Once again, as the legislature returns, the first order of business is housing.  Unfortunately, there is now a pervasive agreement that only the legislature can fix the housing crisis we are experiencing in Colorado and the number one tool is more legislation.

The recent proposal seems innocuous: “just cause for eviction” and yet hidden in the depths of the bill are items that will radically alter property rights and alter the short-term rental industry.  If you are selling a rental property, you also will be hugely impacted.  What is the new bill, and will it actually help?

 

What is in the “just cause for eviction” bill?

The bill prohibits a landlord from evicting a residential tenant unless the landlord has cause for eviction. Cause exists only when:

• A tenant or lessee is guilty of an unlawful detention of real property under certain circumstances described in existing law, as amended by the bill; or

• Conditions exist constituting grounds for a “no-fault eviction”.

On the surface this bill sounds pretty innocuous until you get into the details.  The real driver behind the bill is to try to prevent redevelopment and conversion into short term rentals and Selling of Properties

Just cause eviction impact onShort Term Rentals/large remodels:

Below is the text from the bill regarding STRs and large remodels:

Demolition or conversion of residential premises.

WHEN A LANDLORD PLANS TO DEMOLISH A RESIDENTIAL PREMISES , CONVERT IT TO A NONRESIDENTIAL USE , OR CONVERT IT TO A SHORT – TERM RENTAL PROPERTY , THE LANDLORD MAY INITIATE A NO- FAULT EVICTION OF A TENANT OF THE RESIDENTIAL PREMISES AT THE END OF THE TERM OF THE RENTAL AGREEMENT SO LONG AS THE LANDLORD :

(I) ALLOWS THE TENANT AT LEAST NINETY DAYS TO VACATE THE RESIDENTIAL PREMISES , DURING WHICH TIME THE TENANT MAY REMAIN IN POSSESSION OF THE RESIDENTIAL PREMISES UNDER THE SAME TERMS OF THE TENANT ‘S EXISTING RENTAL AGREEMENT ; AND

(II) PROVIDES THE TENANT PROPER SERVICE OF A WRITTEN NOTICE OF THE NO- FAULT EVICTION, WHICH WRITTEN NOTICE INCLUDES :

(A) THE DATE BY WHICH THE TENANT MUST VACATE THE RESIDENTIAL PREMISES , WHICH DATE MUST BE AT LEAST NINETY DAYS AFTER THE DATE UPON WHICH THE LANDLORD PROVIDES THE WRITTEN NOTICE TO THE TENANT ; AND

(B) A DESCRIPTION AND TIMELINE OF THE DEMOLITION OR

CONVERSION OF THE RESIDENTIAL PREMISES AND A MATERIAL DEMONSTRATION OF THE PROPOSED DATE UPON WHICH THE PROJECT WILL COMMENCE , SUCH AS A COPY OF A BUILDING PERMIT OR APPLICATION FOR A PERMIT OR LICENSE TO OPERATE A SHORT – TERM RENTAL PROPERTY,

WHERE APPLICABLE

Selling a rental property:

Anyone planning to sell a property that has a long term tenant now has restrictions as the law requires a 4 month notice and a property can not be sold and then reused for a short term rental until 90 days after the tenant vacates.

Withdrawal from rental market for the purpose of selling the residential premises. (I) WHEN A LANDLORD PLANS TO SELL A RESIDENTIAL PREMISES THAT IS A SINGLE – FAMILY HOME , A TOWNHOME, OR AN INDIVIDUAL CONDOMINIUM UNIT , THE LANDLORD MAY INITIATE NO- FAULT EVICTION OF A TENANT OF THE RESIDENTIAL PREMISES AT THE END OF THE TERM OF THE RENTAL AGREEMENT SO LONG AS THE LANDLORD:

(A) ALLOWS THE TENANT AT LEAST ONE HUNDRED TWENTY DAYS TO VACATE THE RESIDENTIAL PREMISES , DURING WHICH TIME THE TENANT MAY REMAIN IN POSSESSION OF THE RESIDENTIAL PREMISES UNDER THE SAME TERMS OF THE TENANT ‘S EXISTING RENTAL AGREEMENT

(B) PROVIDES THE TENANT PROPER SERVICE OF A WRITTEN NOTICE OF THE LANDLORD’S INTENT TO WITHDRAW THE RESIDENTIAL PREMISES FROM THE RENTAL MARKET AND SELL THE RESIDENTIAL PREMISES, WHICH NOTICE INCLUDES THE DATE ON WHICH THE TENANT WILL BE REQUIRED TO VACATE ; AND

(C) DOES NOT LIST THE RESIDENTIAL PREMISES FOR A LONG- TERM OR SHORT – TERM RENTAL FOR AT LEAST NINETY DAYS AFTER THE DATE ON WHICH THE TENANT IS REQUIRED TO VACATE .

(II) NOTHING IN THIS SUBSECTION (3)(e) MAY BE CONSTRUED TO23

ALLOW A LANDLORD TO INITIATE A NO- FAULT EVICTION OR OTHERWISE TERMINATE A RENTAL AGREEMENT WITHOUT CAUSE BEFORE THE END OF THE TERM OF THE RENTAL AGREEMENT

What solution is the legislature trying to solve with the new bill?

It is always confusing that a bill titled just cause for eviction tries to address countless other items including renovations, selling of long term rentals, short term rentals, etc…  The bill unfortunately will not increase the supply of long term rentals as the root cause of why there isa decrease in long term rentals is not being addressed.  The root causes of lack of affordable rentals is:

1. Increased legislation leads to increasing costs on property owners: The list on this one is long from new rental licenses in Denver to electrification of all new construction to energy standards to etc…. I’m not debating whether the legislation is good or bad, but at the end of the day everything costs money and the costs must be passed on to the tenants to make it profitable.
2. Higher property taxes: We have seen throughout Colorado a huge increase in property taxes to the tune of 30-50% in the last year.  These costs have to be passed on to the tenants.
3. Tougher eviction laws: As the laws have changed, evictions have taken even more time this makes owners wary of leasing to less than picture perfect tenants as the risk and cost of eviction is too expensive.

Large impacts to property owners from the bill

Although the bill is titled just cause for eviction, the bill brings up a whole host of other issues that will have far reaching consequences for property owners.  If you own a rental property and you plan a large remodel or repositioning of the property waiting 90 days and being tied up with this new law could be a deal killer.  Furthermore, if you plan to sell a property having to give 4 months’ notice to a tenant is ridiculous and will drastically alter sales of rental properties.  Finally, the impact on short-term rentals will be huge as it makes it considerably more difficult to convert units to short term rentals and will ultimately impact values.

The legislature once again does not understand that increased legislation will ultimately increase costs.  Many owners will ultimately remove properties from the long-term market due to the compliance hassles and increased costs. The numbers to rent long term in Colorado are becoming increasingly difficult except at the high end.  This is exactly the opposite outcome the legislature is trying to achieve.

 

Additional Reading/Resources:

1. https://leg.colorado.gov/sites/default/files/documents/2024A/bills/2024a_1098_01.pdf
2. https://leg.colorado.gov/bills/hb24-1098
3. https://www.denverpost.com/2024/02/02/colorado-legislature-bill-status-legislation/

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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