Residents’ Ability To Withhold Rent Under the New Warranty of Habitability Bill

Unless you’re living in a cave, you know that the Colorado General Assembly passed House Bill 1356, and the governor signed this law on June 2, 2008. House Bill 1356 is the new warranty of habitability law. The law becomes effective on September 1, 2008.  In the next two months, we will host numerous FREE client seminars about the new law.  In addition to the free client seminars, we will write about various aspects of the bill in upcoming newsletters. This month we address residents right to withhold rent under the new warranty of habitability law.

  If you breach the warranty of habitability, residents have several remedies, including termination, injunction, and damages. The law does not specifically authorize a resident to withhold rent upon breach of the warranty of habitability.  But the law does authorize a resident to recover damages arising directly from any breach of the warranty of habitability, including but not limited to any reduction in the fair rental value of a rental unit caused by a breach of the warranty of habitability. This is known as 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 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 far less than $600.

Under the new law, the right to claim diminution in value damages doesn’t give a resident the right to withhold rent, but creates a defense to a rent claim.  The claim for rent due under the lease is not valid in part or in whole because the rental unit in its impaired condition is not worth the monthly rent claimed.  Some argue that this technical legal distinction between the right to withhold and the right to assert a defense is nothing but semantics.  The results will be the same.  Residents will use the new law to justify withholding rent.  Residents will reason that if the rent is not owed, than they have a right to withhold it or not pay it.  Because this argument has merit, many are rightfully concerned that the new law will encourage residents to withhold rent more often than they are currently withholding.  Only time can prove if this will be true.  Even if residents withhold rent more often, residents’ ability to withhold rent under the new law can only be evaluated by comparing the new law to the current reality.

Under current law, if your lease is solid, residents have no legal right to withhold rent for failure to repair.  However, despite having no legal right to do so now, the reality is that residents are withholding rent for failure to make repairs.  Once a resident withholds rent for failure to repair, the scenario plays out the same every time.  You demand the rent.  The resident fails to pay.  We summons the resident to court.  By law, this takes one week from the date the case is filed.  During this time, the resident pays $0.00 rent.  The resident shows up in court, and files an answer based on your failure to make repairs.  By law, the case is set for trial one week later.  Again, during this week, the resident pays $0.00 in rent.  The court tries the case, and you win a judgment for possession.  The resident refuses to move.  You have to wait for the sheriff which can be anywhere from a couple of more days to several weeks depending on the sheriff’s schedule.  During this whole time, the resident pays $0.00 rent.

When the bill was being negotiated, a main goal was to force the resident to pay the rent first, and then let the court sort it out later.  The resident may not owe the rent based on diminution in value, but that is for the court to determine.  Our argument is simply.  Residents can’t withhold what they don’t have.  Residents weren’t withholding rent for failure to repair.  Residents weren’t paying rent because they didn’t have it, and were using an alleged failure to repair as an excuse not to pay the rent.  Because this argument resonated, we were successful in addressing this issue in the new law.  Under the new law, when you evict a resident, and the resident claims breach of warranty of habitability, the court should require the resident to pay some or all of the monthly rent demanded.  Specifically, when a resident files an answer claiming that a landlord breached the warranty of habitability, the court shall order the resident to pay into the registry of the court all or part of the rent accrued after due consideration of expenses already incurred by the resident.

Again, only time will tell how the new law will play out in court.  However, the legal requirement for the court to order the resident to pay the rent is a valuable tool currently not available to you or us.  Now when residents tell you that they aren’t paying over a repair issue, you can tell them that the court will order them to pay it if this is their defense.  When we talk to residents in court, and they tell us how evil you are for not making repairs and that they are going to contest the case until their last breath, we can say “bring your checkbook and let’s go talk to the judge” because the judge is going to order you to pay the rent right now.  Because the specific language requiring this will now be mandatory on every eviction summons, we can say to the resident “you don’t have to take our word for it, it’s printed right there on your summons”.

We anticipate an initial surge of residents attempting to withhold rent under the new law, but also anticipate that the surge will recede when residents quickly learn that this isn’t an easy out, and that they will be required to pony up the rent if they assert this defense.  Many residents will probably back down or withdraw their answers when they discover they have to pay the rent.  How the county court judges enforce the requirement will be significant.  As with most issues, some judges will be stricter, and some will be more lenient.  However, even if a judge orders that they have to pay less than the full amount, it is more than you get now which is zero.

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