DENVER – December 16, 2024 

On December 12, 2024, the U.S. Fish and Wildlife Service (FWS) published a rule proposing to list the monarch butterfly as threatened under the Endangered Species Act (ESA), provide protective regulations under section 4(d) of the ESA, and designate critical habitat for the species (the “Proposed Rule”). FWS is accepting comments on the Proposed Rule until March 12, 2025.

FWS identified the monarch butterfly as a candidate for listing in 2020. In response to a federal lawsuit, FWS committed to make a listing decision for the monarch butterfly by September 2024, later extended to December 2024. The Proposed Rule follows.

The vast majority of monarch butterflies in North America are migratory, and the species’ North American range covers approximately 2.8 billion acres. For comparison, the land area of the continental United States land area is roughly 2 billion acres. In eastern North America, some monarchs travel over 2,000 miles between Canada and central Mexico. Monarchs in western North America generally migrate shorter distances, traveling from Canada to Baja California or the California coast.

FWS based its listing proposal on several threats to the species: loss and degradation of breeding, migratory, and overwintering habitat; exposure to insecticides; and effects of climate change.

With respect to habitat loss and degradation, FWS specifically emphasized the conversion of grasslands to agriculture as a key driver for past population declines. While monarchs require habitat with milkweed and nectar plants within their breeding and migratory range, FWS indicated that activities that may remove these plants but that do not result in conversion of grassland, shrubland, or forested habitats are not considered key population drivers. FWS also highlighted the importance of monarchs’ overwintering habitats, where the butterflies cluster in the fall and winter. These overwintering habitats are largely limited to central Mexico, Baja California, and California. FWS cited logging in Mexico and urban development in California as some of the primary stressors in these areas.

Regarding the use of insecticides, FWS recognized that insecticide use is most often associated with agricultural production. FWS noted, however, that any habitat where monarchs are found may be impacted by insecticide use—citing personal use by homeowners and treatment of forests and parks as examples.

Finally, FWS found that climate change may both directly and indirectly impact the species. FWS recognized increased storm frequency and extreme drought as potentially catastrophic events for the monarchs. Additionally, FWS cited changing precipitation patterns and temperatures as potentially detrimental to the specific microclimate that the monarchs require at their overwintering habitats. In addition to these and other direct impacts, FWS also identified the predicted loss of suitable overwintering trees and habitat caused by increased temperatures and rising sea levels as a threat to the species.  

What this means for Land Users—The Proposed Listing, 4(d) Prohibitions, and Critical Habitat Designation

FWS proposed to list the monarch butterfly as a threatened species. Section 4(d) of the ESA directs FWS to issue regulations deemed “necessary and advisable to provide for the conservation of [a threatened] species,” and authorizes FWS to prohibit any act that would be prohibited were the species listed as “endangered.”  These acts are detailed under section 9(a)(1) of the ESA, and include “take” of the species—which is defined as harming, harassing, and killing the listed wildlife, among other actions. “Take” also includes significant habitat modification or degradation if it kills or injures the wildlife by significantly impairing essential behavioral patterns.

In this case, FWS proposes to use its Section 4(d) authority to prohibit all acts listed in section 9(a)(1), including take of the species, with the following specified exceptions:

• Activities that may maintain, enhance, remove, or establish milkweed and nectar plants within the breeding and migratory range that do not result in conversion of native or naturalized grassland, shrubland, or forested habitats. FWS specifically identifies certain activities as falling within the exception’s scope: livestock grazing and routine ranching activities; routine agricultural activities; fire management activities; maintenance, enhancement, removal or establishment of milkweed and nectar plants on residential and other developed properties; and “vegetation management activities” (including mowing and ground disturbance) that remove milkweed and/or nectar plants when conducted at times of year when monarchs are not likely present;
• Monarch mortality due to vehicle strikes;
• Non-lethal small-scale (less than 250 butterflies) collection; and
• Non-lethal scientific research and educational activities involving a limited number (less than 250) of monarchs.

Notably, there is no proposed exception for mortality from collisions with wind turbines. FWS has requested comments addressing whether an exception for such collisions, as well as other “direct impacts from transportation and energy infrastructure” should be included. 

To engage in land use activities that will result in prohibited incidental take of protected wildlife on private lands, land users must obtain a permit from FWS. To obtain a permit, the land user must have entered into a candidate conservation agreement with assurances (CCAA) with FWS prior to listing, or must develop an approved habitat conservation plan. FWS has approved a nationwide CCAA for the monarch butterfly that is specific to energy and transportation rights-of-way lands and covers the continental United States.

In addition to listing the monarch butterfly as threatened, FWS has proposed to designate critical habitat for the monarch butterfly under the ESA. Critical habitat designations do not affect activities by private landowners when there is no federal permit or federal funding involved in the activity.  Rather, federal agencies are prohibited from destroying or adversely modifying designated critical habitat. The proposed critical habitat designation for the monarch butterfly is limited to the monarchs’ overwintering habitat along the California coast. In total, approximately 4,395 acres in Alameda, Marin, Monterey, San Luis Obispo, Santa Barbara, Santa Cruz, and Ventura Counties, California, fall within the boundaries of the proposed critical habitat designation.

Finally, the ESA requires federal agencies to consult with FWS to ensure their actions do not jeopardize the continued existence of endangered or threatened species, in a process known as “section 7 consultation.” Section 7 consultation can lead to delay and additional conservation measures for any project that is on federal land, requires a federal permit, or is funded by federal agencies. Federal actions that do not affect listed species or critical habitat do not require section 7 consultation.

Public Participation and Next Steps

FWS is accepting public comment on the Proposed Rule until March 12, 2025. As noted, FWS has specifically requested comments addressing “[w]hether [FWS] should include an exception for direct impacts from transportation and energy infrastructure, including mortality from collisions with wind turbines.” FWS will also hold two public meetings followed by public hearings, to take place remotely on January 14, 2025 from 4:00 p.m. to 6:30 p.m. (mountain time), and January 15, 2025 from 6:00 p.m. to 8:30 p.m. (mountain time).

The ESA requires that FWS issue a final listing rule or withdraw the proposed rule within one year of publication of the proposed rule (i.e., by December 12, 2025). The ESA allows FWS to extend this deadline by six months if there is substantial disagreement regarding the sufficiency or accuracy of available data relevant to the proposed listing rule. To withdraw a proposed rule, FWS must make a finding, subject to judicial review, that there is not sufficient evidence to justify the proposed action.

Written by Kathleen Schroder and Stephen Snow. Please contact Katie Schroder with questions about the proposed listing rule or its effect.

DENVER – December 6, 2024 

As of the date of this alert, the Corporate Transparency Act, including the applicable reporting rules and the January 1, 2025, reporting deadline, have been enjoined pursuant to a preliminary injunction that applies to all Reporting Companies (as defined below).

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking the enforcement of the Corporate Transparency Act (the “CTA”), its implementing regulations and the associated reporting deadlines. As a result of the injunction, “Reporting Companies” (that is, companies that were under an obligation to file beneficial ownership information reports (“BOIRs”) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) pursuant to the CTA and its implementing regulations) need not comply with the CTA while such injunction is in effect. However, the injunction is only temporary and could be lifted or stayed at any time, thus reviving Reporting Companies’ reporting obligations.

Key Points:

• Immediate Impact of the Decision: The court enjoined enforcement of the CTA in its entirety, including FinCEN’s implementing regulations and the January 1, 2025, reporting deadline applicable to reporting companies formed prior to January 1, 2024. As a result, Reporting Companies are not required to submit BOIRs until the court’s decision is overturned or the preliminary injunction is lifted or stayed. For Reporting Companies that have already filed BOIRs with FinCEN, no action is required at this time.

• Temporary Relief: The preliminary injunction is based on the district court’s finding that federal enforcement of the CTA is “likely unconstitutional.” However, a determination has not been made that the CTA is unconstitutional. The injunction is therefore temporary in nature and is not the final say on constitutionality. The United States government filed an appeal on December 6, 2024. Should the injunction be lifted or the order reversed, Reporting Companies may have to make BOIR filings on short notice.  

• Actionable Steps for Reporting Companies: Reporting Companies should monitor the status of the injunction and remain in frequent contact with their advisors as to the status of the injunction and the CTA generally. We advise Reporting Companies to continue gathering necessary information for their BOIRs to be able to file on short notice if the injunction were to be lifted or the order reversed.

At the time of this publication, FinCEN has not announced how it plans to handle the injunction. Therefore, Reporting Companies should also stay informed about FinCEN updates in conjunction with the progress of the pending appeal of the injunction and other potential CTA-related court rulings.

If you have questions about your reporting obligations or the temporary preliminary injunction, please reach out to your Davis Graham attorney.

For more information on the CTA’s reporting requirements, please refer to Davis Graham’s past CTA legal alerts:

• The Corporate Transparency Act – Basics That Every Business Formed or Registered in the U.S. Needs to Know
• Corporate Transparency Act – Reporting Deadline (January 1, 2025) for Established Reporting Companies Approaching

Please contact Nathan Goergen, Sheila Forjuoh, or Erin Mooney with any questions.

---

On November 7, 2024, the Office of Investment Security of the Department of the Treasury published a final rule (“Final Rule”) amending the regulations at 31 C.F.R. Part 802 to expand the authority of the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) to review transactions entered into on or after December 9, 2024, involving certain types of U.S. real estate. 89 Fed. Reg. 88,128 (Nov. 7, 2024).

CFIUS, a committee comprising representatives of various federal agencies and chaired by the Secretary of the Treasury, reviews inbound foreign investments in the United States to evaluate risks to U.S. national security. If CFIUS identifies national security risks relating to a particular transaction, it may recommend that the President order cancelation or modification of the transaction or, if the transaction has already concluded, divestment.

CFIUS has broad authority to review (a) “covered control transactions,” which involve a foreign person acquiring control over a U.S. business; (b) “covered investments,” which involve non-controlling investments by a foreign person in a U.S. business involved in critical technologies, critical infrastructure or sensitive personal data; and (c) “covered real estate transactions,” which involve a foreign person acquiring certain property rights commonly associated with leasehold and ownership interests in “covered real estate” located within a specified distance of the national security-related facilities and installations enumerated on Appendix A to 31 C.F.R. Part 802.

More specifically, “covered real estate” means real estate that is located within (a) certain airports and seaports, (b) close proximity (i.e., a one-mile radius) of any military installation, facility or other property of the U.S. government listed on Part 1 of Appendix A, (c) the extended range (i.e., a 100-mile radius) of any military installation listed on Part 2 of Appendix A, (d) any county or other geographic area identified in connection with the locations listed on Part 3 of Appendix A (i.e., locations in the western United States near underground missile silos), and (e) any offshore range or operating area described on Part 4 of Appendix A (to the extent within the limits of the territorial sea of the United States.)

The Final Rule significantly expands the list of military installations that dictate the definition of “covered real estate”, meaning that, after December 9, 2024, the Committee will have jurisdiction to review a larger number of real property-related transactions. (See the updated Appendix A here.) The Final Rule does the following:

• Adds 40 additional military installations to Part 1 (the 1-mile radius list)
• Adds 19 additional military installations to Part 2 (the 100-mile radius list)
• Moves eight military installations from Part 1 to Part 2

This broadened range of CFIUS’s authority has implications for any person doing projects related to land, including clean energy developers, mining companies, and oil and gas operators, as the listed locations cover real estate across the country and, at times, in areas of potential development, including federal public lands. It might not be obvious to project proponents that a foreign investment transaction could have national security risks, but in the “covered real estate” areas, the risk is based on the location rather than the type of business. Indeed, in May of 2024, President Biden issued the first real estate-related divestment order based on CFIUS’s recommendation after a Chinese cloud computing company purchased land within one mile of a U.S. Air Force Base. In that case, the transacting parties did not notify CFIUS; instead, CFIUS received a tip from the public regarding the transaction and investigated, then required the parties to file a notice and ultimately recommended that the President order divestment.  This serves as an example of the possible consequences of failing to be cognizant of CFIUS’s reach, which may become increasingly relevant to real estate developers across the country as the nation approaches a change in presidential administration.  

Please contact Almira Moronne or Alexandra Burton with any questions.

In Marin Audubon Society v. Federal Aviation Administration, No. 23-1067, a majority of a three judge-panel of the U.S. Court of Appeals for the DC Circuit held that the Council on Environmental Quality (CEQ) lacks authority to enact regulations that bind other federal agencies.  In an opinion written by Judge Randolph and joined by Judge Henderson, the court held CEQ’s regulations at 40 C.F.R. part 1500 implementing the National Environmental Policy Act (NEPA) to be ultra vires.  The decision upends more than 40 years of federal agency practice and creates considerable uncertainty for proponents of projects requiring federal permits.

The case involved a challenge to an air tour management plan issued by the National Park Service (NPS) and the Federal Aviation Administration (FAA) governing tourist flights over four national parks near San Francisco, California.  The agencies did not prepare an environmental impact statement or environmental assessment prior to approving the plan; instead, they relied on a categorical exclusion in the NPS’s regulations as allowed by the CEQ regulations.  Citizen groups challenged the plan.

None of the parties questioned the validity of the CEQ regulations implementing NEPA, some version of which has been in effect since 1978.  Nonetheless, Judge Randolph sua sponte decided to evaluate the validity of these regulations.  The court determined that CEQ lacked authority to issue regulations that bind federal agencies because neither NEPA nor another statute conferred such authority.  The court further dismissed as “stray remarks” statements by the Supreme Court that CEQ has the power to issue regulations and that such regulations are entitled to “substantial deference.”  The court instead found that CEQ had “no lawful authority” to promulgate its regulations.

Further, the court found that the Department of the Interior (DOI) and Department of Transportation (DOT) regulations implementing NEPA did not independently incorporate or adopt the CEQ regulations.  The court observed that DOI’s regulations are intended to be used “for compliance with” and only “in conjunction with” the CEQ regulations; similarly, the court observed that DOT’s rules are “not a substitute for” and merely “supplement[]” the CEQ regulations.  Accordingly, the court held that the DOI and DOT regulations were not a permissible exercise of rulemaking authority to implement NEPA.

Notably, Chief Judge Srinivasan dissented from this holding.

Having found the CEQ regulations to be ultra vires, the court vacated the air tour management plan.  The court advised that the agencies would “need to take a completely different tack to complete their NEPA review”—but offered no direction on what such tack would be.  The court also acknowledged that the parties may move for a stay of its mandate. 

By invalidating regulations that had been in place for more than 45 years, in some form or fashion, this decision is an earthquake in NEPA law.  The effects of the decision are not fully known, and aftershocks still may come.  In the short term, the decision creates considerable uncertainty for federal agencies and project proponents, with multiple questions to be resolved over the coming months:

• Will the DC Circuit affirm the decision after the inevitable en banc review?  Will any party seek review by the Supreme Court?
• How will agencies that do not have their own independent NEPA regulations comply with NEPA in the coming months?  Will agencies stall decision-making as a result of Marin Audubon?  If not, are such decisions vulnerable to legal challenge?
• How will the decision impact midnight agency actions by the outgoing Biden Administration, if at all?
• Will agencies in either the outgoing Biden Administration or incoming Trump Administration promulgate temporary rules as stop-gap measures to allow approvals to continue?
• Will the incoming Trump Administration see an opportunity to revamp NEPA regulations?
• Even if ultra vires, what influence will the CEQ regulations continue to have on agencies or the courts?

Given these uncertainties, project proponents should coordinate with agencies regarding any effect of Marin Audubon on their projects.  And, project proponents should stay tuned as to what lies ahead.

Please contact Katie Schroder or Lindsay Dofelmier with any questions.

The January 1, 2025 filing deadline for reporting companies formed prior to January 1, 2024, is fast approaching, and businesses should begin preparations for such filings now to provide sufficient time to gather the necessary information and timely file any required BOI Reports. 

As detailed in a previous Davis Graham Legal Alert*, the Corporate Transparency Act (the “CTA”) requires all “reporting companies” – entities that have filed formation or registration documents with a U.S. state (or Indian tribe) – to file a beneficial ownership information report (“BOI Report”) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), unless one of 23 enumerated exemptions is available. A reporting company’s BOI Report must identify “beneficial owners” of the reporting company and, if formed on or after January 1, 2024, its “company applicants.”

The filing deadline for a reporting company’s initial BOI Report depends on the entity’s formation/registration date:

Formation/registration date	Filing deadline
Before January 1, 2024	January 1, 2025
January 1, 2024, to December 31, 2024	Within 90 days of formation
On or after January 1, 2025	Within 30 days of formation

To be in a position to file on time, all businesses and organizations should promptly:

• Identify all U.S. entities in their structure and all non-U.S. entities that do business in the U.S. to determine whether such entities are “reporting companies” for purposes of the CTA
• Determine whether any exemptions from reporting apply to any such entities
• If no exemption applies:
  • Identify all beneficial owners of the entity and, if the entity was formed after January 1, 2024, all company applicants, each as defined in the CTA;
  • Gather required information from all beneficial owners and, if applicable, company applicants (which may involve requesting that beneficial owners apply for FinCEN Identifiers through the FinCEN ID Application page, and provide such FinCEN Identifier to the reporting company); and
  • Compile and submit the BOI Report electronically through the FinCEN BOI Report E-Filing page, or engage a third-party service provider (such as your registered agent) to assist in the compilation and submission of your BOI Report; and
• Establish internal processes to ensure timely updates to the initial BOI Report.

FinCEN has published a number of resources on its Small Business Resources page, including the FinCEN Small Entity Compliance Guide, which provides additional guidance in analyzing the reporting exemptions, identifying beneficial owners and company applicants, and otherwise interpreting the CTA rules.

It is important to note that while legal challenges to the CTA are ongoing in the U.S. courts, reporting companies should proceed with filing their BOI Reports as and when required, as the general validity and enforceability of the CTA has not, to date, been impacted by such legal challenges.** Civil and criminal penalties may apply to a person who willfully violates the CTA reporting requirements (including by willfully failing to file a BOI Report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information).

If you have any questions about your entity’s reporting obligations or the BOI Report filing process, feel free to reach out directly to a Davis Graham Partner.  

---

*Please note that FinCEN has published additional guidance and rules since the publishing of the November 16, 2023 Davis Graham Legal Alert, and such Legal Alert has not been updated to include such guidance and rules.

** See the March 4, 2024 FinCEN News Release following the decision in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), where FinCEN stated that “[o]ther than the particular individuals and entities subject to the court’s injunction… reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”

On September 26, 2024, Judge Phillip Brimmer of the U.S. District Court for the District of Colorado issued an unpublished opinion holding that Colorado’s Construction Anti-Indemnification Statute, C.R.S. § 13-21-111.5(6)(b) applies to repair work conducted near a well site and that certain indemnification provisions requiring a contractor to indemnify an operator for its own negligence under a master service contract (“MSC”) were void as a result. BKV Barnett, LLC v. Elec. Drilling Tech., LLC, Case No. 23-CV-00139-PAB-SBP (D. Colo. Sept. 26, 2024).  The following summarizes key aspects of this decision.

Case Background:  BKV Barnett, LLC (“BKV”) is an operator of an onshore oil and gas well site in Texas that lost power due to a lightning strike.  BKV contracted with Electric Drilling Technologies, LLC (“EDT”) to supply electric power to the well site and to provide related rental equipment pursuant to an MSC. 

The MSC included a customary “regardless of fault” indemnity structure providing that EDT would indemnify, defend, release, protect, and hold harmless all members of Company (BKV) Group from all claims made or asserted by, or arising in favor of, any member of Contractor (EDT) Group, except to the extent that the claims are caused by, result from, or arise out of the gross negligence or willful misconduct of Company Group.  Generally, each party’s Group included all contractors of any tier and their employees, among others. 

There was no dispute between the parties that the injured individual was a member of Contractor Group or that Colorado law applied pursuant to the express terms of the MSC.

EDT engaged a subcontractor to repair the electric facilities and restore power to the well site.  The subcontractor’s employee alleged that he was injured from an electric arc flash during the repair effort and filed a lawsuit against several parties, including BKV and EDT.  BKV asked EDT to indemnify and defend BKV pursuant to the MSC.  When EDT refused, BKV filed a declaratory judgment action against EDT in Colorado seeking to enforce the indemnify and defense obligations in the MSC.

EDT moved to dismiss BKV’s claims asserting that the indemnity and defense provisions were invalid under Colorado’s Anti-Indemnification Statute, C.R.S. § 13-21-111.5(6)(b), which provides that any provision in a “construction agreement” that “requires a person to indemnify, insure, or defend in litigation another person against liability for damage arising out of death or bodily injury to persons or damage to property caused by the negligence or fault of the indemnitee or a third party under the control or supervision of indemnitee is void as against public policy and unenforceable.”  The statute also defines “construction agreement” as “a contract, subcontract, or agreement for materials or labor for the construction, alteration, renovation, repair, maintenance, design, planning, supervision, inspection, testing, or observation of any building, building site, structure, highway, street, roadway, bridge, viaduct, water or sewer system, gas or other distribution system, or other work dealing with construction or for any moving, demolition, or excavation connected with such construction.”  C.R.S. § 13-21-111.5(6)(l).  EDT claimed that Colorado’s Anti-Indemnification Statute applied because the work at the well site giving rise to the injuries involved “the repair of a structure.” In contrast, BKV argued the contracted scope of work involved providing electricity to the site and drilling operations and that any repairs to a structure were merely incidental.

The Decision:  On EDT’s motion to dismiss, the court held as follows:  (a) the language of the submitted invoice described the repair work as installing a pole, overhead wires, above ground cable and drive-overs, setting pad mounted switches, and repairing cable, (b) these activities constituted “repair of a structure,” (c) Colorado’s Anti-Indemnification Statute lacks an express carveout for “incidental” work,  (d)  the MSC was a construction agreement, and (e) the indemnification and defense provisions were void because they required EDT to indemnify BKV for its own negligence.  The court also issued an order to show cause as to why summary judgment should not be issued in favor of the EDT.  BKV’s deadline to respond to the court’s order to show cause is October 28, 2024.

The Takeaway:  While the opinion arguably is limited to the facts presented, it could have broad ramifications for MSCs with “no fault” indemnity provisions and Colorado choice of law provisions.  Colorado’s Anti-Indemnification Statute may void such provisions to the extent that they are viewed as a “construction agreement” and injuries or damages occur during the course of performing work on a structure. Operators should assess current risks in existing MSC programs. 

If you have questions about the content of this legal alert, please get in touch with Brian Annes, Jon Bergman, Jennifer Allen, or Stephanie Morr.

The National Association of REALTORS® (“NAR”) entered a settlement agreement earlier this year to settle several antitrust lawsuits accusing NAR of imposing brokerage commission rules that inflated residential real estate prices and unfairly burdened home sellers.  As a result of this settlement, NAR agreed to make a $418 million settlement payment and make sweeping changes to the Multiple Listing Service (“MLS”) policy and realtor practices within residential real estate transactions. NAR’s mandatory MLS policy changes took effect on August 17, 2024, and a final settlement approval hearing is scheduled for November 26, 2024.

Most commercial real estate transactions will be unaffected by these changes since commercial listings generally appear on commercial information exchanges (“CIEs”), not MLS, and do not include an offer of compensation.

As discussed further below, the settlement agreement’s major impacts are: (1) buyer’s broker commission offers are now prohibited on MLS; and (2) a written agreement is required between MLS participants working with buyers. While these two changes are significant, they also provide room for residential builders and developers to gain a competitive advantage by proactively communicating with buyers and their representatives to relieve financial uncertainty.

Major Changes from the Settlement

No Buyer’s Broker Compensation Offers on MLS
Pre-NAR settlement, sellers and their brokers would negotiate a fee, decide how that fee would be split with the buyer’s broker, and the seller would pay both fees from the proceeds of the sale. As part of the settlement, NAR agreed to create a new MLS rule prohibiting buyer’s broker compensation offers on MLS. Buyer’s brokers can still be compensated using the same methods they have used historically, and sellers and listing brokers are free to negotiate and offer compensation to buyer’s brokers—but such negotiations must take place outside the MLS.

Buyer Representation Agreement Prior to Home Visitation
Another major change is that a written agreement (“Buyer Representation Agreements”) must be in place between a buyer and the MLS participants working with a buyer prior to the buyer touring a home. Historically, NAR strongly advised but did not require, buyers and their brokers to have a written agreement in place. The Buyer Representation Agreement must specify and conspicuously disclose the amount or rate of compensation to be paid to the buyer’s broker.

The impact of this change varies based on jurisdiction. Several states, including Colorado, already require Buyer Representation Agreements. The Colorado Real Estate Commission has already updated various of its existing forms to address the NAR settlement. The Colorado Bar Association has also created a one-page agreement that may be used to confirm the brokerage compensation to be paid by the listing broker to the buyer’s broker.

Considerations for Business Post-Settlement

While there is uncertainty about the full impact of the NAR settlement on the residential real estate market, there are opportunities for agents to adapt to these changes within the confines of the NAR settlement. Industry participants must be proactive and creative in adjusting their practices to comply with the new rules and remain competitive.

If a listing agent or seller is offering compensation for the buyer’s broker, they can communicate that information outside the MLS, such as on the listing broker’s website, marketing materials, or even direct communication with buyer’s broker agencies. Steering or filtering by buyer’s broker (the process of eliminating properties from the inquiry because they lack or offer lower buyer’s broker commissions) is still prohibited, but this would allow buyer’s brokers to know which listing broker agencies provide them financial certainty, incentivizing them to conduct business with the respective seller.

Sellers can still offer buyer concessions on an MLS, so long as such concessions are not limited to or conditioned on the use of or payment to a buyer’s broker.

Since the NAR settlement may result in more buyers paying their agents directly, rather than the traditional model of the seller paying all agents, some buyers might forego working with a broker entirely. Builders will likely take advantage of the NAR settlement by dealing more directly with buyers, and offering buyers incentives in order to cut out the buyer’s agent entirely. In a post-NAR settlement world, buyer’s brokers must be able to communicate their value to buyers in order to stay competitive.

If you have questions about the NAR settlement agreement or how your business may be affected, please contact Chris Kinsman (chris.kinsman@davisgraham.com or (303) 892-7311) or Ann Stehling (ann.stehling@davisgraham.com or (303) 892-7429).

The Colorado Local Right of First Refusal bill takes effect on August 6, 2024 and stays in effect through 2029. It grants to local governments either a Right of First Refusal or First Offer on certain property sales. Noncompliance may result in civil penalties of $10,000-$100,000.

Right of First Offer

• Qualifying Properties: Applies to multifamily residential or mixed-use rental properties in Colorado consisting of 15 – 100 units, excluding existing affordable housing (i.e., properties subject to affordable housing restrictive use covenants or agreements which did not expire before June 1, 2024), mobile home parks, and accessory dwelling units.
• What it Permits: Local governments in Colorado (or their assignees) may make a first offer to purchase a qualifying property before it is listed for sale to third parties, with the expectation that it will be converted to long-term affordable housing.
• Notice: The local government may post notice on its website that it will 1) waive its right of first offer on all qualifying properties; or 2) assign its right to a local or state housing authority.
• Seller Obligations: Seller must:
  • Provide notice of intent to sell before entering into a listing agreement with a broker or otherwise listing the property on MLS. Following that, the government may, within 7 days, either waive their right of first offer or request due diligence from the seller.If the government requests due diligence, seller has five days to provide required property information. The government will sign an NDA agreeing not to disclose the property information.
  • Once required information is received, the local government has 14 days to make an offer, which the seller must accept or reject within 14 days.
• Government Obligations: Local governments must record a certificate of compliance within 14 days after receipt of the above referenced notices or within 14 days after the acceptance or rejection by a seller of an offer from the local government.

Right of First Refusal

• Qualifying Properties: Applies to multifamily residential or mixed-use rental properties with 5+ units that are or were subject to affordable housing restrictive use covenants or agreements on or after June 1, 2024.
• What it Permits: Local governments in Colorado (or their assignees) may purchase qualifying properties by matching an existing offer, with the expectation that they will maintain them as long-term affordable housing.
• Notice: The local government may post notice on its website that it will 1) waive its right of first refusal on all qualifying properties; or 2) assign its right to a local or state housing authority.
• Seller Obligations:
  • Seller must notify the Colorado Housing and Finance Authority and local governments when:
    • a property’s affordability restrictions will expire in less than two years, and again when restrictions will expire in less than six months;
    • seller lists the property;
    • seller conditionally accepts a third party offer;
    • seller signs a letter of intent, option, or other conditional agreement to sell the property;
    • seller reduces the price by 5% or materially changes terms and conditions; OR
    • seller otherwise plans to sell.
      • Notices must include property descriptions, contact information, existing offers, listing information, price, terms, and/or required conditions for sale.
  • Seller is also required to:
    • negotiate with the local government in good faith and cannot consider the proposed closing period, type of financing or payment method, or certain contingencies when considering the government’s offer;
    • explain reasoning for rejecting the local government’s offer, with the terms and conditions under which they would accept the offer, and then allow the local government 14 days to make a subsequent offer; AND
    • notify property residents of a sale to the government.
• Government Obligations: Local governments have 14 days from seller’s notice to state their intent to exercise their right of first refusal, then 30 days to make an offer. Sales must close within 60 days of seller’s acceptance unless seller has a cash offer with a shorter closing period. Local governments must record a certificate of compliance within 14 days after receipt of the above referenced notices or within 14 days after the acceptance or rejection by a seller of an offer from the local government.

Exceptions: The law does not apply to:

• sales within legal entities;
  • sales to public entities, such as state agencies;
  • sales made pursuant to a foreclosure action;
  • properties where a third party has an active, preexisting right of first refusal or offer;
  • properties where the first certificate of occupancy was issued within 30 years preceding the date that the residential seller will list the qualifying property for sale; OR
  • properties sold in a multi-property transaction involving at least one other property located in a different jurisdiction.

Should you have any questions about the content of this Legal Alert, please contact Chris Kinsman, Ryan Wilcox, or a member of the Davis Graham Real Estate Group.

On May 17, 2024, Governor Jared Polis signed the Consumer Protections for Artificial Intelligence Act (SB 24-205) (the “Act”) into law. Colorado is the first state in the nation, and one of the first jurisdictions in the world, to enact comprehensive legislation regulating high-risk artificial intelligence (“AI”) systems. The Act goes into effect on February 1, 2026, but businesses subject to the Act’s compliance scheme will need to begin preparing much sooner given the law’s complexity and scope.

This legislation targets developers and users of AI systems that are deemed to be “high-risk.” High risk systems are those that make or are a “substantial factor” in making decisions that materially affect the provision, cost, or terms of employment, housing, health care, financing, essential government services, insurance, or legal services. Businesses that develop or use AI in decision-making for any such services or operational areas are subject to the comprehensive oversight, disclosure, and transparency requirements that the Act imposes.

Algorithmic Discrimination

The Act’s stated purpose is to prevent “algorithmic discrimination,” which is defined as any condition in which the use of AI systems results in differential treatment or impact to individuals or groups on the basis of their actual or perceived age, color, disability, ethnicity, genetic information, limited proficiency in the English language, national origin, race, religion, reproductive health, sex, veteran status, or other state- or federally-protected classification. To achieve this purpose, the Act imposes on developers and users of high-risk AI systems a duty to take “reasonable care to protect consumers from any known or reasonably foreseeable risks of algorithmic discrimination.” These developers and users are entitled to a rebuttable presumption that they have taken such reasonable care if they comply with a host of reporting, oversight, and transparency requirements set out in the Act. Notably, algorithmic discrimination does not include using a high-risk AI system to expand a participant pool to increase diversity or redress historical discrimination.

Scope

The Act regulates any person doing business in Colorado who deploys, develops, or intentionally and substantially modifies a high-risk AI system. It is important to note that “doing business in the state” is generally interpreted broadly and is a fact-specific analysis that depends on the nature and duration of the business activity. Therefore, even companies with no physical presence in Colorado but that engage in business activities in the state will likely need to comply with the Act. For deployers, some (but not all) of the compliance requirements are waived if the deployer has less than 50 full-time equivalent employees and does not use its own data to train the high-risk AI system.

Developer Requirements

Developers of high-risk AI systems must disclose certain information to both deployers using the AI systems and to the broader public.

• Disclosures to deployers and other developers: Developers of a high-risk AI system must provide to the deployers and other developers of the system various data and information about the known and foreseeable risks associated with the high-risk AI system along with other information about the system such as its intended benefits and uses and a summary of the data used to train the system. The developers must also provide documentation regarding how the system was evaluated for risks of algorithmic discrimination, related mitigation measures, data governance measures, and how the system should be used and monitored in connection with consequential decision-making.
• Public disclosures: Developers must provide public disclosures on their websites or in a public use case inventory. These disclosures must include the types of AI systems the developer has developed and how the developer manages risks associated with any high-risk AI systems.
• Disclosures and self-reporting to the Attorney General: Developers must self-disclose to the Colorado Attorney General (the “AG”) when the developer knows that their high-risk AI system has caused or is “reasonably likely” to have caused algorithmic discrimination or when the developer receives a credible report from a deployer that a system has caused algorithmic discrimination. The AG may also require, at the AG’s discretion, the developer to submit additional documentation to ensure compliance.

Deployer Requirements

The Act requires deployers of high-risk AI systems to create processes to mitigate and manage risks associated with using high-risk AI systems. It also requires deployers to make general public disclosures, as well as disclosures directly to consumers who are impacted by the deployers’ use of those systems.

• Risk management framework: Deployers must create and implement a risk management policy and program to oversee the use of the high-risk AI system. They must also regularly review and update their policies and programs. The Act provides various requirements for the risk management policy and program and further requires that such programs must be reasonable considering industry guidance and standards such as those reflected in the Artificial Intelligence Risk Management Framework created by the National Institute of Standards and Technology, as well as considering the size and complexity of the deployer, the nature and scope of the high-risk AI system, and the sensitivity and volume of data processed in connection with use of the AI system.
• Impact assessment: Deployers must complete annual impact assessments of the high-risk AI systems they deploy. The Act provides minimum requirements for the information that deployers must include in their impact assessments. This information includes disclosures about the nature of their use of the systems, a risk analysis, descriptions of the data inputs and outputs, transparency measures, and the safeguards that the deployer has instituted.
• Public disclosures: Deployers must provide public disclosure on their websites of their use of high-risk AI systems and the nature of the information used.
• Notice to consumers: When a deployer uses a high-risk AI system to make a consequential decision concerning a consumer, it must provide notice to that consumer. This notice must include a disclosure statement about the nature of the use and information about how the consumer may opt-out of the processing of personal data in certain circumstances. If the consequential decision is adverse to the consumer, the deployer must provide additional information about the decision-making process and the type of data used and must also provide the consumer an opportunity to correct any incorrect personal data used and to appeal the adverse decision.
• Self-reporting violations: Deployers must self-report to the AG any identified cases of algorithmic discrimination within 90 days of discovery. As with developers, the AG can request from deployers additional disclosures to ensure compliance.

Enforcement

Noncompliance with the Act constitutes an unfair trade practice under C.R.S. § 6-1-105(1)(hhhh). However, only the AG can bring enforcement actions, meaning neither private individuals nor district attorneys can bring a lawsuit to enforce the Act. A developer or deployer who engages in algorithmic discrimination could still potentially face lawsuits filed by private individuals or other government enforcement agencies under state or federal anti-discrimination laws.

Extraterritorial Impacts

While the Act will most directly impact companies doing business in Colorado, there are likely to be significant extraterritorial effects too. Although Colorado’s law is the first of its kind, many other state legislatures and regulators are working on their own AI regulatory concepts, and some will incorporate and mimic elements in Colorado’s law. Even as other states begin to act, for now Colorado’s law sets the floor on which companies that do business throughout the country will build their compliance efforts.

The only similar already-enacted regulatory regime is the European Union (“EU”) AI Act, which will apply to businesses operating in any jurisdiction in the EU. With more states and nations likely to develop their own compliance regimes, businesses operating across borders have a high risk of facing a patchwork of regulations.

Next Steps in Colorado

Public officials in Colorado have indicated that changes are likely to be made to the Act before it becomes effective in 2026. Indeed, facing a backlash by the business community following enactment, the bill’s primary sponsor along with Colorado’s Governor and AG issued a joint statement promising potentially-significant changes in the 2025 legislative session. The statement identified several areas for amendment efforts, including narrowing the definition of high-risk AI systems, focusing the regulatory scheme on developers rather than deployers (especially small businesses), reducing the proactive disclosure requirements, and modifying the consumer right to appeal.

In addition to potential legislative amendments, the Act will see significant regulatory development through rule-making by the AG, to whom the Act delegates broad rule-making authority. Both the legislative and rule-making processes will give stakeholders an opportunity to provide input regarding the Act and help shape whatever final product emerges from those processes.

Meanwhile, there are many steps businesses can and should take now to ensure they will be prepared to comply once the Act takes effect and to mitigate and address other operational risks associated with the use of AI.

Should you have any questions about the content of this Legal Alert, please contact Mark Champoux, Caitlin Cronin Woodward, or a member of the Davis Graham AI Group.[i]

[i] This article was authored with the assistance of Davis Graham Summer Law Clerk, Sarah Walker. Ms. Walker is a 2L at the University of Colorado School of Law.

SB24-233

Summary

The bill caps future increases of property tax revenue to 5.5% per year. School districts and home-rule local governments are excluded from the cap. A local government may seek voter approval to waive the limit. The bill also reduces the valuation of commercial property from 29% to 25% (of the actual value of the property) over the next four years.

Legislative Update

• 2024-05-14 / Signed
  Governor Signed
• 2024-05-10
  Sent to the Governor
  Signed by the Speaker of the House
  Signed by the President of the Senate
• 2024-05-08
  Senate Considered House Amendments – Result was to Concur – Repass
  House Third Reading Passed with Amendments – Floor
• 2024-05-07
  House Second Reading Special Order – Passed with Amendments – Committee, Floor
  House Committee on Appropriations Refer Amended to House Committee of the Whole
  Introduced In House – Assigned to Appropriations
  Senate Third Reading Passed – No Amendments
• 2024-05-06
  Senate Second Reading Special Order – Passed with Amendments – Committee, Floor
  Senate Committee on Appropriations Refer Amended to Senate Committee of the Whole
  Senate Committee on State, Veterans, & Military Affairs Refer Unamended to Appropriations
  Introduced In Senate – Assigned to State, Veterans, & Military Affairs

This content is updated every Thursday, but is not a comprehensive list of updates. If you have questions regarding a specific piece of legislation, please contact Davis Graham partner, Sarah Kellner.