By Blair E. Lichtenfels, Claire E. Hellweg & Reid M. Galbraith, Brownstein Hyatt Farber Schreck, LLP
During the 2023 legislative session, Colorado lawmakers enacted legislation that significantly impacts the manner in which landlords draft residential leases and pursue tenants for defaults, and are permitted to evaluate prospective tenants in residential properties. Given these legislative actions, both landlords and buyers of stabilized assets should review their form and existing leases, as well as current tenant screening processes, to ensure current and future compliance with the statutory changes described below.
Prohibited Residential Lease Provisions and Landlord Actions
The first category of legislation, House Bills 23-1095 and 23-1068, prohibits a series of common landlord-friendly provisions in residential leases and voids such provisions and the actions to which they relate, even if the applicable residential lease containing such language was executed prior to this legislation being signed into law.
Prohibited Landlord-Friendly Lease Provisions
Specifically, House Bills 23-1095 and 23-1068 prohibit the following commonly used provisions in residential leases:
- Imposing a penalty to a tenant stemming from the landlord issuing an eviction notice or commencing a legal action following a tenant default under their lease;
- Allowing only the landlord to recover attorneys’ fees in legal actions related to the lease (rather, any fee-shifting clause must award attorney fees to the prevailing party);
- Affixing a penalty for a tenant’s failure to provide a notice of nonrenewal;
- Pet security deposits in excess of $300;
- Pet rent or fees exceeding $35 per month or 1.5% of the tenant’s monthly rent, whichever is greater;
- Allowing a provider operating under a voucher or subsidy program to pursue an action for possession based solely on the nonpayment of utilities; and
- Waivers of:
- The right to a jury trial (except in a hearing to determine possession of a dwelling unit);
- The ability to pursue a collective claim with other property tenants “relating to the term of the tenancy”;
- The implied covenant of good faith and fair dealing in connection with the lease; and
- The implied covenant of quiet enjoyment of the leased property with respect to actions by the landlord (leases can specify that violations of the covenant of quiet enjoyment by third parties beyond the reasonable control of the landlord are waived).
Imposition of Bulk Fee Limitations
Additionally, House Bill 23-1095 diminishes landlords’ ability to pass through property costs to tenants and collect ancillary streams of revenue from tenants outside of the base monthly rent.
Specifically, residential leases in Colorado are now prohibited from characterizing a fee as “rent” for which an eviction remedy is available. For example, utility fees, service fees or any other charge outside of base monthly rent payments may not be categorized as “rent,” inhibiting the landlords’ ability to pursue eviction actions based solely upon nonpayment of these fees.
Leases may also not include a provision requiring a tenant to pay a fee markup or for a service that the landlord pays a third party to perform, unless such a markup or fee does not exceed 2% of the amount that the landlord was billed, or $10 per month, but “not both.” Accordingly, under this statute, landlords are able to charge small service fees or markups up to $10, and higher amounts up to 2% of the amount the landlord paid to the third-party servicer, but are capped at such amounts. Landlords should now strongly consider breaking out fees and service costs on a per-unit basis for their properties and be prepared to demonstrate such fees and costs do not exceed the applicable thresholds.
Tenant Screening Limitations and Requirements
The second category of new legislation, Senate Bill 23-184 and House Bill 23-1099, reduces the scope of financial information landlords may require and consider in evaluating prospective tenants and proscribes information landlords must accept from prospective tenants in performing routine tenant diligence, respectively.
Under Senate Bill 23-184, landlords are now prohibited from inquiring about prospective tenants’ income, except for the purpose of determining that such tenant’s income covers two times the annual rent under the lease. In any event, landlords may not require a prospective tenant have annual income exceeding such 200% threshold.
Additionally, House Bill 23-1099 requires most landlords to accept (and advise prospective tenants of their right to provide) “portable screening reports” in place of other tenant screening for which the landlord would traditionally collect an application fee.
“Portable screening reports” are basic consumer reports often prepared by consumer reporting agencies that include basic information on the prospective tenant, including employment and income verification, rental and credit history, and criminal history. If a tenant opts to provide a portable screening report themself or have a third-party agency provide such a portable screening report on the prospective tenant’s behalf, the landlord is prohibited from charging a rental application fee or a separate fee for accessing the portable tenant screening report. If a landlord accesses the portable screening report from a consumer agency, the landlord must provide a copy of a consumer report to the prospective tenant. Additionally, landlords are now required to inform prospective tenants of their rights to dispute the accuracy of the portable screening report and, if the landlord chooses to deny an application, the reasons for such denial.
However, a landlord is exempt from each of these requirements if the landlord:
- Does not accept more than one application fee at a time for a dwelling unit (or if such unit is rented to more than one occupant, more than one application fee at a time from the tenant group); and
- Refunds the total application fee to each prospective applicant within 20 days if either party declines to enter into the lease.
A landlord who violates any House Bill 23-1099 provision is liable to the prospective tenant for a fine of $2,500, plus court costs and reasonable attorney fees.
