Colorado Tenant Laws on Security Deposits Explained

What is a security deposit?

In simple terms, a security deposit is a sum of money that a tenant gives their landlord before moving into a rental apartment or home. Once the landlord and tenant have agreed on the terms of a rental contract (lease), the tenant usually provides a security deposit to their landlord. The landlord holds onto this money during the term of the lease and is expected to return it to the tenant when the lease ends. In addition to damage, another common example of when a security deposit is not refundable is when a tenant breaks their lease. Generally speaking, a tenant breaking their lease includes any time a tenant vacates a rental unit before the end of a lease term or a tenant who fails to pay rent, intentionally destroys property, or commits a nuisance (i.e. finds a way to annoy neighbors) while residing in the rental property.
In Colorado, the law regarding security deposits can be found in the Colorado Revised Statutes, Section 38-12-101. This statue defines security deposits and goes into detail about how they shall be held , what amounts are considered a security deposit, when they should be returned, and exceptions to these rules. Security deposits shall be interpreted broadly to include money substituted for a surety bond. A basic requirement of landlords holding security deposits in Colorado is for them to place the funds in a Colorado interest-bearing account. The statute explains that the security deposit shall be returned to a tenant within one month after the date the tenant vacates their apartment or home. Any exceptions allowing a landlord to keep the security deposit require the landlord to provide the tenant with an explanation. This statute requires landlords to give a tenant a notice of intent to retain part or all of the security deposit. In fact, a landlord must provide a notice to the tenant identifying the specific damages deducted from the return of the security deposit within one month of the tenant vacating the rental unit. When retaining part or all of a security deposit, a landlord must return the entire remainder to the tenant.

Security deposit limit in Colorado

The laws in Colorado place limits on the dollar amount that landlords may charge tenants concerning security deposits. In this state, security deposits may not exceed two months’ rent, a reasonable estimate of damages, or the cost of amenities if a landlord charges for such items. Prepaid first and last month’s rent is exempt from this limit. The state laws regarding security deposit limits are a bit more flexible than those of other states, where pre-paid first and last month’s rent is often included in the limits. In many states, such as Arizona, the same inspection requirements apply to both pre-paid first and last month’s rent and security deposits.

Return of security deposit rules

Under the law, landlords have 60 days after the end of the lease to return the security deposit or give the tenant a written explanation for any deductions made. These deductions can include unpaid rent, repair costs for damages outside of normal wear and tear, and costs related to breaking the lease. Normal wear and tear is generally defined as the normal deterioration that occurs with occupancy. It does not include damage such as holes in the walls or missing doors. However, the law does not give any limitations on the specific deductions a landlord is permitted to take so disputes often arise after a tenant vacates the premises.

Deductions permitted

The law allows a landlord to deduct from the deposit the amount necessary to remedy a tenant’s default or breach of the rental agreement. C.R.S. Section 38-12-103(1)(a). A default is rent not paid. A breach is a tenant-caused problem.
Remember that a landlord can only deduct what the actual cost of repair or cleaning. If the tenant does $200 in damage and you repair it for $150, you are not allowed to deduct the full $200, but only the actual cost of repair of $150. Also, if you hire a ticketing service to obtain payment for the unpaid rent, that fee is not something you can charge back to the tenant. Likewise, if you have to pay an attorney to sue for unpaid rent, those attorney fees are not something you are allowed to back-charge to the tenant.

Challenging deductions

If a tenant believes a deduction has been wrongfully taken from their security deposit, the first and preferred avenue is to communicate with their landlord to negotiate a resolution. Forming open lines of communication may result in a successful resolution without the need to escalate the property dispute.
If the landlord refuses to negotiate or they are unresponsive, Colorado tenants have legal recourse in the form of Mediation, Arbitration, and Small Claims. Both Mediation and Arbitration are forms of Alternative Dispute Resolution (ADR). Mediation is generally not binding on the parties, as both parties must mutually agree to the settlement terms in order for them to be valid . Arbitration normally is binding on the parties, although this can be agreed to otherwise by the parties prior to the arbitration process. And if the dollar amount of the disputed security deposit is less than $7,500, tenants may bring their police, fire, or landlord-tenant dispute in front of the Small Claims Court where they can seek an award for damages up to $7,500. No formal or specialized legal knowledge or attorney is needed to navigate the Small Claims Court process.
In deciding which course of action is best for the landlord and the tenant to pursue, the parties should carefully review the cost, time, and their individual goals in resolving the property dispute.

Failure to comply with law

Failure to comply with the state’s security deposit statutes could end up costing the landlord a significant amount of money. In this case, the tenant would be able to recover their security deposit through the courts and potentially even get additional compensation for having to fight for their deposit. The defense attorney in this case was entitled to reasonable attorney fees, so if the tenant hired such an attorney they would be able to recover those fees from the landlord.
But that’s not all. In this case, the landlord failed to give evidence demonstrating that the tenant had indeed vacated the property prior to distribution of the deposit. In the state of Colorado, a tenant has the right to access their security deposit just 72 hours after vacating the unit. Failure to do so results in a real estate violation for the landlord. Because of this rule, the judge was quick to award attorney fees to the tenant in the amount of the full $5,000. This is, by far, the most serious consequence of violating tenant rights concerning the release of security deposits in the state of Colorado.
Why should landlords make sure to follow the law in giving deposits back on time? Because the consequences go beyond the finances. Every court case decided in favor of the tenant helps to establish longer-term precedence that will help tenants throughout the state. If you want to stay in business, it’s important to make sure your practices are up to date with the law.

Protecting your security deposit

The first step is to have an inventory list of the apartment’s furniture, appliances, flooring, walls, and other items. You should also have photos or video in order to note any wear. Do not focus on what you consider to be normal wear-and-tear, but instead focus on answering the question of whether or not a deposit could be withheld by the landlord for the condition. If the apartment is empty, you should use a smart phone to take video or pictures of the apartment. While this may seem tedious, it is a very important step. Why? For no other reason than the fact that many landlords are not honest and claim that repairs are necessary when in fact they are not. By having your own inventory list and photos or video, you have a document that you can submit to small claims court in defending against an illegal security deposit deduction. In fact, the Court is very familiar with the special "non-hearsay provision" of Colorado’s security deposit statute that addresses such situations . That provision is as follows: In any action concerning a residential lease… which involves the return or nonreturn or the amount of the return of such security deposit or prepaid rent which is brought by a tenant against a landlord or any… agent of a landlord, evidence of the tenant’s compliance with this subsection (1) shall be prima facie evidence of noncompliance by the landlord…. C.R.S. 38-12-103(1)(e). By viewing such evidence, the Court knows that the tenant complied with the statute, and therefore the tenant should be entitled to a return of the deposit (or at least 100% of it). In addition to the above, tenants should communicate with their landlord if they believe that a deduction will be taken from their security deposit. It is recommended that such communication come in the form of an email communication with yourself in BCC to create an electronic dated record. Another option is to send the communication via certified mail with return receipt requested. The reason for this recommendation is because the tenant should be able to prove that such communication occurred in the event that a dispute arises with the landlord. Where argument exists about whether or not an email or letter was sent, the better view is that the communication was sent, and the matter will be resolved in favor of the tenant.