Lease options came up at a recent mastermind hours and the conversation was a good reminder that a lot of investors are still using pre-2024 documents and assumptions to structure deals in a post-2024 legal environment. If you’ve been using lease options for years and haven’t revisited how you structure them, this is worth a few minutes.
The strategy is still legal and still viable in Colorado. A lease option is a lease paired with a separate option to purchase, giving the tenant-buyer the right, not the obligation, to buy at a set price during the option period. That is not the same as a rent-to-own arrangement, which carries different legal mechanics. The distinction still matters. But the legal environment around long-term residential occupancy changed in April 2024, and those changes have implications for lease options that don’t get talked about enough.
What HB 24-1098 actually changed
Colorado’s HB 24-1098, signed into law in April 2024, requires landlords to have a specific reason to not renew a lease or to evict a tenant. Colorado became the sixth state in the country to pass such a law (Colorado Newsline, April 2024). Under the new framework, a landlord’s non-renewal of a rental agreement is classified as a no-fault eviction and comes with specific requirements and extended notice timelines. A landlord who doesn’t follow the rules faces the possibility of a tenant pursuing actual damages, attorneys’ fees, and a penalty of three times monthly rent or $5,000, whichever is higher (Caplan & Earnest Law, January 2025).
In a standard rental relationship, this creates compliance headaches. In a lease option with a long option period, it creates a structural problem. If a tenant-buyer occupies the property for an extended time under a lease option and the deal falls apart, whether because they can’t or won’t exercise the option, stop paying rent, or the parties simply want to part ways, you may now be navigating the full for-cause eviction framework to remove someone who was never supposed to be just a tenant.
The law applies broadly. Short-term rentals are exempt, as are owner-occupied properties in limited circumstances, but the vast majority of residential investment properties are covered (Volpe Law LLC, September 2025).
The equitable interest problem
The second risk has been around longer, but it is more dangerous now given the for-cause eviction backdrop. When a lease option dispute reaches a courtroom, tenant-buyers sometimes raise what’s called the equitable interest argument. The argument goes like this: the lease-option arrangement is functionally equivalent to a sale, the tenant-buyer effectively “owns” the property even though title has not transferred, and the landlord is operating as a lender rather than a property owner. The tenant is asking the court to recharacterize the transaction using equitable principles (bronchicklaw.com, Bill Bronchick).
Colorado courts have not resolved this question uniformly. That uncertainty is exactly the kind of thing that turns a straightforward eviction into expensive litigation. The longer the option period and the more equity the tenant-buyer accumulates through rent credits or market appreciation, the more credibly they can make the equitable interest argument.
What to do about it
None of this means you can’t use lease options in Colorado. You can. But the documents need to be right.
Keep the option agreement separate from the lease. One document creates a tenancy. A separate document creates the option. Commingling the two gives a court more surface area to recharacterize the entire arrangement as something other than what it is.
Be precise about what happens when the option lapses or the tenant defaults. The remedies available to you, and the process you are required to follow, are not the same as they were before HB 24-1098. If your template predates April 2024, have it reviewed before you use it again.
Think carefully about option period length. Longer option periods increase the equitable interest exposure. If the strategy requires a long period, consider whether recording a memorandum of option is appropriate and what effect that has on your title position.
Have a real estate attorney review the documents. Not a template from a national forms site. Not something you found in an investor group. A Colorado-licensed attorney who has been paying attention to the post-2024 legal landscape. The cost of that review is a rounding error compared to what a contested lease-option dispute costs to litigate.
The investors who have been using lease options for years and haven’t looked at their agreements since before HB 24-1098 are the most exposed. An afternoon and a conversation with counsel is worth it.
Sources
Colorado Newsline, “Colorado governor signs ‘for cause’ eviction bill into law,” April 2024
Caplan & Earnest Law, “New Colorado Law Overhauls Residential Lease Non-renewals,” January 2025
Volpe Law LLC, “New Eviction and Lease Termination Laws in Colorado,” September 2025
bronchicklaw.com, “Colorado Lease Option Equitable Interest,” Bill Bronchick
CPR News, “Colorado landlords will have to offer lease extensions as Gov. Polis signs ‘for cause’ evictions bill,” April 2024
