Denver approves policy to require licenses for long-term rentals

Denver landlords will soon have to pay for long-term licenses to rent out their properties after the new licensing policy was unanimously passed by the Denver City Council in a final vote Monday.

By requiring the long-term licenses, the “Healthy Residential Rentals for All” policy intends to improve the conditions of rental properties, help the city track its housing stock and establish better communications between tenants and landlords.

“Denver has been in a housing crisis for decades, and the pandemic has put even more uncertainties on our residents who rent,” said Council President Stacie Gilmore, who sponsored the policy. “For the first time, we will have a license that will ensure our rental properties are safe.”

To get a license, rental properties will need to pass an inspection to assure they adhere to Denver’s minimum housing standards – including functional facilities, proper lighting and heating, sanitary dwellings, no pests and utilities such as water and gas – to address health and safety concerns.

The licenses will be required by Jan. 1, 2023, for rental properties consisting of two or more dwelling units and by Jan. 1, 2024, for rental properties consisting of a single dwelling unit. Early licensing will open on Jan. 1, 2022, providing landlords with 50% off the application fee.

Though the policy was passed unanimously, it has proven controversial inside and outside of the council. Many landlord associations have spoken out against the policy, concerned about the fees they will have to pay.

“The rental licensing program is yet another regulatory action that will increase the cost of renting in Colorado,” said Drew Hamrick, senior VP of government affairs for the Colorado Apartment Association.

Hamrick argued that the licensing fees and cost of inspecting rental units even when no complaints have been filed against them is an “unnecessary increase in the cost of providing housing" that will ultimately be pushed on the renters.

Mike Papantonakis, association chairman of the Denver Metro Association of Realtors, has also opposed the policy, saying there are already laws on the books, like the Colorado Warranty of Habitability, to make sure renters have a recourse if property owners are negligent.

Under the proposal, the one-time license application fees would be $50 and license fees would range from $50 for single-unit properties to $500 for multi-family properties with more than 250 units. Landlords would require licenses for each rental parcel, not each unit.

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The licenses would have to be renewed every four years. Inspections would also be required every four years or if there’s a change in ownership.

Landlords would need to hire certified private home inspectors, costing around $150 for single-unit properties and $45 for each additional unit. In apartment complexes, only 10% of units would need to be inspected, selected at random by the inspector.

Several council members spoke out against the idea that the policy would be a major financial burden on landlords or lead to increased rent because, for a single unit, the fees are only $200 every four years.

“The average monthly cost of the proposal is $4 per unit,” said Councilwoman Amanda Sawyer. “To me, that balances the city’s interests in protecting our most vulnerable citizens and maintaining safe housing stock with the recognition that our residents cannot bare many more costs.”

Policy co-sponsor Councilwoman Robin Kniech has also addressed the assertion that the required inspections would lead to extreme costs in repairs to meet guidelines, pointing out that the inspections only require minimum housing standards that are already required by law.

In contrast to the concerns of landlord associations, Councilwoman Candi CdeBaca advocated for fees to be higher for landlords of large, multi-unit properties, saying the policy disproportionately penalizes mom-and-pops.

CdeBaca introduced two unsuccessful amendments to the policy Monday that would have made the license fees for all landlords $50 per unit instead of topping out at $500 and pushed up the implementation date for all landlords to July 31, 2022.

The amendments would also have changed the licenses to require fees for each unit instead of each parcel, increasing eligible licensees from around 54,000 parcels to around 200,000 units.

“My issue here is treating landlords equitably,” CdeBaca said. “This amendment levies the same fee for every rental unit rather than giving large discounts to corporate landlords who have multiple units on a single parcel.”

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Both amendments were voted down by the council in a 11-1 vote, with only CdeBaca voting in favor and Councilman Christopher Herndon being absent.

Council members in opposition said low fees encourage compliance and limit the impact on rent prices, and the policy’s phased implementation is needed to allow landlords time to meet requirements and allow the city to keep up with the massive influx of licensing.

Currently, the highest volume of active licenses in Denver is security guard licenses, with approximately 6,000 required. At 100% compliance with the new policy, there would be approximately 54,000 long-term rental licensees in Denver.

Jonathan Griffin, deputy legislative counsel, also said increasing the fees under CdeBaca’s amendment would open the program to legal challenges since the change would accumulate around $10 million in fees, grossly more than the cost of implementing the program.

“Under the Aspen case that came out back in 2018, which spoke to reasonable fees … it said that the charge had to bear a reasonable relationship to direct or indirect costs of the government providing service to regulating the activity,” Griffin said.

During the meeting, Councilman Kevin Flynn and Councilwoman Amanda Sandoval raised concerns about the required inspections, saying they were worried that older homes wouldn’t be able to meet current codes.

To that, Gilmore reiterated that rental units would only need to meet minimal requirements codes, not new build codes, and she said she will keep older homes in mind when working to establish the inspection checklist this summer.

“I would ask that we don’t make ‘perfect’ the enemy of ‘good policy.’ We need to start somewhere,” Gilmore said, adding that the city will evaluate the program on a yearly basis using data collected.

The policy also features renter protections, including requirements that landlords provide tenants with a written lease and a notice of tenant rights and resources within seven days of all new tenancies and with any rent demand.

The rights and resources would be provided by the city and include information about minimum housing standards, how to file a complaint, legal rights when receiving an eviction notice and how to get rental assistance and legal representation.

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Through the licensing process, the city would also gather contact information and data for landlords and rental properties. Currently, city officials do not know how many rental properties there are in Denver. Estimates for the number of rentals range from 37% to 50% of Denver’s housing stock, Gilmore said.

This data would be used to track affordable housing options, in addition to lending information to the city’s tracking of energy efficiency objectives and how many rentals are available to people with disabilities.

“This is a basic responsibility of a city the size and depth of Denver that we know what our rental stock is and that it meets basic habitation rules,” Councilwoman Jamie Torres said.

On-campus college housing, boarding homes, short-term rentals, commercial lodging and those who rent a room out of the house they live in are exempt from the license requirement. Rental properties that are owned/operated by the government or income restricted are exempt from all fees.

Some people have also raised concerns that the program will be too expensive to implement, to which Gilmore disagrees, calling it “a pretty break-even model” with fees covering administrative costs.

The initial budget costs to get the policy started is estimated at $434,161. After that, Gilmore expects to make a profit off of the program in 2022, 2023 and 2024.

According to estimate revenues and costs from the Denver Department of Excise and License, after subtracting total costs to administer the program the city will take in $1.564 million in 2022, $1.257 million in 2023 and $190,607 in 2024 from fee revenues.

However, these estimates may be inaccurate depending on the number of employees needed to implement the program – a number the city does not currently have.

The current estimate only includes two employees for the Department Excise and Licenses in 2022; however, the Department of Public Health and Environment would respond to tenant complaints and Department of Housing Stability would provide housing assistance for properties where tenants are displaced.