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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
BUCKLE UP – CHALLENGING LEGISLATIVE SESSION ON THE HORIZON
The Colorado General Assembly will likely introduce multiple bills that could significantly impact the rental industry. Even though the 2018 legislative session hasn’t even started, one landlord tenant bill has been discussed and another is in the drafting stages. With tenant advocacy groups on the march, and with the City of Denver sending signals that the affordable housing crisis can only be solved through industry regulation, landlords should expect lots of proposals in 2018 at the state capital to regulate the rental industry. After Denver’s passage of the Green Roof Initiative, Landlords should also be concerned about ballot initiatives negatively impacting the rental industry.
Before discussing the potential 2018 proposals to regulate the rental industry, it’s important to understand the genesis of these proposals. Knowing the origin of these efforts to regulate the industry will allow us to collectively combat those efforts, and to work together to address the root causes of the problems that generate these over-reaching regulatory efforts. Based on our frequent interaction with state legislators, anecdotal stories are often the driving force behind efforts to regulate the rental industry.
For example, in a recent meeting, a state representative informed us that many of his constituents complained to him about abusive application practices. Specifically, landlords where charging excessive application fees, and allegedly, in many cases, were charging those fees when the landlord knew the tenant had no chance of being approved. Constituents also told the state representative that
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BUCKLE UP – CHALLENGING LEGISLATIVE SESSION ON THE HORIZON continued from page 1
that landlords were taking multiple applications to generate revenue.
This anecdotal story and others like it illustrate why it is so important to get involved. If a significant amount of the rental industry isn’t politically involved, then elected officials only hear a misleading fraction of the story. When a state representative hears from three, five, or even thirty constituents that they encountered abusive application practices, it sounds bad. However, if a state representative knew the entire story (the actual reality of the industry), most representatives would conclude that tenant application procedures do not need to be regulated by state law.
In the Denver Metro area, there are 330,000 multifamily apartment units. Additionally, there are hundreds of thousands of single-family rentals. Every year, hundreds of thousands of tenant applications are processed. The number is probably greater, but let’s assume there are half a million applications. Assuming there are 3000 application abuses, this means there is a problem with .6% of all applications. The state should not impose an onerous burden on an entire industry when less than one percent of tenants have a problem with applications.
Anecdotal application abuses also fly in the face of industry realities. For starters, competition for tenants limits application prices. If a landlord’s application prices are too high, tenants will apply with landlords with lower prices. Additionally, tenants are usually not surprised to discover that their application was denied for reasons they didn’t know about. Since industry best practices are to fully disclose the application criteria before an application is made, almost all applicants know the application guidelines and whether or not their application will be accepted. Most state representatives don’t know this bit of information. This means tenants are in control prior to paying any application fees. For example, if a community doesn’t accept felonies, and the applicant has a felony on their record, the tenant shouldn’t waste an application fee at a community where they won’t be approved.
Despite all of this, a legislative oversight committee was working on a bill that would have regulated tenant applications. The committee’s work did not result
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IMPORTANT THS JANUARY DATES JANUARY 5TH & 12TH BOULDER COURTS CLOSED JANUARY 11TH SECURITY DEPOSIT WORKSHOP THS Lower Conference Center 3600 S. Yosemite Street Denver, CO 10:00 a.m. – Noon JANUARY 15th ALL COURTS CLOSED MARTIN LUTHER KING, JR. DAY JANUARY 17TH WEBINAR WEDNESDAY Topic TBD 9:00 a.m. Online JANUARY 25TH AASC LEGAL HANDBOOK WORKSHOP 545 E. Pikes Peak., Ste 105 Colorado Springs, CO JANUARY 26TH PRE-LUNCHEON WORKSHOP BASIC FAIR HOUSING 8:15 a.m. – 11:15 a.m. JANUARY 26TH North Client Lunch Dave & Busters Westminster 11:30 a.m. – 1:00 p.m.
BUCKLE UP – CHALLENGING LEGISLATIVE SESSION ON THE HORIZON continued from page 2
in a bill yet, however, it is likely that a tenant application bill will surface again in 2018. Besides being totally unnecessary for the reasons discussed above, the tenant application discussion is problematic for other reasons. The proposal would limit both credit and criminal background checks to five years. Apparently, the proponents of the law aren’t familiar with the Federal Fair Credit Reporting Act which allows credit information to be reported for seven years. Based on interacting with screening companies for clients, we aren’t confident that they could simply flip a switch and lower their screening from seven to five years.
Proponents of a law to regulate tenant applications are advocating that a violation of the application law would be a deceptive trade practice. The Colorado Consumer Protection Act (CCPA) creates significant liability for engaging in deceptive trade practices. If the tenant application as discussed becomes a reality, landlords that violate the law would face stiff financial repercussions. To begin with, Colorado can fine a person that violates the CCPA $2,000 for each violation. Tenants could sue landlords and recover the greater of actual damages or $500 for each violation. The CCPA also makes violators liable for treble damages in some cases. The proposal would also encourage lawsuits over minor violations and incentivize the filing of class action lawsuits because landlords are liable for the tenant’s attorneys’ fees under the CCPA.
A bill concerning documents that a landlord must provide a tenant has been drafted and will be introduced this session. The bill requires every landlord to provide the tenant with a copy of the lease within seven days. The bill also requires landlords to provide written receipts for payments made in person, and if requested by the tenant, a receipt for payments not made in person. Landlords may provide electronic receipts, unless of course the tenant requests a paper receipt in which case the landlord will have to provide a written receipt. Landlords can meet the laws receipt requirement by having an “existing procedure that provides a tenant with a record of
the payment received that indicates the amount the tenant paid, the recipient, and the date of payment.
Our first reaction to this proposal is that it is a solution in search of a problem. Signing something and not being provided a copy if you want one seems unfathomable. Further, when payment is in dispute, tenants that did pay have absolutely no problem proving it. Tenants that paid and who can’t prove it are virtually non-existent.
This proposal would significantly impact standard operating procedures. Like everything else, the industry is going digital. However, you would have to deliver paper documents when requested by the tenant. Some tenants may use this as a tool to harass onsite teams by constantly making them produce paper, thus wasting their time. To avoid this, landlords would be forced to adopt a billing system, and send out monthly statements or bills. Few if any landlords do this now. Procuring, and maintaining such a system will increase costs. Hiring and training folks to run the system will also increase costs. The list of other landlord tenant legislative proposals is extensive. Efforts to reduce the use of criminal background checks is certainly a possibility. Tenant advocates are also floating a related proposal to limit the use of eviction records in making rental decisions. Because several states have enacted laws preventing source of income discrimination, we wouldn’t be surprised to see a bill on this too. Standardized lease contracts and rental registries are other possibilities that have been mentioned.
Tenant rights groups have a wish list of proposals that would directly impact evictions. In Colorado, a landlord does not need a reason to terminate a tenancy. Like the requirements for tax credit properties, tenant groups want a law that would require a landlord to have “just cause” to terminate a tenant’s lease. These same groups also want to significantly increase court filing costs for evictions. They argue that if it cost more to file an eviction than there would be fewer evictions. Of course, this is preposterous because it ignores economic reality. When a tenant doesn’t pay, the landlord has only two options. One, let the tenant live in the unit for free. Two, evict the tenant to either get the tenant to pay, or to get a paying tenant in the unit. If this becomes a reality, these increased costs would only be passed on to the tenants, making it even harder for tenants to pay and stay.
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BUCKLE UP – CHALLENGING LEGISLATIVE SESSION ON THE HORIZON continued from page 3 Even more far-fetched is their proposal for every tenant to have the right to legal counsel. This comes straight from New York City. New York City! New York City provides every tenant facing eviction with an attorney at the nominal cost of $155 million a year. New York cites some vague, non-quantifiable numbers that supposedly it has significantly reduced the number of evictions. Again, if a tenant isn’t paying, and there is no defense, they either must be evicted or the tenant is living in the unit free. Just because a city paid attorney negotiated for the tenant to move out without being “evicted” by the sheriff doesn’t mean that the tenant wasn’t evicted or that there are less evictions.
The reason why most tenants aren’t represented by attorneys is simple. At least ninety-nine percent of all evictions are losers for the tenant. The tenant agreed to pay the rent, the tenant is not paying, and in most cases there is no defense. What else is there to talk about? Why would a tenant pay good money for an attorney when there is no defense? More importantly, why would an ethical attorney take money from a tenant who is already facing financial hardship when there is no prospect of winning the case? They wouldn’t. A growing number of tenant attorneys are already available to represent tenants in eviction cases when the tenant has a good defense. Because valid defenses in eviction cases for non-payment of rent are rare, providing every tenant with an attorney won’t reduce evictions. However, it will clog the courts, and substantially drive up legal costs that will eventually be passed onto the tenants.
The biggest storm cloud on the horizon is the ballot initiative. In addition to the ongoing threat of adverse legislation, the rental industry now faces the additional threat of the ballot initiative. The Green Roof Initiative (GRI) is the first example of a ballot initiative that is likely to negatively impact the rental industry. The GRI was passed by Denver voters in November 2017. The GRI Requites all Denver buildings over 25,000 sq. ft. to have a percentage of their roof dedicated to vegetation and/or solar.
The GRI will significantly increase costs. Costs include initial capital costs, ongoing maintenance costs, and lifecycle costs (i.e., green roof replacement might cost more than conventional roof replacement). The annual maintenance for a green roof is typically much higher than for a traditional roof. The GRI will also result in long-term ancillary costs, such as the increased cost of
insurance, liability issues associated with weight, drainage, interior damages from roots, damage to walls and liability for personal injury.
Economists forecast that the GRI will raise the cost of both owner-occupied housing and rental housing. As a result, the GRI is projected to hurt economic development and Denver’s ability to attract and retain business. Proponents of the GRI ignored or overlooked the fact that Denver’s climate is not well suited for green roofs, and that the GRI will result in high water usage in a state where water is already scarce. Some political forces that complain about high rents in Denver, and a lack of affordable housing are responsible for the GRI. However, in passing the GRI, they overlooked that the increased cost burden of the GRI will be passed down to tenants, and thus increase rents and otherwise exacerbate the rental housing crisis. Overall, the GRI is likely to result in building construction and tenant flight from Denver to the suburbs where construction costs and rents are cheaper.
Based on our experience, both legislation and now ballot initiatives are driven by a few bad actors. Does anyone know a landlord that wouldn’t give their tenant a copy of the lease? Apparently, some state legislators do because this is one of the reasons behind the tenant documents bill. Because the conduct of a tiny fraction of landlords is responsible for almost every effort to regulate the rental industry, the most powerful and effective plan to prevent onerous regulation is to self-police. The conduct of the few bad actors that are causing the problems needs to be addressed. We are not sure exactly what that looks like. But we do know that it is time for serious discussion of this problem because resolution of this problem would significantly benefit the entire industry.
In the meantime, everyone needs to step up and get involved. Unless everyone gets involved and helps educate both legislators and the public, most folks will never know the facts. The fact is that landlords prefer paying tenants, and have no desire to evict tenants. The fact is that a huge percentage of the rental industry belongs to an association that educates, trains, and promotes ethical conduct. When the only information is anecdotal stories of landlords abusing poor tenants, the perception is there is a serious problem that needs to be addressed. Perception becomes reality and serves as justification to enact laws that burden everyone for the sins of a few.