc.).
• Determine which space elements are desirable but not "deal breakers

Financial Feasibility Study

This study includes an analysis of all facility operations costs, planning and construction:

• The operating budget includes projections for:
  • Earned income (admissions, sales, rentals, memberships, etc.)
  • Contributed income (private and public)
  • Operating expenses (salaries, overhead, maintenance, etc.)
  • Special programming costs
• Capital construction estimates for facility planning construction include:
  • Consultant fees
  • Site acquisition and development
  • Construction costs
  • Equipment and furnishings
  • Project financing
• The Capital Financing Study includes
  • Capital dollars available for construction
  • Financing strategies
  • Cash flow projections
  • Economic impact of facility on the community.

To help you determine the financial feasibility of your project, we have included a series of financial feasibility worksheets for performing and visuals arts. These worksheets are meant to be guides, not blueprints. As you complete the worksheets, adjust them to fit your particular situation.

Fundraising Feasibility Study

Fundraising Feasibility Studies are common for large development projects, and are typically conducted by an independent consultant. The process entails meetings with key stakeholders and potential big donors to test ideas and determine the likely level of support for specific projects.

The independent and confidential nature of the conversation means that potential supporters can be more frank about their concerns regarding a project, without directly offending an organization and/or jeopardizing relationships with leadership or board members.

A fundraising feasibility study can help gauge if the timing is right for the project in terms of competing for the same donors, and will determine the likely range of total dollars the project can attract.

The project concept has to be fairly far along for this to be accurate because donors are reacting to the site, the size, and their judgment of the organization's capacity to carry out the project and run the new facility.

When complete, the study presents a realistic sense of what kind of facility is affordable. For example, if your plans are for a $20 million facility, and your study determines you can raise $5 million, go back to the drawing board!

Site Feasibility Study

This type of study involves determining whether potential sites and buildings can accommodate desired programming within the available budget. Alternative sites are analyzed in terms of:

• Fulfilling artistic programming needs
• Location
• Support available from the surrounding area to meet needs of patrons, productions and touring companies
• Accessibility
• Image
• Operations and management implications
• Land costs, availability and financing
• Project phasing and implementation

Funding Your Project

Developing a facility requires thinking about capital funding, described in this chapter. Depending on your project or development partners, you might qualify for funding from a many disparate sources. Explore all avenues.

Three types of funding are usually needed to finance the planning, design, construction/rehabilitation and maintenance of a facility:

• Seed money
• Capital support
• Operational funding

Seed Money

This type of funding gets you through the planning and feasibility stages of your process -- and can be the most difficult to find. Seed money is dedicated to the development project, not the organization's regular operations. It is helpful to hire professionals to evaluate readiness, fund feasibility studies, support capital fundraising, manage a capital campaign, and prepare for the construction phase. These funds may also pay for design work on a fundraising prospectus.

During the seed money phase, your group is looking for relatively small sums of money, not the "big bucks" required for design and construction. Your success in attracting seed money, and your growing knowledge of other funding sources, will help you to decide whether or when to go ahead with the project, and how large of a project you can afford.

Sources for seed money include:

• Government Agencies: City, state and federal agencies offer grants for different types of projects.
• Private Sources: These include foundations, private community organizations such as the Rotary Club, and local corporations interested in your project and/or the arts. Check out the Foundation Partnership for Corporate Responsibility and Social Funds.com.
• Redevelopment Agencies: These organizations provide assistance during the development stage of a construction project.
• In-Kind Services: These include donation of pro bono professional services, volunteer and staff time, office space, equipment and supplies, and business services. These are reduced-rate and free services (accountant, attorney, receptionist, etc.) and supplies that you need to run your organization.

Capital Support

This funding is used for design, land acquisition, "bricks and mortar" construction, permanent equipment, and furnishing. Sources for capital funding for construction include:

• Government Agencies: City, state and federal agencies offer grants for different types of projects.
• Tax Increment Financing (TIF): This funding tool promotes investment and redevelopment in blighted areas. City funds are used to build and repair roads and infrastructure, clean polluted land, and rejuvenate vacant properties, usually in conjunction with private development projects.
• Categorical Grants: These make public monies available for specific purposes, such as affordable housing. You might be able to access funding or receive certain tax breaks if you locate your project in a certain communities
• Individuals: Research individuals who donate funds to specific causes. Many capital campaigns begin with a large lead gift from an individual. This phase is referred to as the "silent phase" after a major donor is identified and funding level as been determined oftentimes "naming" gift is used to leverage additional major gifts before the capital campaign goes public. If a large portion of the dollars are already accounted for it is easier to leverage government, grant, and smaller individual donors.
• Corporations and Foundations: research grants and other types of funding for nonprofits, housing and small businesses from corporations and foundations. Also check out the Foundation Partnership for Corporate Responsibility and Social Funds.com.

Operational Funding

No form of support is easy to come by, but funds to keep a facility running after it is built are unquestionably the most difficult to raise. For that reason, during a capital campaign you must devote some of your energies to securing the money that will permit the new building to keep its doors open. The momentum generated by the capital drive provides a needed boost for the operating fund campaign.

Sources for operation support to run the facility may include:

• Earned Income: This is money raised by the facility/organization through \activities such as facility rental, ticket sales (performances, lectures, concerts, etc.), sale of artwork and souvenirs, festival profits, etc.
• Contributed Income: Funding in this category includes money made from annual giving campaigns, membership drives, the endowment fund, etc.
• Public Support: This type of support might come from various city departments (including City Arts grants) reserved for general operating expenses.
• In-kind Donations: This type of support may come from a variety of individuals, organizations and businesses and may include professional services such as legal counseling or accounting.

Organizational Readiness

Assessing the organization's readiness to undertake a facility project is a crucial first step in the planning process. Any weaknesses, minor or major, can become huge stumbling blocks in achieving long-term success, carrying out the project, or simply operating the completed facility. The process of evaluating your organization to assess strengths and weaknesses can be a valuable tool for growth. Professionals and arts organizations can assist you with this effort.

All facility projects involve risks. The key is to identify and weigh those risks, overcome or circumvent them, or agree that they are worth taking. Before committing to a development project, your organization must be honest about its abilities and be prepared to make hard decisions.

Don't expect every area of your organization to be in perfect order. Some areas will be in good shape. Others will need work, or not even be on your radar screen yet. Your ability to capitalize on your strengths while improving on your weaknesses will help you to develop the tools and infrastructure you need to be able to deal with the risks of the project.

This section focuses on four key aspects of an organization that should be evaluated before tackling any type of a facility project:

• Purpose, Mission, Leadership and Management
• Financial Systems and Readiness
• Market Demand
• Fundraising and Community Support

Financial

To become financially strong, organizations should have good budgeting and reporting systems in place. Both the board and staff should understand what drives the organization's finances (i.e. ,how does the organization make money?).

Key things to consider when assessing your organization's financial readiness:

• Do you have solid budgeting practices? Do you consistently end the year close to your projections?
• How is your financial structure set up (i.e. paying bills, receiving funds, etc.)? Is it effective, does it work, or are there problems?
• Forecast what your budget needs will be for the first 2-3 years in the new building.
• Increased general operating and capital funds are needed once the new facility opens. Can you handle it?
• What trends can you identify in your finances? Have you consistently seen an increase in your income sources? Do your finances dip and spike, or have they remained static? Do you know the reasons for these trends?
• Have you ended every year in the black? What has caused deficits? Do you have any control over these?
• Who understands your budget, balance sheets, audits, and financial structure? Is it more than one person?

A financially strong organization should have:

1. Organizational debt that is no more than 20%-25% of its assets;
2. An unrestricted fund balance that is more than zero and that has kept pace with operating expenses (the percentage of unrestricted fund balance to operating expenses has remained the same, or increased);
3. There is enough reserve for cash flow needs in addition to the "safety net" reserve to cover 1-2 months of operations;
4. Current assets divided by current liabilities are more than 1:1; i.e., you don't owe more than you have;
5. You have three or more primary sources of revenue;
6. At least 35% of your income is earned; and
7. You have not had a consistent history of cash flow problems or deficits.

If your organization does not meet these standards in two or more areas, it is unlikely you will be able to carry out a successful facility project until these issues are adequately addressed. Working with your board or other professionals who can objectively evaluate your finances and put into place effective fiscal systems might be an essential planning step to take.

Other issues to consider when examining your financial readiness:

• Forecast what your budget needs will be for the first 2-3 years in the new building.
• Since increased general operating and reserve funds are needed once the new facility is opened, be sure that your earned income stream can be built up enough to handle it.

Fundraising and Community Support

Facility projects provide opportunities to undergo capital campaigns, which can help you to build ongoing support and strengthen your organization. The keys to a successful capital campaign are:

• A diverse donor base;
• A broad base of volunteers; and
• A compelling case for support. The key word is "compelling": There must be a real need -- a reason and a purpose.

Market

Arts organizations' facility projects are most successful when undertaken in response to a growing demand for programming or in some cases a need for a multi-purpose facility that can host a variety of arts related activities. Organizations in touch with their audiences/clients and trends are better prepared to quantify potential demand, allowing them to set realistic benchmarks in support of a facility project. It is also important for the organization to understand their competition and the economic climate within which they work. Key things to consider:

• Program Demand: Can growth be documented? Does it merit a new facility?
• Audience/Client Demographics: Who is your audience? Are you looking to bring new membership to your facility? How will you expand your audience/client base to attract more people?
• Competition and Economic Climate, Public Relations, Brand, Messages: Are there other organizations providing services/programming similar to your own? If so, would both organizations be competing for the same resources and/or audience? Is your organization recognized in the community?
• Need for Available Space: If you are willing to share ownership or rent portions or all of your facility access if the type of space you are considering creating is in demand in the Seattle arts market.

Purpose, Mission, Leadership and Management

The organization's purpose and mission should be clear and understood by the staff, board, audience/clients and stakeholders. The leadership and management must be strong and effective. Both the board and staff should be fully committed to the vision of the organization's future, and the role a new facility plays in that vision.

Facility projects are time-consuming, and force organizations to undertake certain efforts necessary for the project's success. Board development is one such component crucial for an organization that is preparing for a capital campaign or space development project.

A facility project will take up at least 50% of the director's time for several years. In the meantime, staff is pressured to perform at higher levels as programs, fundraising and administration prepare for the move and the "new" organization. It is not uncommon to see heavy staff turnover during or immediately after a facility project. Lack of preparedness for the demands of capital campaign is an issue as well. Staff burn-out from a project's demands is common. Wise organizations often cut back on programs during development project in order to reduce the strain on staff.

If sole use of a facility is not feasible, consider developing partnerships with compatible arts organization to develop a multi-faceted space. While facility development is difficult a multi-use, multi - owner space is considerable more complex, however there are several successful examples in the Seattle area such as DNDA's Youngstown Cultural Center, and the potential Central District Forum partnership with Historic Seattle to develop Washington Hall.

Stumbling Blocks to Avoid

Learning from others' mistakes is one of most important parts of planning your facility. This section highlights lessons learned from facility projects recently developed by Chicago arts organizations.

Building Design

Examples of stumbling blocks:

• The building design made sense to the architect, board and executive director, but no one had asked the organization's audience or the surrounding community for input. In one case, this led to the lack of a women's room on a convenient floor. In another, only the administrative offices faced the street; in the evenings, when 500 children practiced singing in the back of the building, the place looked deserted.
• The design says something unintentional about the organization. In one case, the door wasn't visible. Although this design was originally chosen because the facility was in an unsafe neighborhood, it later became a liability.

Community

• There is a general, rather than specific, understanding of the program demand, and the project ends up being too big, or too small.
• Some fundamental aspect of the audience's behavior is overlooked. For example: An organization's prospective audience members drive to the performance, and because the site was chosen based on its proximity to public transportation, there are no parking lots nearby. The audience and neighbors begin a long and painful series of complaints about the increased need for street parking.
• Competition is too great, the economic climate is too difficult, and/or the organization's public image is not high enough. In this situation, the project never gets off the ground, or just sputters along.
• The facility gives the wrong image of the organization. Many problems ensue from this, often requiring expensive retrofitting or larger, more complicated marketing plans.

Construction Period

Myriad problems can ensue during the construction period, most of which -- such as the weather, or late delivery of materials -- are difficult to control. Develop contingency plans, patience and flexibility.

Most construction period nightmares postpone completion, increasing costs. Common stumbling blocks:

• To save money, organizations choose not to hire a construction manager, eventually costing themselves both time and money.
• Decisions on design elements are made too late, and accommodating them requires redoing or adding to the construction plans. This happens when:
  • Ideas about the design change,
  • The project has been rushed through,
  • Too many people are making decisions, and are taking too long to reach a consensus, or
  • The decision-maker is overextended.
• The organization or contractor has cash flow problems during the construction. For some time, more money flows out than comes in. Contractors must to wait to be paid, which can cause problems.
• An organization wrongly relies upon its architects to know and understand all city, state and federal regulations, which cost time and money.

Financial

• The organization was not financially ready to undertake a facility project. In many cases, this was because the organization's finances were limited. They had skated by prior to the facility project, and upkeep of the new facility intensified their weaknesses despite increases in audience/clients and fundraising. Or, staff and the board organized financial reporting studies around foundations and grant applications without also using them as a cost-benefit or other analysis tool. Sometimes, programs assumed to be cash cows are not carefully or fully tracked. They turn out to be far more expensive than thought, with lower profit margins than expected. Sometimes, normal fluctuations are misconstrued as signs of growth.
• The organization is not financially strong enough to operate the new facility. Organizations that were financially healthy otherwise conducted no thorough forecast, based on real numbers, of the first 2-3 years in the new building. As such, the organizations assumed they could reach their new budget goals without preparing for start-up losses. Some organizations believed they'd be able to cover the costs of a new building because funders said they'd fund some part of the program. But owning a building usually requires increased general operating -- not programming -- funds, and those proved hard to obtain.
• Cash flow needs weren't worked out as part of the financial package. Even if the funding goals were met, the cash didn't come in time to pay the bills. In a few cases, the organization never fully recovered from this challenge and became chronically cash-starved, even if successful in all other ways. These circumstances threatened their very existence.
• The true project costs were not fully understood. Usually, the full cost must include:
  • Hard costs (bricks and mortar)
  • Soft costs (fees, licenses, feasibility studies, mitigation work)
  • Administrative ramp-up costs (investment in new staff, and what they must operate)
  • Income loss costs (regular income loss due to the project)
  • Program ramp-up costs
  • Facility "tweaking" costs
  • Debt service
  • Cash flow needs
• Many groups thought only in terms of the hard costs. Also, people often rely on the architect's cost estimates and are surprised when all contracting bids come in substantially higher, as they usually do.
• It was assumed that property taxes would be waived starting in the first year. It usually takes 5-7 years to get a property tax exemption. Until the exemption is given, the organization is responsible for paying the taxes, which may be quite hefty. See Chapter 15: Property Taxes for more information.
• There is no Plan B. Lacking a back-up plan can be devastating.

Fundraising

• The capital campaign doesn't reach its goal. Perhaps the goal was too ambitious, the lead gift wasn't set high enough, or the true project cost wasn't worked out at the beginning. For whatever reason, the goal is not reached, and there is no Plan B. Usually, the organization is forced to take out a loan and try to continue the campaign after the facility is built to pay off the mortgage. This is rarely successful.
• The capital campaign goal was too low. Perhaps the campaign goal was set too early before the scope and cost of the project were fully understood, or the project changed in some expensive way. In these circumstances, the campaign goal is never reached, and the organization has to cut costs in the building design, programming or administration -- either during construction or after the opening. Each cut produces consequences that might prove costly.
• The organization didn't have the resources for a successful capital campaign. In these cases, their only alternative was to take out a loan -- which they couldn't afford -- to fill the gap between what they were able to raise, and what they needed.
• The full financial package needed for the project was only partially worked out. Knowing the true cost of the project is only the first step. Groups must analyze the source and uses of funds, their timing, and their cost. This might involve a combination of a capital campaign, a construction loan, and a line of credit. The loans assist with cash flow needs, as the capital campaign money flows in over two or three years.

Organizational

• Lack of consensus regarding the need for the project. The executive director began the search for a new facility, only to find that the board was unwilling to undertake the work needed, believed that the organization wouldn't be successful in a capital campaign, or didn't see the need.
• The desire for a facility was not tied to a strategic need. The idea for a new facility was based more on what the staff and/or board wanted than on what the organization needed. A strategic plan linking the organization's future to the need didn't exist. For one organization, this meant that decisions about the kind of facility were always up in the air. For another, program expansion was haphazard and created to fit the facility space rather than the audience's needs and wants.
  
  In yet another, it meant that the type of programming done in the past was merely expanded; no market research took place, and opportunities were lost. Ultimately, the organization had to retrofit the brand-new facility to meet the needs of the organization after it reconceived its programming, driving up costs beyond what was originally planned for in the capital campaign.
• New board members brought a new sense of ownership, vision and expectation. To meet the capital campaign needs, a fund-raising board was created. More people laid claim to "ownership" of the organization, due to their financial contributions to the building. This became hard for original staffers who had shaped the organization's vision.
• Staff burned out. Lack of time to manage the organization and direct the facility project led to exhaustion. Also, as changes required by the facility became more fully understood, the staff showed dissatisfaction with the new direction (another example of a lack of consensus).
  
  A new facility is rarely the answer to all of an organization's problems, as it usually produces a whole new set of pressures and difficulties -- including the need to become more "institutional." This might be an issue for some staff members. It is not uncommon to find a nearly complete turn-over of staff pre- and post-project.
• The organization was understaffed before the building project, and/or remained understaffed after it. A facility project can take 50% or more of the executive director's time, and nearly that much of many other staff members. It is difficult to run your typical programming schedule and activities under these conditions. To solve this, some organizations cut back on programming, while others struggled through. Some organizations let administrative positions necessary to operating and/or planning for the new facility remain unfilled, making it more difficult to address program expansions and weakening the organization's infrastructure.
• Current staff's skills did not adequately meet the needs of the organization in the new facility. This was particularly true in three areas: development, marketing, and financial. The new skills needed to manage a building were neither appreciated nor understood.

Project Planning

• The equivalent of a business plan wasn't prepared. At minimum, the plan should:
  • Define how the organization will absorb the impact of the facility,
  • Identify expected expense changes (increased staff, administrative costs, facility maintenance costs, fundraising costs),
  • Establish new revenue goals, and how they will be met, and
  • Determine cash flow needs.
• The immediate and long-term building needs were not thoroughly planned for. This involves either changes or additions to the building design, from simple changes to additional signage to complex modifications to the room configuration.
• The size of building needed was a moving target. No thorough thinking-through of the amount of square feet needed for each function area too place, so the total square footage needed was never fully understood.
• Building rehab needs weren't thoroughly explored, and costly surprises ensued: environmental studies, mitigation studies, parts replacements, etc.
• Not enough decisions were made prior to construction. Decisions were still being made requiring change orders to the construction, which cost time and money.
• No one understood what was required to manage the building. The scrambling that went on when the building opened and staff wasn't prepared didn't leave a good image in the eyes of customers, staff or board members. This continued as building management needs fell through the cracks

Tips for a More Painless Development Project

Seven ways to make your building development or rehab project run more smoothly:

• Get organized. Space development is a complex process that usually takes several years. Your files, financial information, resources, etc. must be in order for you to effectively manage this process.
• Get your councilmember's support : This will help you to better navigate the process of gaining permits, zoning changes, planning approval, etc.
• Check your zoning status: You don't want to commit to a building and start the planning process, only to learn that you can't use the space for your intended purposes.
• Get your finances in order: Understanding how your finances work will better prepare you for a development project. Work with an accountant from the beginning, and conduct a financial feasibility study.
• Get your board in order: As we previously discussed, having a board of directors with depth and a range of skills can help the project succeed. Well-connected and knowledgeable board members can bring new resources and support to the project, and help you to avoid costly mistakes.
• Get your staff behind the project: All parties involved with the project must understand and support the goals. A disinterested or unsupportive staff can derail the project.
• Be patient. A development project is a major undertaking.