To ensure that you comply with Colorado security deposit laws, it is important to know what the legislature has to say.
In Colorado, CO, Rev. Stat. § 38-12-103 principally governs the collecting and reimbursement of security deposits. These regulations set forth a set of guidelines to which property managers and landlords in Colorado must adhere to ensure the safety of all parties involved.
This article will provide all the information you need to ensure that you are complying with state law when it comes to your tenant's security deposit.
The sum that Colorado landlords can request for a security deposit is unrestricted. However, keep in mind that the maximum is the equivalent of a single month's rent for a mobile home spot in a trailer park or two months' rent for a multi-wide mobile home.
Pet Deposit Laws
The Federal Fair Housing Act mandates that landlords give renters who use service dogs and animals for emotional support equitable access to and enjoyment of their residence.
Despite the fact that persons with disabilities who use guide dogs or other service animals are entitled to fair and equal housing facilities, Colorado rental laws do not allow landlords to request an extra pet deposit to cover any damages that their service animal may cause.
That being said, the tenant is responsible for covering any costs incurred as a result of the service animal's destruction of the property.
If a non-service animal and its owner are granted occupancy, the landlord is allowed to request an additional pet deposit.
A comprehensive list of what the landlord can take out of the resident's security deposit is not provided under Colorado law. Because of this, a landlord might be permitted to spend the deposit for nearly any reasonable costs associated with the rental or the property.
However, the legislation makes it clear that the landlord is permitted to use or keep the security deposit in the following situations:
- Unpaid utility bills
- Repairs to the property are necessary
- Cleaning costs have been incurred
- Unpaid rent
- Desertion of the rental property
What Can't Be Deducted from a Security Deposit?
Landlords are expressly forbidden by Colorado landlord-tenant laws from using security deposits for normal wear and tear.
What Counts As Normal Wear and Tear in Colorado?
This pertains to the degradation of the rental unit that naturally occurs when it is utilized as intended. Still, only if the damage arises without neglect, carelessness, mishap, abuse, or misuse by the renter or the guests the tenant invites over.
Normal wear and tear refer to the problems that arise naturally as a result of daily life, such as age and projected deterioration. Gently used carpets, dangling doorknobs, faded wall paint, discolored bathroom fixtures, mildly scratched glass, and grimy grouting are a few examples.
The term "damage" is used to describe the damage that occurs as a result of misuse or carelessness on the part of the renter during the term stipulated in the lease agreement. It lessens the value of the property, as well as its usefulness or capacity for basic operations. Pet destruction, cracked tiles, and damaged fixtures are a few examples.
When it comes to returning a security deposit, it is important to consider certain things, like the time frame and the manner in which the security deposit must be returned.
How to Return the Tenant's Security Deposit
The landlord must deliver and mail a documented justification for holding a percentage of the security deposit in accordance with Colorado's security deposit law. This written statement must be sent to the renter along with payment for the remaining amount. Keep in mind that it is the renter's responsibility to give the landlord a forwarding address.
When Must the Security Deposit Be Returned?
According to Colorado security deposit laws, there are three different time frames given for returning a tenant's security deposit. They are as follows:
- Unless the lease agreement specifies a longer duration, the security deposit must be returned within a month of the lease termination date or when the tenant vacates the property.
- Within the lease's allotted time frame, which cannot be more than 60 days
- Suppose the termination of the lease is a result of a landlord's failure to fix something that has been discovered to be a danger to occupants after being given adequate notice. In that case, it must happen within 72 hours after the tenant's departure from the property.
A Security Deposit Wrongfully Withheld
Withholding a security deposit in Colorado without a legitimate reason could land you in trouble. The consequences will depend on the situation.
Colorado landlords lose all rights to keep or utilize the security deposit, in whole or partly, if the written account of the precise deductions is not produced within the allotted time frame.
The landlord may indeed be required to pay a maximum of three times the security deposit amount retained as well as any additional attorneys' fees and court costs if the security deposit is not given back to the tenant on time.
Alternatively, the renter may be entitled to double the security deposit amount and reasonable attorney expenses if the rental contract was terminated because the landlord neglected to fix potentially hazardous faults and did not refund the security deposit within the allotted time.
Here are a few other laws you need to know about security deposits:
- In Colorado, a security deposit receipt is not necessary from the landlord.
- Colorado's security deposit law does not require landlords to pay interest on security deposits or to retain them in an interest-bearing account.
If a New Owner Takes Over the Lease
Landlords are only released from their obligations relating to security deposits if the rented home is sold during the duration of the lease or if the landlord:
- Informs the renter of the handover of the security deposit to a new owner
- Refunds the tenant's security deposit
In either scenario, the landlord is free to withhold the appropriate amounts for repairs and cleaning costs before releasing the security deposit to the tenant. The new owner of the property will acquire the landlord's obligation to return the tenant's security deposit when the lease expires if the original landlord gives the security deposit to them.
Now that you know what the law has to say about security deposits, you're well on your way to running a successful rental business. By adhering to security deposit laws in Colorado, you can ensure that you will not have to deal with a legal battle or incur reasonable attorney's fees or court costs.
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Can a tenant's security deposit be used as their final month's rent?
Yes. A security deposit, or a portion thereof, may be used as the final month's rent, provided you agree to it, and it is stipulated in the lease agreement.
Do I have to store a tenant's security deposit in an interest-bearing account?
No, Colorado security deposit laws do not require landlords in the state to store security deposits in interest-bearing accounts.
What can a Colorado landlord deduct from the security deposit?
There are no limits to what a landlord may deduct. Here are some of the typical expenses that are typically deductible:
- Unpaid rent
- Abandonment of the premises
- Damage caused by negligence
Keep in mind that landlords may not deduct from the security deposit for normal wear and tear, such as grimy tiles, scratched windows, and more.
Is a security deposit considered taxable income upon receipt in Colorado?
When the landlord collects deposits, they are not immediately regarded as revenue. This is because they could still be subject to reimbursement by the landlord. If the tenant forfeits the deposit, only then is it considered taxable revenue.
Are security deposits taxable after the tenant moves out of the rental property?
Yes. The security deposit, minus charges for unpaid rent and repairs, will count as taxable income.