Collecting rental applications and screening tenants has become a bit more complex for Colorado rental property owners.
If you’re not aware of the new legal changes, it’s essential that you educate yourself and come into compliance right away.
That’s why we’re presenting this guide. Several laws have passed recently that impact the application process for rental properties throughout the state. We want to make sure you’re aware and complying with these laws. If there’s still confusion after what you read here, don’t hesitate to reach out to us at Muldoon Associates. We can give you some good advice based on what kind of properties you’re renting out, and where.
We ask you to remember that we’re providing this information because we’re professional property managers in Colorado. For legal advice, consult an attorney.
This is what you need to know.
Rental Application Fairness Act
Originally passed in 2019, the Rental Application Fairness Act in Colorado is a law that limits application fees and considerations in reviewing rental applications, and requires certain disclosures and communications with prospective tenants upon denial.
Here are some of the highlights:
- Landlords in Colorado are required to follow strict procedures related to the usage of application fees. The fee must cover background checks, credit reports, and other things associated with a tenant screening.
- If a landlord denies a rental application, they must provide the prospective tenant with a written notice of denial stating the reasons for the denial.
- The law also includes provisions for reusing rental applications.
That’s a law that’s been on the books for years, and if you’ve been renting out properties in the state for any amount of time, you’re probably aware of the requirements that come with it.
Amending the Rental Application Fairness Act: HB23-1099
There have been amendments and updates to the Rental Application Fairness Act, however, and that’s what we’re concerning ourselves with today.
The amendment that passed in 2023 was HB23-1099, and legislators passed this law in an effort to make finding a new rental home more affordable for tenants. The main complaint among renters is that they have to pay an application fee at every property they’re hoping to rent.
So, the portable tenant screening report was introduced.
Under the Portable Tenant Screening Report provision, prospective renters can purchase their own background check one time. As soon as they are in possession of that background report, they can share it with any of the landlords they’d like to rent a home from. This would happen during the application process, releasing them from the need to pay for a separate background check at every property.
This law allows tenants to pay once for multiple rental applications without incurring extra costs.
This does not mean landlords in Colorado must accept any piece of paper that tenants offer as a screening report. The background check that’s provided by tenants must include the following:
- Name of the tenant
- Contact information for the tenant
- Verification of employment and income
- Last-known address
- Rental and credit history in jurisdictions they’ve lived
- A criminal history record check for all federal, state, and local convictions
The background check must be complete, and it must have been run by an objective third party no more than 30 days before the application is submitted. Once the background check and screening is complete, the potential tenant must provide a copy directly to the landlord who requests it.
This sounds pretty advantageous; not only does it save tenants money, it saves landlords time in screening each tenant separately. However, it’s not as simple as it sounds. Many screenings and screening services do not provide consistent information or include all of the same requests. Landlords may be left wondering if the report really tells them whether all of their criteria has been met.
The bottom line? As a landlord in Colorado, you must inform any of your applicants about their right to provide a portable tenant screening report. If your prospective tenant presents that portable screening report, you must accept it, and then you cannot charge an application fee.
Not all tenants will have a portable tenant screening report, and in that case, you may charge the appropriate fee and conduct your own screening. But, in this case you will need to provide a receipt that shows the entire application fee was spent on screening the application. Any additional money that was collected and not used for verifiable screening purposes will need to be returned to the tenant.
Seven Year Limit on Rental History and Credit
Most landlords, when screening tenants for their properties, will look at two important things: credit and rental history. You want to know if there are any recent evictions or judgments or money owed to former landlords and apartment communities. You want to know if a tenant has a habit of paying their bills and how well they manage debt and income.
You can look at all those things when you’re screening your tenants, but you cannot look too far into the past.
Seven years. That’s the magic number when it comes to screening tenants in Colorado. You can review rental history over the last seven years, but you cannot use an eviction that’s 10 years old against an applicant. The credit history and report you review can also only reflect the last seven years when you’re gathering information that will impact your decision-making process.
Considering Criminal History
While seven years is the magic number for credit and rental histories, criminal histories can only be five years old when you’re screening tenants.
According to the updated laws impacting rental applications in Colorado, landlords are not permitted to consider an arrest record of a prospective tenant from any time. An arrest cannot impact your decision unless it led to a conviction. And, if there was a conviction, you cannot consider any conviction of a prospective tenant that occurred more than five years before the date of the application.
There are exceptions. The five-year rule does not apply, and landlords may consider any criminal conviction record or deferred judgment relating to:
- Methamphetamines. If a prospective tenant was convicted of distributing, manufacturing, dispensing, or selling anything related to methamphetamines, there is no time limit. You can use a conviction that’s 10 years old as grounds for denial.
- Amphetamines. If a prospective tenant has been convicted of unlawful possession of amphetamines or methamphetamines, there is no time limit that cuts off your consideration.
- Sex offenders. Any offense that requires a prospective tenant to register as a sex offender can be considered as grounds for denial, even if that conviction is more than five years old.
This can be complicated as you’re pulling criminal reports and background checks. When you encounter a situation and you’re unclear about whether you can consider the conviction or not consider it, contact your local property manager or an attorney.
Income Requirements for Colorado Rental Properties
It’s important to know that tenants are earning enough money to cover the cost of rent.
For many years, the best practices standard said that you want tenants to earn at least three times the amount of your monthly rent. So, if you’re charging $2,000 per month in rent, you want your tenants to earn at least $6,000 per month.
That’s too much, according to landlord and tenant laws in Colorado. When you collect and screen applications, you cannot require your tenants to earn more than twice the amount of rent.
It’s also not possible for landlords to consider source of income. When a prospective tenant can provide verification that shows they earn twice the amount of rent you’re asking, it does not matter where that income comes from.
Why is this relevant? Because it means Colorado landlords must consider tenants who have housing subsidies, such as those available from the Section 8 program. You cannot say that your property does not allow Section 8 tenants. Since you’re required to consider all rental income sources, those housing subsidies are included. So, an otherwise qualified tenant who arrives with housing benefits as qualified income must be considered for your property.
And, if a tenant relies on a housing subsidy, Colorado landlords can’t mandate that the tenant earn more than 200% of the portion of the annual cost that the tenant is responsible for. Let’s say that the tenant receives subsidies and contributes $300 a month to their own rent. That means, when you’re screening, you have to consider the tenant when they can prove they earn $600 a month, even if your rent is $2,000. As long as they have the subsidy to make up for the remaining $1,400 a month, they qualify for your property income-wise.
As you can see, collecting applications and screening tenants has become more complicated for rental property owners in Colorado. It’s never been more necessary to work with a smart, experienced property manager. We’d be happy to help you navigate these new laws and any additional legislation that impacts your rental property.
Please contact us at Muldoon Associates for more information.
