Money & the Law: Tenant-rights bills complicate rental investment strategy | Business

A popular invest-for-retirement strategy that’s been around a long time has involved buying modestly priced houses and turning them into rental properties. With careful decision-making concerning the properties and the tenants who rent the properties, an investor using this strategy can end up with positive cash flow (income exceeding expenses), an appreciating portfolio of real estate assets, and tax benefits derived from being able to deduct depreciation (a non-cash expense) against rental income.

But, over the last few years, the Colorado Legislature — the General Assembly — has passed multiple bills protective of tenants. The legislative intent has been honorable — help people find user-friendly and affordable housing. However, this pro-tenant legislation has greatly complicated the lives of landlords.

This legislative incursion into the landlord-tenant relationship has included bills prohibiting price gouging following natural disasters; mandating increased disability access; prohibiting occupancy limits; requiring radon testing and disclosures; regulating tenant screening; limiting tenant application fees; expanding rules concerning security deposits; prohibiting use of information about income and criminal records when vetting prospective tenants; prohibiting use of certain terms in rental agreements; making rental properties pet-friendly; requiring prompt eradication of bed bug infestations; tightening rules concerning habitability; and addressing a host of other matters favorable to tenants.

Further along these lines, an important bill passed by the 2024 General Assembly — House Bill 24-1098 — deals with evictions. This bill gets low scores for clarity, but it basically says a landlord, with certain exceptions, may not evict a tenant unless there is “cause.” The bill goes on to provide a list of things constituting cause. As you might expect, not paying the rent will be cause for an eviction, as will conduct resulting in damage to the property. But lots of other behavior landlords may not like will not be cause for eviction.

Then, in seeming contradiction to the basic premise that evictions will not be allowed without cause, the bill sets out a number of circumstances where an eviction will be allowed without cause. One of these comes into play if the landlord plans to sell the property, or if ownership of a property changes hands because of a probate transfer or a foreclosure. In these no-fault situations, tenants must receive 90 days prior notice that their tenancy is ending. No-fault eviction is also allowed if the “tenant refuses to sign a new rental agreement with reasonable terms.” This again requires prior notice to the tenant, who can remain in the property for 90 days after the notice is given.

Although it doesn’t leap out at you when you read HB24-1098, an important concept behind the bill is that non-renewal of a lease is the equivalent of an eviction. So, landlords can’t just remove a tenant at the end of a lease term unless one of the circumstances of “cause” stated in the bill is present. Landlords must therefore offer tenants a right to continue occupancy, and with only a “reasonable” increase in rent. (As one commentator has said, under HB24-1098, tenants, and not landlords, get to control the duration of the tenant’s occupancy.)

Thanks to the complexities now affecting residential rental properties, landlords these days, to avoid wading into legal quicksand, are effectively forced to employ property managers who have ramped up on all the new tenant-rights legislation. And many people who in the past were acquiring rental properties as a form of retirement savings have now decided they no longer want to invest in these properties. They are selling their holdings and buying certificates of deposit or other investments where they don’t need a lawyer on retainer.

Jim Flynn is a business columnist. He is of counsel with the Colorado Springs firm Flynn & Wright LLC. He can be contacted at [email protected].