Can Landlords Charge Late Fees?

Key Points:

• SB21-173 “Concerning Rights Related to Residential Rental Agreements”
• Late fees are now capped at 5% or $50 in Colorado
• New rules for when late fees can be charged

SB21-173, Concerning Rights Related to Residential Rental Agreements, is a long bill that covers various aspects of rental agreements and rules for Colorado landlords. We will be creating a series of posts that outline what we believe landlords and tenants most need to know from this bill. Below is an overview of changes to laws governing late fees. 

Cap on Late Fees: In the past, landlords and tenants could negotiate the amount of late fees to be charged in a lease agreement, and the state of Colorado would allow late fees that were deemed “a reasonable amount.” Now, under SB21-173, late fees may not exceed the greater of 5% of the tenant’s rent or $50. Some landlords are selecting the greater of the 5% or $50 when it comes to late charges, and there is some interpretation on how best to implement this policy. 

For any property renting for $1000/month or less, the greater amount would be a $50 late fee. For any property renting for more than $1000/month, the greater amount would be 5% of rent. Your lease agreement must clearly define this amount, and it must be disclosed to tenants. 

When Late Fees can be Charged: In the past, the late fee was governed by the lease agreement. Now, under SB21-173, late fees may not be charged until after the rent is seven days late. Although rent may still be considered ‘late’ after the first day of the month, this change has the effect of allowing tenants a seven day grace period before a late fee may be charged. For example, if your lease agreement states rent is due on the 1st and is considered late on the 3rd, that tenant would now have until the 10th (3rd day of the month + 7 days) before a late fee could be charged.

Other Changes: Landlords must first apply tenant payments to rent due before applying any amount to a late fee owed. Additionally, landlords may not evict tenants for non-payment of late fees. This bill has many other rules and is lengthy and complicated. To download the actual bill in full, click here. 

This bill goes into effect on October 1, 2021, and includes financial penalties for non-compliance.  This gives Colorado Landlords little time to make the operational changes necessary to comply.

If you have questions on this bill please consider Grace Management a resource and contact us at www.RentGrace.com or 303-255-1990. 

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