Security Deposit Law in Colorado
The framework of Colorado security deposit laws are mostly contained in the Colorado Uniform Residential Tenant and Landlord Act, 1881 Colo. Sess. Laws p. 1078, codified at C.R.S. §§ 38-12-101 to -109. The statutory provisions of the Act govern any residential lease for a term of less than one year. This includes all month-to-month, week-to-week, and week-to-month leases.
Because of the way the Act is written, there is a large number of short-term leases, such as a one-year lease with an ensuing month-to-month lease, that are covered under the statute despite the one-year term. Other long-term or fixed-term leases are also covered under the Act unless the lease has an express provision which disclaims the application of the Act.
One basis for non-application of the Act includes where the tenant waives its terms in writing, C.R.S. § 38-12-103(1)(b). Waivers of specific obligations or duties of the landlord under the Act do not constitute a waiver of the Act as a whole. Likewise, where the tenant is evicted from the premises and the rental payments are current, such will not defeat the Act. C.R.S. § 38-12-103(1)(c). Rental contracts for more than one year, including a month-to-month lease that continues after one year, also are not covered by the statute. C.R.S. § 38-12-104.
Deposits taken in connection with commercial leases are not governed by the Act, C.R.S. § 38-12-104(2), which also is silent about the application of the Act to leases of residential space in certain types of homes , like single-family homes and apartment complexes, that are owner-occupied.
There are two different Colorado Security Deposit Acts. The Colorado Apartment Lease Termination Damage Deposit Act, C.R.S. §§ 38-12-201 to -204, governs the return of rental damage deposits paid on leases for apartment units. Coloradans are agitated by the existence of two separate Acts because these Act govern pretty much the same types of transactions, except that they refer to rental money as either a security deposit or a damage deposit. The Apartment Lease Termination Damage Deposit Act applies only to leases of apartments which have 1 to 4 residential rental units, C.R.S. § 38-12-201(1), while the Colorado Security Deposit Act applies to residential leases of any amount of residential units. C.R.S. § 38(1)(a). These Acts both apply to leases for commercial space.
Under either Act, you must follow certain requirements before even trying to take a security or damage deposit. These requirements include disclosure of certain information to Colorado tenants about the deposit and with whom the deposit is being held. Interestingly, the Apartment Lease Termination Damage Deposit Act has more stringent provisions that must be followed to protect a landlord’s rights to keep a security or damage deposit than does the Colorado Security Deposit Act. If the landlord fails to comply with the applicable Act’s provisions, then its rights to the security or damage deposit may be forfeited, and the landlord may have to pay damages to the tenant.
Limits on the Amount of a Security Deposit
Colorado law imposes some limit on the amount of "security" that a landlord can demand from a tenant. In the residential setting, Section 38-12-103 of the Colorado Revised Statutes caps security deposits at a maximum of one month’s rent. So, unless your residential lease provides otherwise, your landlord may not demand more than one month’s rent as a security deposit.
A lease does not have to be in writing for the limits of Section 38-12-103 to apply. So, if you live in your apartment on a verbal lease, the landlord still cannot charge you a security deposit in excess of one month’s rent. This rule only applies to residential leases. Landlords of commercial premises may demand as mush extra as they like for security.
However, a lease that is subject to the Residential Tenants’ Right to Repair Act (also referred to as the Warranty of Habitability) anywhere in Colorado outside of Boulder, Colorado is limited to a maximum security deposit of two months rent. See Colorado Revised Statutes Section 38-12-301. This special limit applies in the City of Boulder (cases interpreting Boulder law suggest that the limit is one month’s rent). The law provides that if a tenant pays first and last month’s rent under the lease, the last month’s rent payment shall not be treated as rent but shall be returned upon the expiration of the lease term. Thus, the maximum deposit for a tenant who pays first and last month’s rent concurrently is one month’s rent. The limit for security deposits in the City of Boulder is also one month’s rent.
However, in the City of Boulder, in addition to the limit of two months rent, there is a rebuttable presumption that charging last month’s rent is unfair and inequitable. This is a presumption that a tenant may be able to defeat by providing satisfactory evidence that the landlord actually sustained damages in an amount equal to or exceeding the last month’s rent. However, this is not to say that the landlord can never charge last month’s rent; the presumption may be rebutted.
In the City of Denver, there are no applicable limits.
Permitted Uses of and Deductions From a Security Deposit
The Colorado Rental Security Deposit Law permits landlords to use the security deposit to cure defaults of the tenant or to compensate the landlord for damages.
Default: Landlord may apply any part of the security deposit held by him to an amount equal to the actual damages suffered due to the tenant’s failure to perform any provision of the rental agreement other than a provision to pay rent. If landlord intends to apply any part of the deposit to such damages, he must give tenant notice in writing of his intention, receipt of which is mandatory. It is also prudent that the notice provide time for the tenant to cure the default before the landlord deducts from the security deposit.
Damages: Landlord may also apply any part of the security deposit held by him to an amount equal to the actual damages suffered due to the tenant’s failure to comply with the rental agreement, including nonpayment of rent. Landlord is not permitted to deduct for normal wear and tear caused by ordinary use of the premises by tenant and by other persons on the premises by tenant’s permission. Upon giving proper notice to the tenant, the landlord may also deduct: (i) costs incurred by landlord or any managing agent in cleaning or restoring the dwelling unit to its condition at the time of delivery of possession to the tenant, provided such cleaning or restoration is performed in a workmanlike manner and costs are reasonable; (ii) amounts due as agreed by the parties for unpaid rent and damages or nonpayment as provided in the rental agreement; (iii) amounts due for damage to the premises, other than normal wear and tear; (iv) amounts due for auxiliary services provided by the landlord which the tenant contracted for and/or used and agreed in writing to pay; (v) "bad check" or returned item fees charged to the landlord by his bank or financial institution in processing a dishonored check or dishonored electronic funds transfer presented to the landlord by a tenant for rent payment in accordance with the lease; and (vi) costs for such work as is actually performed by the landlord or his agent in an amount equal to the actual cost incurred by the landlord or his agent for such work reasonably performed to bring the premises into compliance with the rental agreement. In the event the tenant receives a written notice from the landlord, specifically citing the default and giving the tenant a period of five days from receipt of the notice to remedy such default and if such default remains uncured after the five-day period, landlord may add the total amounts owed pursuant to law and rental agreement from the date of the notice until the date such amounts are paid; provided that such interest may not exceed the amount equal to one and one-half times the legal rate established by section (2) of §5-12-102, C.R.S.
However, the Colorado Rental Security Deposit Law makes it clear that none of the following types of damages can be deducted from the security deposit: FILED Alabama Alabama – Tennessee Tennessee Tennessee Tennessee Arkansas Arkansas Arkansas Arkansas Arkansas Kentucky Kentucky Kentucky Kentucky Kentucky Louisiana Louisiana Louisiana Louisiana Louisiana Louisiana Louisiana Mississippi Mississippi Alabama Alabama Alabama Alabama Arkansas Arkansas Arkansas Arkansas Arkansas Kentucky Kentucky Kentucky Kentucky Kentucky Kentucky Louisiana Louisiana Louisiana Louisiana Louisiana Louisiana Louisiana Tennessee In-depth View of Tennessee Landlord-Tenant Law State-Specific Overview of Tennessee Security Deposits
The Return of a Security Deposit
The return of a tenant’s security deposit involves a process of tasks and the passage of time. Again, because we are focusing on Colorado law the rules discussed here apply only in Colorado.
The first task is to carefully inspect the unit after the tenant vacates. A few points to remember: When the inspection is complete the damages noted and the costs to repair the damages should be tallied. Appendix A provides a simple calculation for an amount to discount from the security deposit. If a deposit will be partially refunded then a copy of Appendix A should be attached with the refund check. The Appendix A is not a required form but is highly useful. Next the landlord must make a good faith estimate of the costs to repair or clean the unit. If the repairs will take more than one full day of work then this process can take up to 60 days. The landlord should then give the tenant a detailed list of the damages found and estimated costs to fix. The list and amounts must be sent within one month (30 days) after the tenant vacates. If the repairs will take less than one full day of work, the landlord must provide the notice to the tenant within fourteen days. A copy of the estimate should go with the letter notifying the tenant about the security deposit refund. Appendix B is another useful form that details our estimate. It is not a required form but is very handy. The next task for the landlord to complete is to have the repairs completed. The costs of the repairs may then be taken out of the security deposit. The security deposit refund should be sent either with the repairs or within 60 days after the tenant vacates. If the tenant’s deposit is fully refunded with no itemized deduction, that refund should be considered a "whole check" with no deductions. Appendix C is a sample whole check security deposit refund. If, however, any amount is taken off of a security deposit and those amounts are not in the notice sent to the tenant (the notice is provided above), then we call that a "partial check" with some of the deposit being deducted. Appendix D is a sample partial check security deposit refund. So, why does it matter whether it is a "whole" or "partial" check? Because the tenant’s statue actually has two procedures. If there is no money withheld from a security deposit, then the portions of the statute covering security deposits allow for an informal process (a dispute in district court may be set for trial within a few months). If, however, there is money being withheld from the security deposit, then the portions of the statute covering security deposits allow for a totally separate dispute process. This dispute process is slow, cumbersome and can take over a year. The statute provides for an expedited district court procedure that goes much more quickly, but if the case falls under the portion of the statute dealing with security deposit refunds, then the tenant will have to complete a significant amount of procedural work. No point taking the "hard road" when you can choose the "easy road".
Tenant’s Remedies and Evictions
In the state of Colorado, tenants have various rights when it comes to security deposits. They are within their rights to ask for an itemized list of any damages that the landlord believes justify retaining all or part of the security deposit. If the landlord fails to provide this list in a timely manner, the tenant may be entitled to recover all or part of their security deposit back from the landlord . If a tenant believes that their security deposit has been wrongfully withheld, they can take steps to recover the funds through the Colorado courts. The tenant should first send a copy of this letter to the Colorado Attorney General, as they keep files on landlords who violate state law on this issue.
Common Myths Regarding Security Deposits
While there are plenty of ways to do the right thing when it comes to security deposits, it seems like the tenants and landlords who encounter issues arise from a lack of knowledge about the rules and regulations pertaining to security deposits in Colorado. Below are some of the misconceptions and clarifications hopefully to prevent disputes.
The security deposit belongs to the landlord. Not exactly. Under Colorado law, once a tenant pays a security deposit, that security deposit belongs to the tenant. So if the agreement is to keep the security deposit as collateral, the tenant would not only need to give the landlord permission to withhold the amount from the security deposit, but the tenant could also technically sue the landlord for retaining the collateral. This is why a properly worded collateral assignment is essential.
A security deposit does not change the statute of limitations. This is another misconception I have come across. A security deposit in Colorado does not alter your rights under the statute of limitations. The statute of limitations for security deposit claims, or items held under a security deposit, is six years.
Tenants should be able to offset the cost of repairing damages to the premises against deductions from their security deposit. Not necessarily. Oftentimes, this is just incorrect thinking for landlords and tenants. If you have damages with regard to your original possession of the property, those damages should not be offset against any allowances that you may be receiving on behalf of your security deposit. Colorado law requires that a tenant cannot deduct from his own security deposit for the fixing of any damages unless the original tenant saw the damages, agreed to fix the damages and, more importantly, paid someone else to fix the damages for them or unless the damages were visible by the naked eye. Hiding behind the misrepresentation that you are going to offset damages, or otherwise, is using the security deposit as collateral and that type of collateral assignment needs to be in writing.
Each lease requires an orientation summarizing Colorado law referring to security deposits. This is possibly my favorite misconception, although it is not a misconception. Every time something is done that has to do with a security deposit, the law requires a detailed explanation of what is required by Colorado law with regard to security deposit. The best practice is doing a written orientation at the beginning of a lease with a checklist provided to the tenant that both the tenant and the landlord sign. There are even registration agencies out there that can house all the information if they are provided with a copy of the lease. All of these details must be clearly explained to your tenant.
New Amendments to Colorado Security Deposit Law
In recent years there have been a few substantive changes to the security deposit laws in Colorado. Currently, landlords are not required to pay interest on security deposits; however, Colorado law did not allow security deposits to earn interest in the early 1980’s. Over the last few years, there has been an unfilled legislative attempt to change the Colorado rental statute to require interest be paid on all tenant security deposits. While resulting in confusion at times, the legislative intent with the introduction of the bills was pretty clear—interest must be paid on security deposits. However, as of April 2019, there has still been no change to the Colorado rental statute. The second recent change to the rental statutes is the requirement for landlords to provide a written settlement statement within 30 days after the termination of the lease. According to the current version of the Colorado rental statutes, prior to the 2016 changes, landlords were required to "return to the tenant any security deposit, together with a written statement enumerating the deduction made pursuant to this section for damages caused by the tenant…" This language does not require the landlord to provide the tenant with the "written statement" if no deductions are made from the security deposit. However, in 2016, there was a change to the statutes to add § 38-12-103(1.5). "Any owner receiving a security deposit shall, within thirty days after the termination of a lease, provide to the tenant an itemized written list detailing the security deposit, the amounts not subject to refund, and the amounts subject to refund; any security deposit received for more than one month must bear interest payable to the tenant at the rate of interest equal to fifty percent of the federal discount rate. An owner may deduct the costs described in subsection (1) of this section from only that portion of the security deposit to which the owner has an obligation to refund." Since 2016, landlords are required to provide an itemized written list of the security deposits held within 30 days of termination of the lease , even if there are no deductions from the security deposit; landlords must confirm in writing the amount held. This written list is called the "Settlement Statement." Some new services have been implemented for landlords in an effort to address the increasing number of disputes between landlords and tenants regarding security deposits. One such service is called RentDepositRefund.com. This system is currently in beta testing with select landlords, and more information will be available later this summer as part of our Estate Conclave on July 30th. Additionally, state financed online search portals are being offered to recover tenant’s claims from terminated leases. In 2016, Colorado Assembly Bill 16-1133 was passed to address the statewide landlord-tenant database program. The purpose of the database program is to give tenants an opportunity to easily review and retrieve their unclaimed security deposits and all associated documentation at no charge. Under the Colorado Revised Statutes 38-12-102(18), "Unclaimed Security Deposits" means security deposits remaining unclaimed by tenants for six months or longer after a termination of a lease for residential premises. Landlords are not required to report or transfer unclaimed security deposits until six months after the termination of a lease. Under Colorado Revised Statutes 38-12-302(2) "Program" is defined as the Colorado statewide landlord-tenant database program established by the director of the division of housing in the department of local affairs in collaboration with the department of personnel by contract entered into on or before January 15, 2018. Although this seems like a huge benefit to tenants, the Database is not required to accept the data and there is no guarantee they will post the claims received. Information from the database will also be limited, as § 38-12-302(6)(c) states: "the program need only contain the ten most recent unclaimed deposits for each landlord that have not been delegated." It is important to note that the Department of Housing has not yet determined whether Property Managers will need to comply with these statutes or just Landlords.
