Understanding Residential Security Deposits in Colorado - What Landlords Must Know

A critical area of residential leasing is the treatment of security deposits. The relevant statute: Colorado Revised Statutes § 38‑12‑102 and § 38-12-103, lays out landlord obligations and tenant rights.

What Counts as a Security Deposit

Under C.R.S. § 38-12-102(2), a “security deposit” is defined as any deposit of money whose primary function is to secure the rental agreement for residential property. If a landlord holds money from a tenant for that purpose, the security deposit statute applies.

Return of the Deposit — Timeframes & Requirements

Once the lease ends or the tenant returns the property, the landlord must do one of two things within 30 days:

1. Return the full deposit to the tenant; or

2. Send the tenant a written statement specifying the exact reasons and accounting for keeping part or all of the deposit.

3. If there is a written lease that expressly extends that period, a landlord may have up to 60 days to perform this obligation.

   
   

Practical tip for landlords: Ensure the lease clearly specifies whether, and under what conditions, the timeframe is extended (up to 60 days). Keep a record of the tenant’s forwarding address or last known address. A landlord is obligated to mail the refund or statement to the tenant’s last known address. The landlord cannot hold the tenant responsible for giving a forwarding address if the tenant has already done so.

What Can Be Withheld — and What Cannot

A landlord may not deduct from the deposit for “normal wear and tear” — defined under C.R.S. § 38-12-102(1) as the minor and reasonable deterioration that results from the intended use of the property.

Permissible deductions include: unpaid rent, late fees (if specified in the lease), utilities the tenant was contractually obligated to pay, repair for damage caused by the tenant (beyond normal wear and tear), and other contractual fees (such as court costs or attorney fees, where the lease allows).

Failure to Provide the Written Statement or Return the Deposit

If the landlord fails to provide the written statement within the statutory timeframe (or fails to return the deposit altogether), the landlord forfeits the right to retain any of the deposit. Further, if the landlord willfully and wrongfully keeps part or all of the deposit, the statute permits the tenant to bring a claim for three times the amount of the deposit, plus attorney fees and costs.

Tenant’s Right to Sue — Notice Requirement

Before a tenant can bring an action to recover three times the deposit, they must give written notice to the landlord of their intent to sue, at least seven days before filing the lawsuit. Sending this letter via certified mail, return receipt requested, is best practice. At trial, the burden shifts to the landlord to prove that retaining the deposit (or part of it) was not wrongful.

Landlord Best Practices — Minimizing Risk

• Document condition at move-in and move-out: Encourage clients to photograph (or video) the property, including yard, fixtures, appliances, flooring, walls, and any pre-existing damage, at both move-in and move-out. This evidence is often critical if tenant damage (beyond normal wear and tear) is claimed.

• Lease language: Ensure the lease clearly defines what constitutes “normal wear and tear,” establishes permissible deductions, and states whether the deposit return timeframe is extended up to 60 days.

• Tenant address forwarding: Require the tenant to provide a forwarding address in writing so the landlord is able to send the refund or written statement to the correct address.

• Promptly comply with the statute: Unless the landlord timely returns the deposit or provides the written statement, the landlord’s legal rights to deductions are jeopardized and potential liability (up to three times the deposit plus fees) arises.

• Certified notice awareness: If a tenant sends a “notice of intent to sue,” respond appropriately or risk heightened exposure.

• Clear accounting: When deductions are taken, prepare a written statement clearly itemizing each deduction and retain backup documentation (invoices, receipts, photographs, subcontractor records).

Disclaimer — This content is for general information only. The information contained herein is not legal advice for any specific matter, nor does it create an attorney-client relationship. Laws vary from one state to another. For legal advice, consult an attorney.