April 22, 2019

James Johnson: Colorado Amends “Agricultural Land” Classification

Post by James T. Johnson and Kimberly A. Martin

In May of this year, Governor Hickenlooper signed into law House Bill 11-1146, which amends the statutory definition of “agricultural land” for property tax purposes.  Historically, land underlying a residence located on a parcel of property that otherwise was classified as “agricultural land” was also classified as agricultural land for property tax purposes.  This classification resulted in the residence being qualified for more favorable “agricultural” property tax treatment as compared to the residential classification.

Under House Bill 11-1146, now excluded from the classification of “agricultural land” is up to two acres of land upon which a “residential improvement” is located if the residential improvement is not “integral to an agricultural operation” conducted on the land.  Any such excluded land will be classified as “residential land” for property tax purposes, but the remainder of the property would retain its agricultural classification.  If the residence is integral to the operation of a farm or ranch, the classification does not change.  Further, vacant land or any other land upon which a residence is not located, whether or not subdivided, is not affected by this legislation.

House Bill 11-1146 does not expressly define “integral” but provides that a residence is deemed integral to an agricultural operation if the person occupying such residence “either regularly conducts, supervises, or administers material aspects of the agricultural operation or is the spouse or a parent, grandparent, sibling, or child” of such person. As with all classifications of property for taxation purposes, the applicable county assessor is responsible for making the determination of whether property underlying a residence should be classified as “agricultural land” or “residential land,” in other words, whether the residence is “integral” to a farm or ranch operation. The determination may be appealed to the applicable county board of equalization.

Implementation of House Bill 11-1146 may implicate the Taxpayer Bill of Rights (TABOR), in that it may result in an increase in tax revenues to local governments and/or special districts in excess of the revenue limits prescribed by TABOR. If the local government or special district previously has not obtained voter approval to retain and spend excess revenues (known as “de-Brucing”) and determines that the implementation of House Bill 11-1146 will cause a net property tax gain that exceeds TABOR’s limits, House Bill 11-1146 provides that the government or district may place the issue before the voters for approval. If the voters do not approve the retention of the excess revenues, or if the government or district does not submit the issue to the voters, it must adjust its mill levy to eliminate any such net property tax revenue gain.

House Bill 11-1146 will apply to the 2012 property tax year and all subsequent tax years.

James Johnson is a Shareholder in Otten Johnson’s land use, real estate, and litigation groups. He represents clients in all aspects of real estate development and related issues, including disputes regarding entitlement approvals and eminent domain.

Kimberly Martin is s an associate in the firm’s land use and real estate practice groups. Her practice focuses on all aspects of entitlement matters.

They contribute to the firm’s Rocky Mountain Real Estate Law blog, where this post (and a client alert) originally appeared on August 23, 2011.

James Johnson: Colorado Restricts Private Transfer Fees

In May, Governor Hickenlooper signed into law Senate Bill 11-234 – Concerning Residential Real Property Transfer Fee Covenants.  The bill is targeted at prohibiting fees payable upon the transfer of residential real property to individuals and entities where such fees do not touch and concern the real property.  The common law likely already prohibited such fees.  Nevertheless, the bill became effective immediately, the General Assembly having determined that such was necessary “for the immediate preservation of the public peace, health and safety.”  Apparently, the General Assembly identified a rising popularity trend for such fees, and it wanted to thwart their growth in Colorado.

The bill does essentially four things.  First, it prospectively prohibits fees payable upon the conveyance of residential real property, except for transfer fees that touch and concern residential real property, including payments to lenders, brokers, lessors, governmental and quasi-governmental entities, homeowner’s associations, and certain non-profit entities.  Second, it narrows the circumstances under which prohibited fees established prior to the effective date of the bill are payable.  Third, it provides penalties for recording documents requiring the payment of such fees.  And fourth, under certain circumstances, it provides a quick mechanism for removing covenants requiring the payment of such fees.

Here’s how it works. The bill contains a number of definitions that identify what constitutes a (1) conveyance of residential real property, (2) transfer fee, (3) transfer fee covenant, and (4) fee excluded from the definition of prohibited transfer fee covenants. Conveyance is defined to include sales, gifts, assignments, inheritance and any other transfer of an interest in residential real property. Residential real property means real property containing residential improvements and real property upon which construction of residential improvements has commenced. A transfer fee is a fee required to be paid either partially or fully upon conveyance of residential real property. A transfer fee covenant is a provision in a recorded or unrecorded document that requires payment of a transfer fee, but not including the excluded fees. Excluded fees essentially include those transfer fees that touch and concern residential real property, including payments to lenders, brokers, lessors, governmental and quasi-governmental entities, homeowners’ associations, and certain non-profit entities.

Having set forth the relevant terms, the bill makes any transfer fee covenant recorded on or after May 23, 2011, unenforceable. Any person who records a transfer fee covenant on or after May 23, 2011, and fails to release the covenant when requested to do so, is liable for all damages resulting from the transfer fee covenant, including the amount of the transfer fee, reasonable attorney fees related to recovering the transfer fee, quiet title actions, and show cause matters.

For those transfer fee covenants pre-dating May 23, 2011, the bill requires that the person or entity entitled to receive payment record a specified notice against the residential real property in question. If such notice is not recorded on or before October 1, 2011, then the transfer fee covenant is unenforceable. Where the notice is timely recorded, the owner of the residential real property subject to the transfer covenant may send a written request to the beneficiary of the payment identified in the notice inquiring about the amount of the payment due upon transfer. If the beneficiary does not timely respond to the inquiry, upon the recording of an affidavit by the owner indicating the lack of a response, the transfer fee covenant becomes unenforceable.

Any individuals or entities that have either considered or implemented a transfer fee should be aware of the enforceability issues raised by this bill.

James Johnson is a Shareholder in Otten Johnson’s land use, real estate, and litigation groups. He represents clients in all aspects of real estate development and related issues, including disputes regarding entitlement approvals and eminent domain. He contributes to the firm’s Rocky Mountain Real Estate Law blog, where this post (and a client alert) originally appeared on August 17, 2011.