Navigating Colorado Security Deposit Law: A Guide for Landlords and Tenants

Confused about Colorado security deposit laws?

As a tenant, you may be concerned about getting your security deposit back, while landlords have to navigate the legal requirements of holding and returning these funds.

This no-nonsense guide will explain Colorado’s rules on security deposit limits, return timelines, and dispute resolution processes, including new legislation impacting both tenants and landlords.

Let's get started.

Understanding the basics of Colorado security deposit law

In the Centennial State, security deposits act as a form of insurance for property owners, mitigating risks such as excessive property damage or unpaid rent. These deposits are refundable, and landlords can withhold them for various unpaid costs, ultimately affecting the security deposit refund. Some of these costs include:

• Cleaning
• Repair
• Unpaid utility bills
• Property damage
• Other lease violations causing financial damage.

Interestingly, Colorado does not have specific regulations requiring landlords to store security deposits in interest-earning accounts or at a particular financial institution, allowing the flexibility to manage these deposits as you see fit. 

In addition to this, landlords are not mandated by law to conduct a walk-through inspection with the tenant before the premises are vacated.

However, despite the lack of a state mandate, conducting such inspections can benefit all parties. They can help identify potential damage or necessary repairs, thus preventing disputes when the tenant moves out.

Security deposit limits in Colorado

Colorado has seen significant legislative changes aimed at making housing more accessible and fair for tenants, including those with pets. Effective August 7, 2023, a new regulation under Colo. Rev. Stat. § 38-12-102.5 limits security deposits to no more than two months' rent under the rental agreement for residential properties. 

This development strides towards protecting tenants from exorbitant upfront costs when leasing.

Adding to this tenant-friendly legislative landscape, House Bill 23-1068 was signed into law by Governor Jared Polis on June 7, 2023, introducing specific caps on pet deposits and fees, to be implemented starting January 1, 2024.

The bill mandates that pet security deposits cannot exceed $300, ensuring these deposits remain refundable. Additionally, it sets a limit on non-refundable pet fees to $35 or 1.5% of the monthly rent, whichever is higher, which will be added to the monthly rent. 

This legislation represents a significant step towards reducing the financial burden on Colorado pet owners looking to rent.

Timeline for returning security deposits

Landlords in Colorado must return the security deposit or provide an itemized list of deductions within one month after lease termination or property surrender. This one-month period can be extended to 60 days if the lease agreement specifies a longer timeframe.

When deductions are made from the security deposit, landlords must send a detailed itemized statement to the tenant outlining each deduction and the associated cost. This ensures transparency and helps to prevent potential disputes between both parties.

Retention rules and normal wear and tear

In Colorado, ‘normal wear and tear’ refers to the natural deterioration that occurs as a result of daily use without negligence, carelessness, accidents, or abuse from the tenant or their guests. Property owners can use the security deposit for the following purposes:

• Unpaid rent
• Cleaning
• Repairs
• Utility bills
• Damages exceeding normal wear and tear
• Other breaches of contract

If deductions are made from a security deposit, landlords must provide an itemized list detailing the reasoning for each deduction and any remaining portion of the deposit. Those who fail to provide an itemized statement and any due deposit refund on time may face penalties and forfeit their rights to withhold any part of the deposit.

Defining normal wear and tear within the lease agreement or an addendum can prevent disputes and court challenges by providing clarity between landlords and tenants.

Tenant rights and responsibilities in Colorado

In Colorado, any lease provision or agreement that attempts to waive or alter a tenant’s right concerning security deposits is void under Colorado landlord tenant laws. This ensures that tenants are protected and that their rights concerning security deposits cannot be circumvented by landlords. 

As tenants, abiding by the lease agreement and maintaining the rental property while accounting for normal wear and tear is vital.

Notifying landlords about hazardous conditions involving gas is one of the tenants’ primary responsibilities. Landlords have 72 hours to act after notification, failing which the tenant can terminate the lease, and the security deposit must be promptly returned.

When moving out, tenants should:

• Document preexisting damages
• Provide proper notice
• Clean the unit
• Do a walkthrough with the landlord

Taking these steps protects the tenant’s security deposit and ensures a smoother transition during the move-out process.

Providing a forwarding address

Providing a forwarding address to their landlord is a tenant’s significant responsibility and key for ensuring the timely return of the security deposit. If tenants do not provide a forwarding address, landlords can send the security deposit or an itemized list of deductions to the tenant’s last known address.

Therefore, it is recommended that tenants:

• Provide a forwarding address
• File a change of address with the post office
• Request a letter from their landlord confirming the condition of the property and the receipt of the new address.

Disputing deductions from security deposits

If tenants believe the landlord’s statement regarding the security deposit is inaccurate, they have the right to dispute it. They should initiate the process by communicating with the landlord. If direct negotiations do not result in a resolution, tenants should send a written seven-day demand letter to dispute the charges formally.

If the landlord does not comply by returning the contested security deposit within seven days after receiving the demand letter, tenants can sue in the Small Claims division or County Court, depending on the dispute amount.

If a landlord is found to have a security deposit wrongfully withheld, the tenant may be entitled to recover up to triple the amount of the deposit, with the possibility of being awarded reasonable attorney fees.

However, a small claims case for the return of a security deposit must be filed within statutory time limits, specifically one year for standard claims and six years for seeking triple damages for wrongful withholding.

Landlord obligations and best practices

Landlords in Colorado have certain obligations and are advised to follow specific best practices when handling security deposits. They have the discretion on how to store these deposits, whether in normal, interest-bearing accounts or as a surety bond. Despite the lack of specific state mandates, segregating tenant security deposits into separate accounts is recommended to streamline the return process and minimize disputes.

While not legally necessary, conducting a walk-through inspection before the tenant moves out can benefit landlords. This helps assess potential damage beyond normal wear and tear and prevent disputes when the tenant moves out.

Landlord obligations extend to the case of a property sale as well. When a rental property changes ownership, the landlord must either return the security deposit to the tenant with appropriate deductions or transfer it to the new owner. The landlord must notify the tenants if their security deposit is transferred to a new property owner.

Pet deposits and service animals in Colorado

Pets are often considered part of the family, so it’s important to understand the laws and regulations surrounding pet deposits and service animals in Colorado. Landlords can charge an additional pet deposit to cover potential pet damage. This deposit is separate from the security deposit and is generally refundable, provided the pet does not cause damage beyond normal wear and tear.

Service animals and Fair Housing Act exemptions

In contrast to typical pet policies, the Fair Housing Act requires landlords in Colorado to make reasonable accommodations for tenants with service animals without charging pet deposits or additional rent for these animals.

This requirement extends to service animals and emotional support animals (ESAs) when the tenant has a disability, and the animal assists with that disability, as protected under both the Fair Housing Act and the Americans with Disabilities Act.

While Colorado landlords cannot charge a pet deposit for service animals or ESAs, tenants remain liable for any property damage caused by their animals. Landlords can lawfully reject a service animal or ESA if it threatens others’ health and safety or is not housebroken.

Change of property ownership and security deposits

A change in property ownership can occur for various reasons, from the sale of the property to the termination of a property management contract. Regardless of the cause, such changes can affect the security deposit.

When a rental property changes ownership, the property owner must either return the security deposit to the tenant with appropriate deductions or transfer it to the new owner. The landlord must also ensure that the security deposit transfer to the new owner is done in a manner consistent with Colorado law, ensuring the tenant’s deposit remains intact.

Alongside this, landlords must notify tenants if their security deposit is being transferred to a new property owner. This ensures tenants know who holds their deposit and helps facilitate future communications.

Colorado law on security deposits explained

Understanding Colorado’s security deposit law is important for both landlords and tenants. From the basic principles of the law to the implications of the new HB 23-1099 bill, the security deposit landscape in Colorado is complex but navigable.

Landlords and tenants have specific rights and responsibilities, which is key to a smooth and dispute-free rental experience.

Whether it’s handling pet deposits or the process involved when a property changes ownership, being informed empowers each party to protect their interests and uphold their obligations.

Colorado security deposit laws FAQs

What is Colorado law for returning security deposit?

In Colorado, landlords must return the security deposit to the tenant within 30 days of the tenant vacating the premises, as required by the landlord-tenant laws.

Can a landlord charge for cleaning in Colorado?

Yes, a landlord in Colorado can charge for cleaning if the tenant fails to maintain the rental unit's cleanliness, which can be deducted from the security deposit. Therefore, tenants need to leave the unit in the same condition as it was at the start of the agreement.

How much can I charge for security deposit in Colorado?

In Colorado, there is no limit to how much a landlord can charge for a security deposit, so you can set the amount as you see fit.

Disclaimer: The information provided in this post does not, and is not intended to, constitute legal advice; instead, all information, content, and materials are for general informational purposes only. This content may not constitute the most up-to-date legal information. No reader, user, or browser of this article should act or refrain from acting on the basis of information herein without first seeking the advice of a legal professional.