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A security deposit is a sum of money that is paid by the tenant to the landlord to assure that the tenant performs the lease. A security deposit may be called a "damage deposit, a cleaning deposit or a pet deposit." Regardless of its name, if the money is given to assure performance by the tenant, the Colorado laws discussed in this section apply. A deposit that is given as a prepayment of rent in order to hold a unit is not a security deposit and is therefore not subject to the security deposit laws. The security deposit laws apply only to residential units, not to commercial premises.
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The landlord may keep the security deposit for many different reasons. The most common reason for keeping the deposit is to pay for damages to the unit over and above "normal wear and tear. " Normal wear and tear, is deterioration that occurs by living in the unit without negligence, carelessness, accident, or abuse of the unit by the tenant or members of the household, or their guests. The landlord may also keep the deposit for nonpayment of rent, for abandonment of the unit, nonpayment of utility charges, repair work or cleaning contracted for but not paid for by the tenant, or for any other breach of the lease by the tenant.
The amount of the security deposit is not set by law. The security deposit is the amount upon which the landlord and the tenant agree.
Colorado law does not require the landlord to hold the security deposit in a separate or escrow account. The landlord may hold the security deposit in a general account commingled with other funds. The landlord is not required by state law to pay the tenant interest on the amounts held as a security deposit. However, there are municipal codes in some municipalities, for example, Boulder, which require the payment of interest on security deposits.
If the tenant has given the proper notice to the landlord of moving out and if the tenant does not owe any money to the landlord and if the unit is left in the same condition as when the tenant moved in, except for normal wear and tear, the tenant is entitled to a full return of the security deposit.
Before or immediately after moving in, the tenant should walk through the unit with the landlord to make a list and take pictures of all existing damage and necessary cleaning. Both parties should sign two copies of the list and each should get a copy of the signed list to keep in their records.
The tenant should follow the same procedure when moving out. Even if one party refuses to take this walk through with the other, each party alone should carefully document the condition of the unit by making lists and taking pictures. Preferably a disinterested witness can also look at the condition of the unit.
If there is a reason for keeping any portion of the security deposit, the landlord must give the tenant a written statement listing the exact reasons for keeping it. These reasons may include damage to the unit or non-payment of rent or utilities, but may not include normal wear and tear to the unit. Along with this written statement, the landlord must return the difference between the security deposit and the amount retained.
If the landlord is keeping any of the security deposit to cover damages to the unit in excess of normal wear and tear, the landlord should obtain written estimates or other knowledge of the actual costs of the necessary repairs. "Guesstimate" or "ballpark" numbers do not justify keeping a security deposit.
The landlord must return the full amount of the security deposit or deliver the written statement within one month after the lease terminates or after the surrender and acceptance of the unit, whichever occurs last. The lease may give a longer period of time, but never more than 60 days. If the tenant moves out because the landlord fails to timely repair a hazardous condition of a gas appliance, piping, or other gas equipment, the landlord must return the security deposit within 72 hours after the tenant moves out.
The landlord must mail the statement and any required payment to the last known address of the tenant. The tenant should leave a forwarding address with the landlord. If no forwarding address is given and the landlord has no further information about where the tenant is located, the landlord may send the statement and payment to the address of the unit.
If the landlord does not provide the written statement within the required time period, the landlord loses all rights to keep any portion of security deposit for any reason, even if the tenant damaged the unit or failed to pay rent. However, the landlord can still sue for actual damages.
If the landlord willfully and wrongfully keeps a security deposit, the tenant may recover three times the amount of the security deposit wrongfully withheld, plus costs and reasonable attorneys' fees. (Under the Equipment Hazards Act, the penalty is double rather than triple the amount of the security deposit.) To these treble damages, after the one-month time period for returning the deposit expires, the tenant must send the landlord written notice of the intent to bring a lawsuit to recover the treble damages. The tenant must then wait seven days.
If the landlord fails to return the deposit within the seven-day period, the landlord's keeping of the security deposit is considered willful and the tenant can sue for treble damages. If the landlord returns the full amount of the security deposit within that seven-day period, the landlord has no liability for treble damages. Remember, at this point the landlord must return all of the deposit and cannot keep any of it for any reason. Once the landlord fails to give a written explanation within the one-month period, the landlord's right to keep any of the deposit is lost.
Even if the landlord gives the required explanation within the one-month time period, the tenant may challenge the amounts retained and under some circumstances may recover treble damages. The landlord may still be liable for three times the amount wrongfully withheld if the landlord did not act in good faith in keeping all or a portion of the deposit. The landlord has the burden of proving that s/he acted in good faith. The landlord does not necessarily act in bad faith simply by keeping more of the security deposit than is ultimately found to be owing. However, the amount of the discrepancy between the amount retained and amount actually owed is a factor to determining the faith of the landlord.
The laws regarding security deposits may not be waived. Any oral or written provision attempting to waive any part of the security deposit laws is against the public policy and void. For example, a common attempt to make a tenant waive the security deposit law is to place a restrictive endorsement on the back of a check from the landlord returning a portion of the security deposit.
The restriction might state that by cashing the check the tenant relieves the landlord from any further responsibility for the withheld portion of the security deposit. This type of restriction is not valid. A tenant can cash the returned security deposit check and not be bound by the restrictive statement on the back of the check.
A tenant must bring an action for treble damages within one year from the time that the return of the security deposit was due. After that one-year period passes, the tenant cannot sue for triple the amount of the deposit. The tenant has six years from the time that the security deposit should have been returned to bring an action for the recovery of the actual amount of the deposit.
When the landlord transfers the ownership of the unit by sale, death or otherwise, the landlord must transfer the security deposit to the landlord's successor and notify the tenant by mail of the transfer with the new landlord's name and address or return the security deposit less any lawful deduction to the tenant. If the landlord does either of these, the landlord no longer has any liability to the tenant for the return of the security deposit and the tenant can look only to the new landlord for a return of the deposit.