A bill adding to the list of prohibited provisions in rental agreements recently became law in Colorado. Although the state already had rules in place for what can appear in rental agreements, HB 23-1095 adds prohibitions against waivers of a right to a jury trial or participation in lawsuits, among other provisions. Specifically, landlords may need to get creative when it comes to the bill’s bulk fee limitation.
Overview
HB 1095 amends C.R.S. Section 38-12-801, which addresses written rental agreements between tenants and landlords. Effective Aug. 7, the bill stipulates that rental agreements may not include:
- A clause assigning a penalty to a party stemming from an eviction notice or an eviction action that results from violation of a rental agreement;
- A one-way, fee-shifting clause awarding attorneys’ fees and court costs to one party (any fee-shifting clause in a rental agreement must award attorney’s fees to the prevailing party in a court dispute concerning the rental agreement, residential premises or dwelling unit following a determination by the court that the party prevailed and that the fee is reasonable);
- A waiver of: (1) the right to a jury trial (unless the parties agree to a waiver of a jury trial in a hearing to determine possession of a dwelling unit); (2) the ability to pursue, join, litigate or support any kind of joint, class or collective claim or action arising from or related to the term of the tenancy; (3) the implied covenant of good faith and fair dealing; and (4) the implied covenant of quiet enjoyment; however, the rental agreement may provide that the landlord is not responsible for any implied covenant of quiet enjoyment that is committed by a third party acting beyond the reasonable control of the landlord;
- A provision purporting to fix any fee, damages or penalty for the 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 the tenant’s failure to provide any such notice required pursuant to the rental agreement;
- A provision that characterizes an amount or fee set forth in the rental agreement, with the sole exception of payment for occupancy of the premises, as “rent” for which all remedies to collect rent, including eviction, are available (such amounts include any fees for utilities or services and any other charge that is not rent);
- A provision that requires tenants to pay a fee markup or for a service for which the landlord is billed by a third party; except that a written rental agreement may include a provision that requires the tenant to pay either a markup or fee in an amount that does not exceed 2% of the amount the landlord was billed or a markup or fee in an amount that does not exceed a total of $10.00 per month, but not both (hereinafter, the “Bulk Fee Limitation”); and
- A provision that purports to allow a provider operating any local, state or federal voucher or subsidy program to commence or pursue an action for possession based solely on the nonpayment of utilities.
If a rental agreement contains any of these provisions, it becomes void and unenforceable. The bill includes a petition clause, which means it takes place 90 days after the adjournment of the Colorado legislative session, which is Aug. 7, 2023. Accordingly, it will undoubtedly impact all new leases signed from and after Aug. 7.
Interpreting the Bulk Fee Limitation and Next Steps
A portion of HB 1095 includes a limitation on the amount of fee markups or fees for services a landlord can include in a rental agreement and charge to a tenant. The language in HB 1095 is not clear, and this alert provides the most conservative interpretation of the bulk fee limitation. Interpretation of the bill more broadly and the bulk fee limitation will likely evolve based on both enforcement actions and case law. Periodic monitoring and contacting your legal advisor would be prudent.
In general, landlords may charge tenants for any service that the landlord is charged by a third party and require the tenant to pay either a fee or markup based on the cost of the third-party service. The total fee is capped at an amount that does not exceed a total of $10 per month of the amount the landlord was actually billed by the third-party service provider, or 2% of the amount the landlord was actually billed the third-party service provider. However, under the bill, in no event can the tenant be required to pay both a $10 markup and a 2% fee. A plain reading of the bill indicates that the greater of either amount is enforceable.
Notably, lawmakers did not clarify in the bill whether the bulk fee limitation applies one time to all third-party fees and charges paid by the landlord, or to each individual third-party fee and charge incurred by the landlord. A plain reading of the language in the bulk fee limitation section of the bill indicates that this is intended to apply to each individual and separate fee or charge incurred by the landlord given the reference to “a service for which the landlord is billed by a third party….” (emphasis added). However, there is not clear evidence in the bill indicating that this was the legislature’s intent.
In addition, there could be questions as to whether HB 1095’s bulk fee limitation applies retroactively to existing rental agreements. While all new legislation in Colorado is assumed to be prospective in nature unless otherwise expressly stated, and there is no express provision in HB 1095 regarding retroactive application, it is possible that tenants or others would try to apply the bill to existing agreements. Nevertheless, if the bulk fee limitation were applied retroactively, there is a strong possibility that doing so would violate the constitutional prohibition against retrospective litigation. Given the vague language in the bill, it will be critical for landlords to continue to monitor enforcement actions, cases interpreting the bill’s language, and any promulgated guidance with respect to implementation of the new legislation.
Ultimately, property owners may find no recourse but to increase rents to cover operational costs typically covered via fees. Landlords may also consider rolling the fees and markups into one larger dollar amount, although any roll-up needs to comply with the overall caps on such fee add-ons or markups set forth in the bulk fee limitation outlined in the bill. Even if landlords decide to roll up the fees into one fee, it is advisable to create a disclosure document identifying the compliance of each fee within the rolled-up fee with the limitations set forth in the bill.
Please reach out to one of the authors below for specific advice on legal or regulatory compliance with the new law.
This document is intended to provide you with general information regarding a Colorado bill adding new rental agreement prohibitions. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.
The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.