Rights and registration

Rights

What types of holding right over real estate are acknowledged by law in your state?

Colorado recognizes all of the typical interests in real estate that may be found in other states, such as:

• fee interests (e.g., fee simple, life estate, fee simple subject to reversion);

• leasehold interests;

• security interests;

• easements;

• covenants; and

• servitudes.

Fee tail ownership was abolished by the state legislature.

Are rights to land and buildings on the land legally separable?

Yes. Parties may hold separate rights to land and improvements on the land. Under state and local subdivision laws, it may not be possible for the land and buildings to be held in separate fee simple interests (except in the case of a condominium), but leasehold interests and easements may be used to divide ownership between land and buildings.

Which parties may hold and exercise rights over real estate? Do any special rules, restrictions or requirements apply to foreign owners of property in your state?

Nearly any party may hold and exercise rights over real estate, including individuals and entities. Parties may hold interests alone or in common or joint tenancy. There are no special rules or restrictions on foreign owners of property in Colorado; however, special tax considerations may apply.

Registration

Which real estate rights, interests and transactions are subject to registration in your state? What information is recorded in the relevant state and local registers?

Colorado maintains a system of land records in each county clerk and recorder’s office. Generally speaking, recordable instruments include conveyance deeds, deeds of trust evidencing security interests in property, mineral interests, easements, covenants, and other servitudes, as well as notices of lis pendens in the event of litigation. At times, memoranda may be recorded to notify prospective purchasers of the existence of a document. While recordation is generally not a condition precedent to the effectiveness of a document, it provides constructive notice to prospective purchasers of the property.

What are the procedural and documentary requirements for entry into state and local registers? What are the legal effects of registration?

Documents may be recorded by delivery to the clerk and recorder’s office, or may generally be recorded electronically via the Internet. As noted above, generally speaking, recordation is not a condition precedent to the effectiveness of the document, but is instead intended to give a prospective purchaser notice of a given transaction or occurrence.

Sale and purchase

Due diligence

Are there any particular due diligence considerations for real estate sale contracts concluded in your state?

Water and minerals are often severed from land in Colorado. Buyers should carefully investigate the ownership and availability of water, including any:

• surface water rights;

• groundwater rights;

• water service contracts; or

• municipal or district water service commitments.

When minerals have been severed from the overlying property, the mineral estate is considered the dominant estate and the surface estate is considered the servient estate, and mineral interest owners are entitled to reasonable use of the surface to extract minerals. In addition, with approximately 40% of land in Colorado owned by the federal and state governments, investigations into how nearby public lands are managed, used, and accessed may also be prudent. Finally, in residential transactions, radon testing is commonplace and advisable.

Contracts

Are sale contracts in your state subject to any formal or substantive requirements?

Purchase and sale agreements must be in writing and may be executed electronically, but need not be notarized. The Colorado legislature has promulgated form general warranty, special warranty, bargain and sale, and quitclaim deeds (see C.R.S. 38-30-13), which may—but are not required to—be used in real estate transactions. The Colorado Division of Real Estate promulgates rules and licensing requirements for brokers, along with:

• standard form residential and commercial contracts;

• property disclosure forms;

• deeds of trust;

• leases; and

• other forms.

Obligations and liabilities

What are the seller’s disclosure obligations and other liabilities, and what are the consequences of breach?

Sellers of residential property must disclose all known material defects in the property and deliver a mandatory lead paint disclosure. Colorado law also requires disclosures as to:

• the existence of special taxing districts;

• the source of water;

• the presence of methamphetamines; and

• any condominium or homeowners’ association declaration.

Sellers of commercial property and vacant land generally do not have mandatory disclosure requirements. If a seller breaches any express representations and warranties, or other material obligations under the contract, a buyer typically has the right to:

• terminate the contract;

• receive return of any earnest money deposit; and

• sue for damages.

Some contracts also include the option of a specific performance remedy for the buyer.

Are there any other obligations on the buyer, aside from paying the purchase price?

If using a title company, the buyer must sign standard title documents.

Special considerations

Are there any other special considerations for real estate sale and purchase transactions in your state?

• Most real estate transactions in Colorado are closed through an escrow agent at a title company, with the title company issuing the buyer’s title insurance policy.

• Contractors, design professionals, and suppliers of labor and materials to projects have strong lien rights in Colorado (see C.R.S. §§ 38-22-101 et seq.); liens may be filed up to four months following the last substantial work done on the property and valid, unreleased liens may be foreclosed. Such liens relate back to the first time that work was performed on the subject property.

• Colorado has a public trustee foreclosure system whereby the lender or beneficiary under a deed of trust grants the public trustee of the county in which the real property is situated the power to sell the property for the lender’s benefit.

• C.R.S. § 30-28-133 requires county or municipal approval of subdivisions that create parcels smaller than 35 acres.

• Higher than average levels of radon are found in soils throughout the state.

Brokerage

Registration

What are the registration requirements for real estate brokers in your state?

It is unlawful to act as a real estate broker in Colorado without a license from the Real Estate Commission. The definition of “real estate broker” includes a number of activities, including selling, buying, leasing, and auctioning real estate, and the attempt to do any of the foregoing, but the definition also has several exceptions, including attorneys-at-law and regularly salaried employees of a variety of property owners.

Regulation

How are the activities of real estate brokers regulated in your state

Real estate brokers must be licensed and must follow the rules of the Colorado Real Estate Commission. These rules include the definition of various broker-client relationships and the duties that are associated with those relationships.

Leases

Lease agreements

Are lease agreements in your state subject to any formal requirements?

Any lease for a period longer than one year is void unless the lease or a note or memorandum thereof expressing the consideration is in writing and subscribed by the party by which the lease is to be made. Residential leases in Colorado are subject to various statutes; however, leases for commercial property are generally not subject to such statutes. Leases do not require witnesses or acknowledgements in order to be effective. Counterpart signatures are enforceable. Executed leases can be delivered electronically, although if a residential tenant requests a paper copy, the landlord must provide it.

Do state or local laws set out any mandatory or prohibited provisions in lease agreements?

Commercial leases have no mandatory or prohibited provisions. Residential leases are subject to the warranty of habitability, and there are limitations on how a landlord can handle security deposits.

What are the standard forms of lease agreement used in your state?

There are no standard forms of lease agreement in Colorado, although some companies and trade associations generate lease forms.

Length of term

Are there any state or local laws regulating the terms of leases? Are long-term tenants accorded any special rights as to extension or renewal of leases?

There are no known state laws regulating the terms of leases or providing any special rights as to extension or renewal. Some local laws will view leases of a certain length as a sale for the purposes of local transfer taxes.

Rent and security deposits

Are there any state or local laws regulating rent increases?

For commercial leases, there are no restrictions on rent charged or increases in rent. Counties and municipalities are prohibited from imposing rent control on residential property by statute. However, government-backed housing programs may impose limits on rents charged. Rent increases of unwritten residential leases that are longer than one month but less than six months require 21 days’ notice.

Are there any state or local laws governing rent security deposits?

There are Colorado statutes regulating how security deposits are held and released in the context of residential, but not commercial, leases. Landlords may be subject to treble damages for improperly withholding security deposits.

Can the tenant withhold rent payments on any legal grounds?

A residential tenant can, in certain circumstances, withhold rent if the warranty of habitability has been violated. Commercial tenants can terminate a lease (and therefore withhold rent) in case of constructive eviction, but the tenant may have to vacate the premises to enforce that remedy. Commercial leases routinely permit the abatement of rent in case of casualty and condemnation. Commercial tenants will sometimes negotiate the right to withhold rent based on certain circumstances (e.g., interruption of services caused by the landlord or casualty).

Sub-letting

Under what circumstances is sub-letting allowed?

The general rule is that tenants are permitted to sublease their premises, but many leases will restrict that right. If a landlord has a right to withhold consent, they may need to be reasonable in withholding that consent.

Obligations and liabilities

What are the general obligations and liabilities of the landlord in respect of the property and what are the consequences of breach?

In residential leases, landlords are deemed to warrant that the residential premises are fit for human habitation (the warranty of habitability), which has a statutory definition. Violation of this warranty may allow a tenant to withhold rent or terminate the lease. In addition, victims of sexual assault or stalking may be permitted to terminate a lease.

In commercial leases, landlords must comply with the terms of the lease agreement, and all parties to a contract in Colorado are subject to the covenant of good faith and fair dealing. Upon a breach by a landlord, tenants have the right to sue for damages, and may have the right to seek certain injunctive remedies. Commercial leases with sophisticated tenants may set forth remedies for a tenant, including the right to:

• abate rent;

• exercise self-help; and

• in more limited circumstances, terminate the lease.

Absent an express right in the lease, a commercial tenant can terminate a lease in only limited circumstances involving constructive eviction.

What are the general obligations and liabilities of the tenant in respect of the property and what are the consequences of breach?

In both the residential and commercial context, the following rules apply:

• Tenants must comply with the terms of their lease.

• All parties to a contract in Colorado are subject to the covenant of good faith and fair dealing.

• Upon a breach by a tenant, landlords have the right to evict a tenant, sue for damages, and seek injunctive relief.

• Landlords can also reserve the right to sue for contractual damages if they terminate the lease as a result of a tenant’s default. However, they must expressly reserve that right in the lease.

Some leases grant landlords the right to exercise certain self-help remedies, such as the right to make repairs that are a tenant’s responsibility. Landlords may want to state in their lease that the tenant’s relinquishment of the premises or the keys to the premises terminates the lease unless the landlord consents to such termination in writing. Landlords have a duty to mitigate the damages caused by a tenant default.

In residential leases, tenants are obligated by statute to use their premises in a reasonably clean and safe manner. Residential landlords also have a lien on certain personal property of the tenant located in the premises.

Insurance

Are the landlord and tenant bound by any insurance requirements?

There are no known statutory insurance requirements for landlords or tenants. However, loans to landlords routinely impose insurance requirements on those landlords, and leases routinely impose insurance requirements on tenants.

Termination and eviction

What rules and procedures govern termination of the lease by the landlord and the tenant’s eviction from the property?

In both the commercial and residential context, Colorado has an eviction process that is distinct from standard litigation. Commencement of an eviction action requires specific service of a notice to the tenant, after which the tenant has three days to cure. This notice is often separate and in addition to a notice of default under the lease (if such a notice is required by the lease).

Waivers of jury trials are enforceable in Colorado and are routinely included in commercial leases. If not waived by the lease, a jury trial could slow the eviction process significantly.

The eviction process is bifurcated, with the initial activity involving the landlord’s recovery of the premises, followed by its pursuit of monetary claims against the tenant. This has the general effect of speeding up a landlord’s ability to repossess its premises.

Landlords are generally advised against exercising self-help rights, such as changing locks or moving a tenant’s personal property, in connection with an eviction. This type of action may expose the landlord to liability to the tenant. In an eviction proceeding, once a court has granted an order for possession of a tenant’s premises, it is advisable for the landlord to involve the local sheriff in the process of moving out the tenant.

Taxes

Real estate transfer tax

What taxes are payable on the sale and purchase of real estate? Are any exemptions available?

There is no statewide property tax or real estate transfer tax in Colorado. A statutory documentary fee is collected by the County Clerk and Recorder upon recording a deed ($0.01 per $100 of consideration in excess of $500). Exemptions include:

• deeds to governmental entities;

• corrective and confirmation deeds;

• gifts of real property;

• transfers due to tax lien sales and foreclosures;

• documents given to secure indebtedness; and

• grants of rights-of-way and easements.

Some jurisdictions in Colorado (most commonly, mountain and resort communities) assess local real estate transfer taxes at between 0.5% and 4% of the purchase price. Tax revenues are used to fund public services and improvements. Unless prescribed by local code, the buyer and seller may negotiate which party pays the transfer tax. Exemptions vary by jurisdiction, but typically include:

• transfers for nominal consideration;

• transfers due to corporate reorganization or between related entities;

• gifts and charitable donations of property

• transfers to a governmental entity;

• simultaneous interim transfers to accommodate 1031 “like-kind” exchanges; and

• transfers due to foreclosures or quiet title actions.

Property tax

Briefly describe the property tax regime in your state.

County assessors are responsible for valuing and listing real and personal property. Real property is reappraised in two-year cycles on the odd-numbered year. Personal property is valued every year based on schedules and statements submitted by taxpayers. Tax rates apply to the assessed value of property rather than the market value. Each taxing authority (including counties, cities, towns, and special districts) with jurisdiction over the property levies a mill levy, which is multiplied by the assessed value of the property to arrive at the total property tax amount due. Taxes are paid in arrears with annual property tax statements mailed in January.

Rental and other taxes

Are any taxes payable on rental income? Are any other tax regimes pertinent to the real estate sector?

Rental income is considered taxable income in Colorado.

Metropolitan districts formed pursuant to Title 32 of the Colorado Revised Statutes may levy taxes, fees, rates, tolls, penalties, and charges in connection with infrastructure constructed or maintained by the district or services provided by the district.

Finance and security

Finance providers

What are the typical sources of real estate financing in your state? Are there any restrictions on who may provide financing?

Typical sources include traditional banks or financial institutions, private lenders, and, for certain projects, financing from governmental entities such as Fannie Mae, Freddie Mac, and the Colorado Housing and Financing Authority.

There are no Colorado-specific laws restricting who may provide financing.

Security interests

What types of security interest are recognized by law in your state? Is your state a lien theory or title theory state?

A party may secure debt with real property by recording a mortgage or deed of trust. In Colorado, as in other states, a mortgage is a two-party instrument between the borrower and secured party, and a deed of trust is a three-party instrument among the borrower, the secured party, and the trustee. In either case the secured party acquires only a lien on the real property to be released when the debt is repaid because Colorado is a lien theory state. (See C.R.S. § 38-35-117.)

However, Colorado is unique in its public trustee system. Every county in Colorado has a public trustee. The public trustee is a county official who is appointed or elected. The secured party in a Colorado deed of trust may select a private trustee or name the public trustee of the county in which the subject real property is located. As discussed below, by naming the applicable public trustee, the secured party may foreclose through the Office of the Public Trustee in the county where the real property is located as an alternative to judicial foreclosure. While there may be certain circumstances in which judicial foreclosure is preferable, generally, public trustee foreclosure in Colorado is faster and more cost effective. Consequently, naming the public trustee as trustee is the prevailing method used.

What rules and procedures govern the creation and perfection of real estate security interests in your state?

The requirements for creating a security interest in real estate under Colorado law track those in other states. The borrower must first own whatever real property they are mortgaging. The borrower must grant that security interest by signing and acknowledging a written document—i.e., the deed of trust or mortgage. Moreover, the borrower must receive consideration in exchange. An assignment of leases of rents may be incorporated into a Colorado deed of trust or mortgage.

To perfect that security interest, the secured party must record its deed of trust or mortgage in the official property records of the county in which the real property is located. (See C.R.S. § 38-35-109.) As set forth in C.R.S. § 38-35-109, Colorado is a race-notice state. Further, the deed of trust or mortgage must meet certain technical requirements. For example, C.R.S. § 30-10-406(3)(a) requires as a condition to recordation that all documents have a top and bottom margin of at least one inch and a left and right margin of at least 0.5 inches. The first page of a deed of trust or mortgage must also include the current mailing address of the lienor and lienee at the time the instrument is recorded. (See C.R.S. § 38-35-123.)

Enforcement of security

What rules and procedures govern the enforcement of real estate security interests in your state?

This depends on whether a secured party seeks enforcement by way of a judicial foreclosure or a public trustee foreclosure.

For judicial foreclosure, a secured party can file a civil action seeking a decree of foreclosure in the applicable district court under C.R.C.P. 105. That is a general and broad rule of Colorado civil procedure covering all actions concerning rights in real property. Generally speaking, the Colorado Rules of Civil Procedure govern the judicial foreclosure proceeding as they would other civil actions.

A public trustee foreclosure is an administrative procedure governed and prescribed by C.R.S. § 38-38-100.3, et. seq. Only a deed of trust that names the public trustee as trustee can be foreclosed through the public trustee foreclosure process; a deed of trust to a private trustee is treated as a mortgage that the secured party must foreclose judicially. (See C.R.S. 38-39-101.) A public trustee foreclosure starts by delivering to the applicable public trustee the documents listed in C.R.S. § 38-38-101, including a notice of election and demand for sale. If the public trustee determines that the appropriate documents have been submitted, this commences a multi-step procedure that entails, among other things:

• a first and second notice of the foreclosure;

• obtaining an order authorizing the foreclosure sale from the applicable district court as part of a Rule 120 hearing; and

• a sale of the property by the public trustee.

The rules and deadlines are very specific and strict. Failure to follow them will result in a secured party’s foreclosure being rejected and being forced to resort to a judicial foreclosure.

What is the typical timeframe for the enforcement of security?

It is difficult to provide a timeline for a judicial foreclosure because the first step is obtaining a judgment. This can take anywhere from six months to a number of years depending on whether the matter is decided on motions or requires a trial. If a secured party obtains a default judgment, the earliest a sheriff’s sale can take place is 110 days following the recording of the lis pendens (filed when you file the case) in the case of non-agricultural property, and 215 days following the recording of the lis pendens when the property is agricultural property. (See C.R.S. § 38-38-108.)

A public trustee foreclosure is quicker. Pursuant to C.R.S. § 38-38-108, the initial date of the public trustee’s sale of non-agricultural property must be between 110 and 125 calendar days after the notice of election and demand for sale is recorded. For agricultural property, the initial date of the public trustee’s sale must be between 215 and 230 days after the notice of election and demand for sale is recorded.

Investment

Investment climate

What is the general climate of real estate investment in your state?

Since the end of the Great Recession, Colorado has experienced significant population and economic growth, which has fed a fast-paced real estate investment climate. The overall state population has grown more than 13% since 2010, with much of the growth occurring in the urbanized Front Range. The state’s unemployment rate was 2.7% as of September 2019. This population and economic growth has also driven growth in residential real estate values, as the median sales price of single-family homes in the Denver metropolitan area grew more than 17% between 2016 and 2018. During the same period, commercial property values reported by the state Property Tax Administrator increased by nearly 24%. There has been significant real estate investment, primarily in the areas of housing (both single and multi-family), commercial office, and industrial uses. Due to the aforementioned population and economic growth factors, Colorado continues to have a positive climate for real estate investment.

Investment structures

What legal structures are typically used to invest in real estate in your state and what are the advantages and disadvantages of each (including tax implications)? What rules and procedures govern their formation?

Any number of legal structures are used to invest in real estate in Colorado. Property can be held by:

• individuals;

• in cotenancy;

• corporations;

• partnerships;

• joint ventures;

• limited liability companies; and

• other entity types.

The advantages and disadvantages of each entity type vary based on the circumstances of:

• the property;

• the owner(s); and

• the uses to which the property is being put.

Foreign entities are not required to file a statement of foreign entity with the Colorado secretary of state in order to hold property in Colorado. The rules and procedures governing the formation of these entities vary.

Land use

Zoning and planning permission

Which authorities regulate real estate zoning in your state and what is the extent of their powers?

Zoning is a local matter in Colorado, and each city, town, or county is empowered to engage in zoning. These entities’ powers are dictated by a charter for home rule jurisdictions, or by state statutes for statutory jurisdictions. The state laws governing zoning powers may be found in Article 28, Title 30 of the Colorado Revised Statutes (for counties) and Article 23, Title 31 of the Colorado Revised Statutes (for cities and towns).

What are the eligibility, procedural and documentary requirements to obtain planning permission?

The eligibility, procedural, and documentary requirements vary by local jurisdiction and the type of application being submitted.

What is the appeal procedure for planning decisions?

There is no standardized appeal procedure for planning decisions in Colorado. Any quasi-judicial decision of a local government may be appealed under Rule 106(a)(4) of the Colorado Rules of Civil Procedure, which allows for a review of the underlying record to determine whether the local government abused its discretion or exceeded its jurisdiction at arriving at a decision. The decision must be appealed within 28 days, and the appeal is commenced with the filing of a complaint in the district court in the county where the decision occurred.

What are the consequences of failure to comply with planning decisions or regulations?

Zoning enforcement is regulated and conducted on the local government level, and is not standardized across the state. Generally, most jurisdictions provide warnings before issuing cease and desist orders or commencing judicial enforcement proceedings.

Historical and cultural preservation

What state and local regimes govern the protection and development of historic and cultural buildings?

Many local governments in Colorado have historic preservation programs; however, these programs are specific to the local jurisdiction and the buildings that are protected.

State and local government expropriation

What laws and regulations govern the expropriation of property by state and local authorities?

As with most states, Colorado has a constitutional provision that mirrors the Takings Clause of the Fifth Amendment to the U.S. Constitution. Under Colorado law, a property owner is entitled to compensation only in the event of a taking.

What is the required notice period for expropriation and how is compensation calculated?

Colorado law requires that a condemning authority first attempt to negotiate in good faith for the purchase of property before initiating condemnation proceedings. State law requires a minimum of 90 days between a good-faith offer and the commencement of a trial on the valuation of the property, in the event that the landowner does not submit an appraisal. Compensation is calculated based on the fair market value of the property, plus any damages accruing to the non-condemned, remaining portion of the property. Colorado allows for a landowner to recover attorneys’ fees in the event that it is awarded more than 130% of the government’s offer for the property.

Environmental issues

Certifications

What state and local environmental certifications are required for the development of real estate and how are they obtained?

In general, no state environmental certification is required for the development of real estate in Colorado; however, the specific circumstances of a property or project may require special certifications or approvals. For example, certain uses may require air emissions permits or water discharge permits issued by state agencies. State law also regulates individual sewage disposal systems, hazardous waste sites and other disposal sites. These approvals are generally obtained through referral during the local zoning approval process. Depending on the circumstances of the property, local governments may require:

• floodplain development permits for properties located in floodplains;

• special wetlands permits (in additional to federal Army Corps of Engineers permitting) for any development impacting wetlands; or

• special habitat analysis in connection with development of critical wildlife habitat.

State law requires the demonstration of an adequate supply of water resources to serve any new development.

Disclosure obligations

What environmental disclosures in relation to real estate sales are required under state and local laws?

Under Colorado law, sellers—particularly in residential real estate transactions—generally have an obligation to disclose known environmental defects and avoid fraudulent misrepresentations of environmental conditions. It is common in commercial real estate contracts to include an “as-is” clause for a seller to avoid liability; however, many buyers are able to secure contractual representations and warranties pertaining to the environmental condition of the property.

Clean-up

What state and local rules and procedures govern environmental clean-up of property? Which parties are responsible for clean-up and what is the extent of their liability?

Contaminated sites are regulated under federal law, which generally imposes joint and several liability on the owners and operators—current and past—of such sites. Colorado law also allows an owner to voluntarily clean up contaminated properties to avoid potential federal or state liability.

Are there any state or local regulations or incentive schemes in place to promote energy efficiency and emissions reductions in buildings?

Residential property owners can receive income tax credits for energy efficiency upgrades. Many local governments provide for incentives, including increased building density, for energy efficient building designs, typically meeting LEED standards. Other local governments have enacted environmental regulations, including requirements that green roofs be incorporated into projects. Recent legislation prohibits common interest communities from restricting the use of energy efficiency devices, such as solar panels.

Update and trends

Recent developments and trends

Have there been any notable recent legal or regulatory developments affecting the real estate market in your state? What are the current trends in and future prospects for the real estate market in your state?

There have been several recent regulatory and legal developments affecting real estate in Colorado. In 2017 the Colorado legislature passed amendments to the state’s construction defect laws—which had been widely panned as all but prohibiting condominium construction—to lessen the risks of condominium development for builders. The state legislature is also focused on expanding affordable housing, and is expected to consider several measures in the next legislative session. The federal opportunity zone program has generated significant interest in neighborhoods that have seen underinvestment in recent years, particularly in the Denver metro area, leading to renewed interest in real estate development in these communities.

Not all developments have been positive, however. In 2019 one of the Denver suburbs passed a growth limitation measure, designed to limit the growth in housing units to 1% per year, and similar measures to restrict growth along the Front Range are being considered. Many local city councils and county boards have seen the election of anti-growth candidates concerned about the negative impacts of real estate development. In addition, state tax measures aimed at improving transportation infrastructure have failed in recent years. Nonetheless, the state’s rapid economic and population growth over the past decade will likely allow Colorado to maintain a strong real estate market in future years.

Law stated date

Correct as of

Please state the date of which the law stated here is accurate.

December 2019.