Security Deposits: Landlord and Tenant Obligations

Colorado’s Security Deposit Act (C.R.S. §38-12-101, et seq.) was adopted to provide relief to residential tenants wrongfully deprived of their security deposits. The statute was also designed to equalize the disparity in power between landlords and tenants in disputes over relatively small amounts of money. The statute does not apply to non-residential, commercial leases.

Landlords are entitled to deduct from a residential security deposit those amounts owing by the tenant for unpaid rent, utilities, repairs, and damages to the property. Landlords cannot retain any portion of the security deposit to cover normal wear and tear. If there is actual cause to keep all or some of a security deposit, a landlord must provide the tenant a written statement listing the exact reasons for the retention of any portion of the security deposit. That statement, together with any unused portion of the security deposit, must be delivered to the tenant within one month after termination of the lease or surrender and acceptance of the residential premises, whichever occurs last. A specific lease provision can extend this period up to 60 days but not longer.  The landlord is deemed to be in compliance by timely mailing the statement and any remaining portion of the security deposit to the last known address of the tenant. Thus, tenants are advised to provide landlords with a forwarding address — in writing — before moving out.

If a landlord fails to timely provide the written statement outlining the exact reasons for retaining all or some of the security deposit, the landlord statutorily forfeits the right to retain any portion of the deposit and the tenant is entitled to the return of the entire deposit. The tenant can then file a lawsuit for three times the amount of the security deposit withheld together with the tenant’s costs and attorney fees.  First, however, the tenant is required to write a letter to the landlord advising the landlord of the tenant’s intent to file the lawsuit a minimum of seven days in advance of actually filing the lawsuit. If the landlord does not then return the entire security deposit during this seven day period, the landlord will subject to liability for treble damages, costs and attorneys’ fees.

Landlords should be aware of possible exposure even in situations where a written statement is timely delivered. If a tenant disputes the propriety of a landlord’s retention of any portion of a security deposit, that tenant can still provide the written notice of intent to sue.  In such a lawsuit, even if the landlord complied with the written statement requirement, the landlord still bears the burden of proving that the retention was not wrongful. If the landlord is not successful in meeting that burden, it can still be liable for treble damages and attorney fee penalties.

Thus, landlords should not be too quick to keep security deposits. When they do so, the statute must be followed and landlords should maintain substantial documentation. Landlords also need to be aware that the attorney fee provision in the statute is a one-way street. Thus, even if a landlord prevails at a trial, it could end up spending more on attorney fees than the amount of the security deposit in dispute. Thus, Landlords are advised to immediately consult with an attorney upon receipt of any demand letter from a tenant whose security deposit (or any portion thereof) has been retained. Tenants are also advised to consult with an attorney to discuss their rights and obligations under Colorado law prior to making a written demand for return of a security deposit.

The attorneys at Karsh Gabler Call PC are experienced in representing both landlords and tenants with regard to residential and commercial lease disputes and a wide range of other legal issues.  Please feel free to contact us at (303) 759-9669.