June 2023

New Restrictions on Residential Lease Agreement Provisions

Introduction

On Tuesday, June 6, 2023, Governor Jared Polis signed House Bill 23-1095 (“HB23-1095”) into law. If no referendum petition is filed pursuant to section 1(3) of article V of the Colorado Constitution, this act will take effect on August 7, 2023.

HB 23-1095 Restrictions on Residential Lease Agreement Provisions

This act prohibits or restricts the inclusion of certain provisions in written residential rental agreements and modifies C.R.S. § 38-12-801, as outlined below. As described in more detail below, some of the new provisions apply to all residential rental agreements, while other provisions do not apply to rental agreements for mobile homes and some duplexes, triplexes and accessory units in certain circumstances.

Penalties for Eviction Notice or Eviction Actions

Previously Colorado law prohibited a written rental agreement from including “an unreasonable liquidated damages” clause assigning a “cost” to a party stemming from an eviction notice or an eviction action that resulted from a violation of the rental agreement. HB23-1095 expanded the prohibition to clauses assigning any penalty to a party stemming from an eviction notice or an eviction action that results from a violation of the rental agreement. As revised, the law prohibits a written rental agreement from assigning any further penalty (not just an unreasonable liquidated damages provision) to a party if they receive an eviction notice or eviction action as a result of a violation of the rental agreement.

Fee Shifting Provisions

Colorado law already prohibited rental agreements from including a one-way, fee-shifting clause that awards legal fees and court costs only to one party and required rental agreements to include fee-shifting clauses that awarded attorney fees to the prevailing party in disputes concerning residential premises, dwelling units, or the rental agreement itself. Under HB23-1095, this provision was modified to require that permitted fee-shifting provisions provide the prevailing party attorney’s fees may be awarded or recovered only “following a determination by the court that the party prevailed and that the fee is reasonable.”

Restricted Waivers

The major revision of HB23-1095 came in the form of new prohibitions on certain waivers in rental agreements. C.R.S. § 38-12-801(3)(a)(III) now states that residential rental agreements cannot include the following waivers: (i) a waiver of the right to a jury trial (but parties may agree to a waiver of a jury trial during a hearing to determine possession of a dwelling unit); (ii) a waiver of the right to “pursue, bring, join, litigate, or support any kind of joint, class, or collective claim or action arising from or relating to the term of the tenancy”; (iii) a waiver of the implied covenant of good faith and faith dealing; or (iv) a waiver of the implied covenant of quiet enjoyment, except that a written rental agreement can state that “the Landlord is not responsible for any violation of the implied covenant of quiet enjoyment that is committed by a third party action beyond the reasonable control of the Landlord.”

No Fees or Penalties for Tenant’s Failure to Provide Notice of Non-Renewal

Residential lease agreements may not include any provision that affixes any fee, damages or penalty for a Tenant’s failure to provide notice of nonrenewal of a rental agreement prior to the end of the rental agreement, except for “actual losses incurred by the Landlord as a result of Tenant’s failure to provide any such notice required pursuant to the rental agreement.”

Limitations on Characterization of Rent

Residential rental agreements are now restricted from including any provision that characterizes any amount or fee (except for the monthly payment for occupancy of the premises) as “rent” for which the remedies to collect rent (including eviction) are available. Landlords will no longer be able to evict based on non-payment of utilities or services or any charges that are not the payment for occupancy. These fees may still be assessed, but they will not be entitled to the same remedies as base occupancy rent under this new law.

Limitation on Markups for Third Party Fees

As amended, Colorado law now restricts any provision that charges Tenant a fee markup of more than 2% of the amount Landlord was charged or a total of $10/month (but not both) for a service for which the Landlord is billed by a third party.

Restricted Actions for Possession Based on Nonpayment of Utilities

Pursuant to HB23-1095, Landlords operating under any local, state or federal “voucher or subsidy program” are now restricted from commencing or pursuing an action for possession based solely on a tenant’s nonpayment of utilities. While eviction actions cannot be commenced solely for nonpayment of utilities, HB23-195 does not exclude utilities from being considered as rent for the purpose of calculating housing costs that are eligible from reimbursement or payment under any local, state or federal voucher program in residential rental agreements.

Carve Outs From Restrictions

The prohibition on clauses assigning a penalty to a party stemming from an eviction notice or an eviction action that results from a violation of the rental agreement applies to all residential rental agreements, as does the required language for fee-shifting clauses. The remaining requirements under HB23-195 do not apply to rental agreements for mobile homes, as defined by Colorado law; nor do they apply to rental agreements for duplex or triplex or accessory dwelling units of a residential property if: (a) the property owner uses at least one of the units as the owner’s primary residence; or (b) the owner’s primary residence is on the same lot as the duplex, triplex or residential premises.

Reviewing Existing Residential Lease Forms

HB23-1095 applies to both new and existing residential rental agreements, thus rendering any of the prohibited provisions in existing agreement void and unenforceable. Whether the application of the act to existing rental agreement may in certain circumstances violate the constitutional prohibition against retrospective legislation is beyond the scope of this alert, but at least in cases in which the right to recover under such a provision had already accrued prior to the effective date of HB23-1095, it should be considered. Aside from that limited set of circumstances, to the extent landlords rely on provisions that are not in compliance with C.R.S. § 38-12-801, particularly in assessing third-party fees or evictions based on non-payment of utilities, tenants will have statutory protection to refute these assessments and evictions. We recommend reviewing existing residential lease forms to ensure residential landlords are in compliance with Colorado law, as revised.

To read the original alert, please click here.