Recently, four new laws relating to Colorado property management have impacted how Denver landlords and real estate investors manage their properties. We looked at the Bed Bugs in Residential Premises Act in a previous post. In this post, we discuss rental applications.
Like most things in the world, the price of renting and applying to rent property in Denver and the surrounding communities continues to rise.
The Colorado legislature recently passed the Rental Application Fairness Act in order to limit what Landlords may charge to applicants of rental properties. Whether you own or manage one Denver rental unit or fifty units, these rules apply to you. There are a lot of moving parts to this law!
Parts 1-2: What It Is, and to Whom Does it Apply?
The Rental Application Fairness Act governs rental application fees, which are defined as “any sum of money that is charged or accepted by a landlord from a prospective tenant in connection with the prospective tenant’s submission of a rental application that precedes the onset of occupancy.”
This rental application fee is anything pertaining to the application to apply to rent from your Denver property, including the general application fee, holding fees, administrative fees, and if relevant, a pet application fee.
The updated rental application fee law does three main things:
Limits the amount of application fees that may be charged.
Requires new disclosures of those fees.
Requires receipts be provided to applicants.
Parts 3-5: How Much Can Be Charged & Who to Tell
There is not a set maximum dollar amount that you are allowed to charge for rental application fees, however the Act does state that the amount cannot be higher than:
The actual expense the landlord incurs in processing the rental application; or
The average expense the landlord incurs per applicant in the course of processing multiple rental applications.
Determining the exact dollar amount to charge for rental application fees can be tricky. You must factor in the hard costs of obtaining a background and credit report as well as staff time of individuals doing the background check and calling landlord references. In order to be in compliance with the Rental Application Fairness Act, you must figure out this cost and be sure not to exceed it.
After calculating the correct amount to charge for your rental application fee, you must disclose that fee to the prospective tenant before they apply. If they do apply and you receive the application fee payment, you must provide them with a receipt. Electronic receipts are acceptable unless the applicant requests a paper copy.
Parts 6-8: Application Fee Considerations
Landlords must refund any unused portion of the paid fee to the applicant within 20 calendar days after processing the fee if it exceeds the actual cost of processing. This means that if you as a landlord only use $45 of a $50 application fee charged, you must refund the applicant $5.
While processing a prospective tenant’s rental application, landlords and real estate investors will often review the credit and rental history of the applicant. The Rental Application Fairness Act sets new guidelines for these time periods:
Rental and credit history beyond seven years may not be considered in making leasing decisions.
Arrests may not be used in making leasing decisions (we believe this to be a particularly good practice as an arrest does not necessarily mean the person is guilty of anything).
Criminal history beyond five years may not be considered in making leasing decisions except for meth and amphetamine offenses, sex offender-related offenses, and homicide and stalking offenses.
This update is new for the state of Colorado, and has had an immediate impact on how landlords decide whether or not a prospective tenant is approved to lease.
Part 9: What to Do When an Applicant is Denied
Not every single person who wants to rent from your Denver property will be approved. Even if a prospective tenant’s application is denied, landlords have a few steps to follow. Within 20 calendar days of processing the application you must:
Provide the prospective tenant a written notice of the denial that states the reason for denial.
Provide a prospective tenant with an electronic version of the denial notice, unless the prospective tenant requests a paper denial notice.
If the specific screening criteria cannot be directly cited because of the use of a proprietary screening system, the landlord shall instead provide the prospective tenant with a copy of the report from the screening company that uses the proprietary screening system.
Parts 10-11: Liability for Denver Property Managers and Tenants
It’s always important to follow the law, especially for Denver property managers and real estate investors. If you fail to follow the Rental Application Fairness Act, these are the possible consequences:
Landlord may have to pay (refund) three times the amount of the rental application fee paid, plus court costs, and reasonable attorney fees
If the landlord corrects the violation, they are not liable for damages
Additionally, these are the liabilities of the tenants:
The applicant must give seven days notice to the Landlord before filing suit
An applicant who purposely acts in bad faith or brings a meritless claim against a landlord is liable for the landlord’s court costs and reasonable attorney fees in defending the claim
Stay Up to Date with Grace Property Management!
While these new legal requirements may make it more difficult to manage rental properties, as a Denver property manager you are required to comply with these recent rental property updates.