December 2019

FAQs About the Warranty of Habitability Act – Part III Remedies
Firm Welcomes New Attorney to the Team
Audits and New Rules Early Resolutions

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Volume 20 • Issue 12

DECEMBER 2019

Landlord

News

3600 South Yosemite Street Suite 828, Denver, Colorado 80237

thsnews@thslawfirm.com www.thslawfirm.com

Denver Phone 303.766.8004 FAX Completed Eviction Forms To: 303.766.1181 or 303.766.1819

Colorado Springs Phone 719.550.8004 FAX Completed Eviction Forms To: 719.227.1181

FAQS ABOUT THE WARRANTY OF HABITABILITY ACT – PART III

REMEDIES

This month we continue answering frequently asked questions the about the new warranty of habitability law. HB19-1170 entitled the “Residential Tenants Health and Safety Act” became effective August 2, 2019. This bill amended what is commonly referred to at the Warranty of Habitability Act (WHA). The original WHA was enacted in 2008. The 2019 law significantly rewrote WHA and created significant legal obligations for Colorado landlords. The last two months we answered questions about the 2019 WHA. This month we answer questions about remedies in general and have an extended discussion about the new right of tenants to deduct and repair.

What are a tenant’s remedies when a landlord breaches the warranty of habitability?

Upon breach a tenant may terminate the lease and vacate the premises, seek injunctive relief (a court order to compel landlord to remedy the situation), repair and deduct the repairs from the rent, and can also sue for monetary damages. Before a tenant can pursue legal remedies, the landlord must breach the warranty of habitability. Section 507 delineates a tenant’s remedies if a landlord breaches the warranty of habitability set forth in Section 503(2). Interestingly, Section 507(1) does not refer to Section 503(2.2) which defines a mold-based breach of the warranty of habitability. Does this mean the remedies set forth in Section 507 are not available for mold-based breaches? Probably not, but it will be interesting to argue in front of a judge. Another prime example that the 2019 Warranty of Habitability Act (WHA) was poorly drafted. Generally, a landlord breaches WHA when a landlord has received reasonably complete

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FIRM WELCOMES NEW

ATTORNEY TO THE TEAM

Jonathon Carlson joins Tschetter Sulzer as an experienced trial attorney. Prior to joining the Firm, he primarily practiced juvenile, criminal, and domestic relations law. In 2013, Jonathon was nominated for and awarded Jefferson County’s prestigious George Holley Outstanding Young Lawyer Award. His experience with litigation involving family law provides him with the skills and knowledge to artfully negotiate agreements and issues between landlords and tenants, which makes him a valuable asset to both the ‘TS’ Team and the Firm’s clients.

Growing up in Michigan as the oldest of three boys, Jonathon was unwittingly honing his mediation and litigation skills from a young age. He recognized his passion for the law while attending the University of Arizona where he graduated Cum Laude with a BA degree in Political Science. He returned to his home state to attend Wayne State University Law School in Detroit, Michigan where he became a Dean’s Scholar. During law school, Jonathon interned with the Wayne County Prosecutor’s Office Homicide Division and also with one of the Wayne County Criminal Division Judges. Additionally, throughout much of his law school graduate studies, he law-clerked at a private law practice. In combination, these valuable experiences provided him with the important insight into the difference a good attorney can make to in the lives of his clients. This insight instilled in him a core commitment to always aggressively advocate for his clients and to consistently pursue ways to hone his legal skill set.

The Firm’s legal team, as well as our clients, benefit from Jonathon’s years of experience negotiating intense, personal legal conflicts under pressure in difficult situations. When asked what led him to join the ‘TS’ team, Jonathon said, “I like the variety of challenges

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FAQS ABOUT THE WARRANTY OF HABITABILITY ACT – PART III REMEDIES continued from page 1

written notice (RCWN) and failed to commence remedial action by employing reasonable efforts within applicable time frames.

To terminate a lease based on landlord’s breach of the WHA, the tenant needs to provide RCWN and the landlord must be in breach for failing to act. Once the landlord is in breach, the tenant must serve landlord with another written notice. The tenant’s second written notice (termination notice) must inform the landlord of the tenant’s intention to terminate the lease on the date set forth in the notice, which must be not less than ten days and no more than thirty days from the date of the notice, if the landlord fails to remedy the breach within five business days. If landlord fails to remedy the breach, the tenant terminates the lease by surrendering possession on the date set forth in the notice. If possible, landlord may remedy the breach by repairs, the payment of damages, or otherwise. If landlord does remedy within five business days, the lease does not terminate because of the breach.

If a tenant terminates, because the landlord breached the WHA, tenant may also recover money damages. Tenants can and do ask for all sorts of money damages. The statute authorizes the recovery of damages directly arising from a breach of the warranty of habitability, which may include, but is not limited to, any reduction in the fair rental value of the dwelling unit, in any court of competent jurisdiction. Generally, courts frequently use a “but for” test in determining whether damages arose from a WHA breach. Specifically, if a tenant would not have incurred the damages but for the landlord’s breach, the court may award damages. For example, but for the fact of the breach, the tenant would not have had to move and thus a court may award damages for moving costs. Tenants can seek money damages for breach of the WHA in all breaches not just in cases where the tenant terminated the lease.

In addition to “but for” damages, the most common form of money damages, in warranty of habitability cases, are diminution in value damages. Diminution in value damages are based upon the difference between the fair market rental value of the unit and the rental value of the unit when the warranty of habitability is breached. For example, unit 202 rents for $1000 per month. However, unit 202’s heat is not working. The court determines that unit 202 is worth $600 per month

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FIRM WELCOMES NEW ATTORNEY TO THE TEAM continued from page 1

to my legal abilities that the Firm offers. I don’t want to be a lawyer who just sits in an office dispensing legal advice for five days per week. I love meeting with clients and the challenge of dealing with the diversity of legal issues that ‘TS’ clients deal with, as well as going to court in a different county every day. The bottom line is that I get a lot of personal satisfaction from helping clients prevail in legal actions that help and protect their business.”

When he’s not in court or at the office working with clients, Jonathon enjoys spending time in the outdoors hiking, camping, and enjoying an assortment of winter sports with his wife, Danielle. You can often catch him hitting the slopes at Winter Park, mixing it up with both skis and snowboard.

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AUDITS AND NEW RULES

EARLY RESOLUTIONS

If you are reading this and you are involved in managing rental properties, you understand that your role is to help people solve problems on a daily basis. Those problems are not always clear at the beginning of the day, and the only thing you can guarantee is being prepared to deal with the unexpected challenges. Part of the Firm’s mission is to help prepare those in the industry for the different challenges that they are likely to face and to provide guidance for navigating the changing environment of property management

Licensed parties and companies can be audited at any time, pursuant to the Real Estate Broker rules. The Department of Regulatory Agencies (“DORA”) conducts audits of licensed parties on behalf of the Real Estate Commission. These audits can occur to brokers and companies engaged in third party management and who are licensed by the state. If you are only managing your own properties and are unlicensed, DORA will not be auditing you. DORA has increased their focus on audits in general, and has increased their focus on auditing property management companies. These audits can be triggered as a result of anyone making a complaint against a company or broker directly. Complaints can be a result of a disgruntled owner, tenant, or former employee.

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DECEMBER 2019

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Landlord News

FAQS ABOUT THE WARRANTY OF HABITABILITY ACT – PART III REMEDIES continued from page 2

without heat. Diminution in value damages would be $400 ($1000 less $600 equals $400). Determining diminution damages is not an exact science. Determining diminution damages can vary greatly, depending upon the judge and other factors. For example, if it is in the middle of July and temperatures are consistently in the 90s, then the value of a $1000 apartment without heat is $1000. However, if it is the middle of winter and temperatures are consistently in the 20s, the value of a $1000 apartment without heat is probably $0.

A tenant may seek injunctive relief, for breach of the warranty of habitability, in any county or district court of competent jurisdiction. In a proceeding for injunctive relief, the court shall determine actual damages for a breach of the warranty at the time the court orders the injunctive relief. A landlord can cancel or not be subject to the court injunction in cases that don’t involve life, health, or safety issues by paying the damages into the court within two business days. Upon the tenant’s request, the court shall immediately release the damages to the tenant. If the tenant vacates the premises, in an injunction case, the landlord must remedy the breach before the landlord can

re-rent the property.

The right to repair and deduct is one of the biggest changes brought by the 2019 WHA. It is also one of the most convoluted portions of the law. The repair and deduct portion of the statute is a whopping 1095 words long! Interestingly, tenants can specifically deduct for mold related issues even though mold is not referenced in Section in 507(1). For example, a tenant could repair and deduct if a landlord failed to provide HEPA air filters. Given the minutiae of the repair and deduct language, we won’t cover every detail but will hit the highlights.

Before withholding rent, in addition to giving RCWN, a tenant must give a second written notice at least ten days before deducting repair costs from a rent payment. Accordingly, tenants would have to serve landlord the deduct notice either by the 20th or the 21st of the month (ten days before rent is due). The notice must include, among other things, notice of the tenant’s intent to deduct and contain a copy of at least one good-faith estimate of costs to repair or remedy the condition, which estimate has been prepared by a professional who is unrelated to the tenant, is trained to perform the work for

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AUDITS AND NEW RULES EARLY

RESOLUTIONS continued from page 2

Additionally, audits may be performed randomly. Financial audits by DORA can also be requested by brokers, if you really want to make sure that your books are in order.

Audits are conducted by investigators who are employed by DORA and their goal is to review what you are doing and whether or not that it complies with their interpretation of the rules and laws that apply to licensed parties. One of the most common ways that brokers commit a violation of the law is by not including a disclosure on their forms that indicates that an attorney had prepared the forms. This requirement is part of C.R.S. § 12-10-403(4) adopted in 2017, and is further explained in our newsletter from August 2017. It is important to remember, simply saying that the form was downloaded from an attorney’s website DOES NOT comply with the rules. There needs to be a specific statement on the form being used that the form is not a Real Estate Commission approved form and that it was prepared by a law firm for the broker’s use.

Another common concern, when it comes to audits, is making sure that fees are appropriately disclosed. Brokers are required to disclose markups to their clients, and they are required to disclose if there is an affiliated business that they are using that may also receive a financial benefit from the client.

As if audits alone were not enough to be concerned about, going into effect January 2020 are the new real estate broker rules. The new rules can be found at:

tinyurl.com/CRECRules2019

In many cases, the changes are meant to clean-up the language of the existing rules in order to improve readability and make the rules easier to understand, including the modification from a lettering format to a number format. However, there are some places in the Commission’s Rules where rules have been repealed and/ or combined which could result in a change in the interpretation of the rules. DORA has provided a convenient summary of these rule changes, which can be found here:

tinyurl.com/CRECRuleSummary

Brokers engaged in property management should pay particular attention to the following rules that directly impact operations.

There is now a new rule regarding 5.1, which requires checks and balances to be in place to protect “other people’s money”.

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DECEMBER 2019

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FAQS ABOUT THE WARRANTY OF HABITABILITY ACT – PART III REMEDIES continued from page 3

which the estimate is being prepared, and complies with all licensing, certification, or registration requirements of the state that apply to the performance of the work. A tenant withholding rent over multiple payment periods is only required to provide notice once.

Then comes the crazy part. After a tenant provides a landlord notice of the tenant’s intent to deduct costs, the landlord has four business days to obtain one or more good-faith estimates of the cost of repair. Why a landlord has to obtain an estimate for repairs and provide it to the tenant rather than just fixing the problem is anybody’s guess. Landlord’s “estimate must be prepared by a professional who is unrelated to the landlord, is trained to perform the work for which the estimate is being prepared, and complies with all licensing, certification, or registration requirements of this state that apply to the performance of the work. If the landlord prefers to repair or remedy the condition by hiring a professional, other than a professional who prepared an estimate for the tenant, the landlord shall share the preferred professional’s estimate with the tenant and shall commence work to repair or remedy the condition as soon as reasonably possible.”

Obviously, these requirements make no sense, in many cases, since almost all apartment communities have onsite maintenance teams. These teams can and do handle some or all the work involved in warranty of habitability scenarios. Thus, the law is oblivious to the reality that there is no need to hire a “professional” in these cases either to get an estimate and do the work. Further, why does the court or the tenant care who you use, whether you got an estimate, and what the repairs cost as long as the problem is fixed within the statutory time frames? Other than to have some measure of the reasonableness of the tenant’s estimate, this part of the law makes no sense. Landlord’s requirement to get an estimate is particularly baffling since the law is silent, regarding the consequences, if the tenant’s and the landlord’s estimates are substantially different. If the purpose was to verify the reasonableness of tenant’s estimate, then the law should have been written to reflect this. Specifically, upon receipt of tenant’s estimate, landlord can accept or challenge the estimate. The law should have included the process for addressing or reconciling differing estimates.

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AUDITS AND NEW RULES EARLY

RESOLUTIONS continued from page 3

Rule 5.5, provides a new change for Brokers that only manage a few properties. Under the old rules, Brokers that only managed six or fewer properties were exempt from having a separate trust account. Now, if you manage even one property, you must have a separate trust or escrow account.

Rule 5.8, now adds the new requirement of a 30-day notification from when a management agreement is executed that the new broker holding the deposit must notify the tenant that they are holding the deposit. Previously, it was just a requirement of the broker transferring the deposit to provide notice.

Rule 6.3 addresses employing brokers’ responsibility for reasonable supervision. It modifies part of the Employing Broker’s responsibility for reasonable supervision standard from a requirement to “review all executed contracts and transaction files” to now “ensuring all executed contracts and transaction files are reviewed.” This modification appears to be a more reasonable requirement and should be easier for brokers to comply with the rule.

As a reminder there is still a specific rule for supervising unlicensed on-site managers. The restated rule can be found under 6.3.

Rule 6.3 – Supervision of Unlicensed On-Site Manager Employing Brokers must:

1. Actively and diligently supervise all activities of any Unlicensed On-Site

Manager or delegate supervisory authority as set forth in subsection F. of this Rule;

2. Require the Unlicensed On-Site Manager to report directly to either the Employing Broker or a Supervisory Broker;

3. Require the Unlicensed On-Site Manager to account for and remit all monies, including rents and security deposits, collected on behalf of the Employing Broker or owner to the Employing Broker or Supervisory Broker;

4. Ensure that property maintenance scheduled by the Unlicensed On-Site

Manager is performed in accordance with the Property Management Agreement; and

5. Instruct the Unlicensed On-Site Manager not to negotiate any of the material terms of a lease or rental agreement with a Consumer.

Most clients have multiple layers of procedures and reporting requirements to supervise on-site

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DECEMBER 2019

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FAQS ABOUT THE WARRANTY OF HABITABILITY ACT – PART III REMEDIES continued from page 4

Regardless, because landlord’s failure to get an estimate triggers the right to deduct rent, landlords should always get an estimate. If landlord fails to get an estimate within four business days, a tenant may proceed to deduct costs from one or more rent payments, based on the estimate acquired by the tenant, until the entire amount of the estimate is deducted. A tenant who deducts costs pursuant to the statute, cannot repair the warranty of habitability issue but is required to hire an unrelated professional, trained to perform the work and who complies with all licensing, certification, or registration requirements.

Presumably, if a landlord gets an estimate, the tenant may not deduct rent. However, this conclusion is inferred from the fact that tenant’s right to deduct is specifically linked to landlord’s failure to get an estimate. Again, the law is silent on reconciling differing estimates. Perhaps the drafters assumed that if the landlord’s estimate was lower, the landlord would go with that estimate. Maybe they also assumed that if the tenant’s estimate was lower, the landlord would go with the tenant’s estimate. But if the tenant’s estimate is lower so the landlord wants to go with it, can the tenant withhold rent? Arguably no, because the tenant’s right to withhold is specifically conditioned on landlord not providing an estimate but landlord did provide an estimate.

The law is clear on two scenarios when the tenant may not withhold the rent. A tenant may not deduct rent for repair costs if the condition, which is alleged to breach the warranty of habitability, is caused by the misconduct of the tenant, a member of the tenant’s household, a guest or invitee of the tenant, or a person under the tenant’s direction or control. Subsidized tenants may not deduct rent for warranty of habitability breaches. Subsidized tenants (properties) include Section 8 (housing choice voucher program), public housing and variances, HOME funds or other housing considered affordable either through federal or state funds.

The one exception, to tenant caused damage, is if warranty of habitability breach was caused by an act of domestic violence. While not likely to arise frequently, the scenario appears problematic. For discussion purposes, a husband and wife live in 202. The wife is arrested for domestic violence. During the violent confrontation, the wife damages the unit to the point there are warranty of habitability violations. As the victim, the husband is not responsible for the damage.

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AUDITS AND NEW RULES EARLY

RESOLUTIONS continued from page 4

managers, and for good reasons. The law requires that oversight, and managers are on the front line of protecting the owner’s asset and interacting with tenants.

With new rules and audits out there, the best thing for property managers to do is to review the new rules, and do a self-audit of your own documents. If things have been changed without attorney approval, set up a time with your attorney to review those documents. Take a look at the changes to the existing rules, and see if there are any surprises. While we all operate in a busy industry, it is important to take a moment and self-assess to ensure that you are taking the appropriate precautions to maintain compliance with the law and the rules, so that you can continue to safely navigate the challenging environment of property management.

IMPORTANT TS DECEMBER DATES DEC 12th BASIC FAIR HOUSING WEBINAR 9:00 am – Noon ONLINE DEC 20th NO BOULDER COURTS TSCHETTER SULZER CLOSED AT NOON – HOLIDAY PARTY DEC 24th NO EL PASO OR JEFFERSON COUNTY COURT DEC 25th CHRISTMAS HOLIDAY ALL COURTS CLOSED TS CLOSED DEC 26th NO EL PASO OR JEFFERSON COUNTY COURT JAN 1st NEW YEARS DAY HOLIDAY ALL COURTS CLOSED TS CLOSED JAN 2nd NO EL PASO COUNTY COURT

Landlord News

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DECEMBER 2019

FAQS ABOUT THE WARRANTY OF HABITABILITY ACT – PART III REMEDIES continued from page 5

However, the wife is responsible. Thus, one tenant can deduct but one cannot. How this will play out is anyone’s guess at this point. The law should have just excluded domestic violence scenarios from the WHA altogether.

A couple of other rental deduction provisions of the new law are worth mentioning. If a court finds that a tenant wrongfully deducted rent, the court should award landlord the amount wrongfully withheld. The statute says “shall award” but we have seen the word “shall” turn into the court’s call too many times to say this is a certainty. The statute also empowers the court to enter double damage awards against the tenant and possession, if the tenant acted in bad faith. Finally, if the breach of the WHA involves an appliance, the tenant has the option of replacing the malfunctioning appliance so long as the replacement appliance is at least of substantially comparable quality and has substantially the same features as the original appliance.

If a tenant asserts a WHA claim as a defense in an eviction case, does the tenant have to pay the rent into the court?

Yes. But the amount is determined by the court after considering any expenses incurred by the tenant. Specifically, “upon the filing of the tenant’s answer the court shall order the tenant to pay into the registry of the court all or part of the rent accrued after due consideration of expenses already incurred by the tenant based upon the landlord’s breach of the warranty of habitability.” Generally, courts have been more liberal on this issue in the last couple of years. Thus, tenants have had to pay a smaller and smaller percentage of the rent into the court registry in WHA cases. The original WHA did not allow for repair and deduct. Given the new provisions for repair and deduct, only time will tell if the trend toward smaller registry payments continues.

Can landlords recover their attorneys’ fees in warranty of habitability cases?

Maybe. This can be an extremely complicated issue. Under Colorado law, litigants can only recover attorneys’ fees pursuant to contract or statute. The WHA allows the prevailing party to recover attorneys’ fees “if a rental agreement contains a provision for either party in an action related to the rental agreement to obtain

attorney fees and costs.”

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DECEMBER 2019

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Landlord News

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FAQS ABOUT THE WARRANTY OF HABITABILITY ACT – PART III REMEDIES continued from page 6

Thus, if the lease has a prevailing party attorney fee provision, landlords can recover their fees if they win a warranty of habitability case. However, many leases have one-sided attorney fee provisions. One-sided means that only the landlord can recover fees if they win. Almost all county courts now hold that since the tenant can’t recover fees neither can landlords. Specifically, courts interpret “either party” as “both parties” to mean you have to have a prevailing party provision instead of a one-sided party provision.

These court rulings ignore the plain definition of the word either. They also ignore the drafter’s intent. I know what “either” was intended to mean because I was there when the law was drafted, and the issue was discussed.

What are a tenant’s remedies for repeated breaches of the WHA?

If the same condition that was a breach (except for an appliance related breach) occurs within six months after landlord remedies, the tenant can terminate upon fourteen days written notice. The notice must include a description of the condition and the date of the termination of the rental agreement. If the reoccurring breach involves an appliance, the tenant may also terminate upon fourteen days written notice. However, landlords can cure reoccurring appliance-related breaches within fourteen days by either repairing or replacing.

Next month, we wrap up FAQs about the WHA when we conclude our discussion by addressing the extensive changes to the retaliation provisions of the WHA!

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Landlord News

DECEMBER 2019

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THE POLITICALLY

CORRECT SANTA

‘Twas the night before Christmas and Santa’s a wreck…

How to live in a world that’s politically correct?

His workers no longer would answer to “Elves”,

“Vertically Challenged” they were calling themselves.

And labor conditions at the north pole

Were alleged by the union to stifle the soul.

Four reindeer had vanished, without much propriety, Released to the wilds by the Humane Society.

And equal employment had made it quite clear

That Santa had better not use just reindeer.

So Dancer and Donner, Comet and Cupid,

Were replaced with 4 pigs,

and you know that looked stupid!

The runners had been removed from his sleigh;

The ruts were termed dangerous by the E.P.A.

And people had started to call for the cops

When they heard sled noises on their roof-tops.

And as for the gifts, why, he’d ne’er had a notion

That making a choice could cause so much commotion. Nothing of leather, nothing of fur,

Which meant nothing for him. And nothing for her.

Nothing that might be construed to pollute.

Nothing to aim. Nothing to shoot.

Nothing that clamored or made lots of noise.

Nothing for just girls. Or just for the boys.

Nothing that claimed to be gender specific.

Nothing that’s warlike or non-pacific.

No candy or sweets…they were bad for the tooth.

Nothing that seemed to embellish a truth.

And fairy tales, while not yet forbidden,

Were like Ken and Barbie, better off hidden.

For they raised the hackles of those psychological

Who claimed the only good gift was one ecological.

No baseball, no football…someone could get hurt;

Besides, playing sports exposed kids to dirt.

Dolls were said to be sexist, and should be passe;

And Nintendo would rot your entire brain away.

So Santa just stood there, disheveled, perplexed;

He just could not figure out what to do next.

He tried to be merry, tried to be gay,

But you’ve got to be careful with that word today.

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DECEMBER 2019

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THE POLITICALLY CORRECT SANTA

continued from page 7

His sack was quite empty, limp to the ground;

Nothing fully acceptable was to be found.

Something special was needed, a gift that he might

Give to all without angering the left or the right.

A gift that would satisfy, with no indecision,

Each group of people, every religion;

Every ethnicity, every hue,

Everyone, everywhere…even you.

So here is that gift, it’s price beyond worth…

“May you and your loved ones enjoy peace on earth.”