As a landlord in Colorado, you should require a security deposit from your tenants as a safety net. Sometimes, tenants bail out when it comes to rent payment or cause damage to your property, so requiring a security deposit will help cover the cost of these issues.
Security deposits will provide you with many benefits as a Colorado landlord.
Uses for a Security Deposit
1. Payment for a tenant’s unpaid utility bills.
It’s difficult to chase after tenants who have already left your rental property. Some may leave with outstanding debt in the form of unpaid utility bills. A security deposit will act as a cushion to this financial burden for you.
2. Coverage for cleaning fees.
When tenants leave your rental property in less-than-pristine condition, it’s up to you to put the unit back in its proper condition again. A security deposit will help cover any cleaning costs that should have been your tenant’s responsibility.
3. Coverage for loss in rental payments.
Sometimes you may face unpredictable events where your tenants cannot meet their monthly rent obligations. You have the right to deduct the rental payment from their security deposit in this case.
4. Buffer for lost rental income.
You may have a tenant who leaves your rental with little or no notice. In this case, a security deposit can cover for lost rental income, reducing the financial blow.
5. Covering property damage repairs.
If you have negligent tenants who don’t report damages to you, the security deposit will help pay for the cost of replacements or repairs. It will not, however, cover the cost of normal wear-and-tear to the property.
Colorado Law on Security Deposits - An Overview.
1. Colorado Security Deposit Limit.
In the state of Colorado, there’s no limit when it comes to the amount you can charge for a security deposit. You should check with your local city or county laws, however, to ensure that they have not placed a cap on the amount you can charge.
It is important to note that there are special guidelines set out for mobile homes in a mobile home park. In this case, you are limited to an amount worth one month’s rent as a required security deposit. If it’s a multi-wide mobile home, you can charge up to two months’ rent as a security deposit.
2. Nonrefundable Fees.
The state of Colorado does not allow non-refundable fees. Security deposits are considered to be the tenant’s possession, so you are only holding them temporarily.
3. Storing a Tenant's Deposit in Colorado.
Colorado leaves security deposit storage at your discretion as a landlord. There are no state storage requirements. You can choose to keep the deposit in an interest-bearing or non-interest bearing account. You also have the choice of whether to place it in a financial institution or not.
4. Written Notice after Security Deposit Receipt.
Colorado does not require you to provide written notice of security deposit receipt to your tenants.
5. Reasons to Withhold a Tenant’s Security Deposit in Colorado.
Under Colorado state law, there’s no definitive list that constitutes what deductions you should make to the deposit. Therefore, you can make any reasonable deductions related to tenancy expenses.
For example, you can make deductions on the security deposit because of unpaid rent. You can also deduct based on unpaid utility bills, repair costs, and cleaning fees. However, the law does not permit you to make deductions from the security deposit due to normal wear-and-tear to the property.
6. A Walk-Through Inspection.
Under Colorado Law, there’s no requirement for you to conduct a walk-through inspection with the tenant upon move-out.
7. Security Deposit Refund in Colorado.
Colorado law strictly dictates that you must return the security deposit to your tenant within 30 days from lease termination or when they leave the premises. If the lease provides a longer refund period, you can return it beyond the 30 days stipulated. This period should still not exceed 60 days.
In the case that the property is in a hazardous condition, and it has not been repaired despite receiving sufficient notice from your tenant, you only have 72 hours to return the security deposit to your tenant.
You must provide your tenant with a written statement that specifically lists each deduction. This applies when you only return a partial amount of the security deposit. If there’s no accompanying statement, you forfeit your claim to the amount of the security deposit you were trying to withhold.
It’s important for you to refund your tenant’s security deposit on time. Otherwise, you may pay a penalty up to three times the withheld amount plus additional court costs. You can send the security deposit and written statement by mail to the tenant’s last known address if they already left the property.
8. Change in Property Ownership
If you decide to sell your property, you have two options:
- Return the security deposit to your tenants.
- Transfer the security deposit to the new owner of the property.
The second option requires that you send a written notice to your tenants. This is known as a Notice of Change of Ownership or Management. After this is done, the new owner will take over liability for the security deposits that you transfered to them.
If you have specific questions, you should hire the services of a qualified Colorado attorney. Alternatively, you can seek help from a knowledgeable property management company, such as Blue Mountain Real Estate & Property Management.
Please note that this blog should not be used as a substitute for legal advice from a licensed attorney. Laws frequently change, and this post might need not be up-to-date at the time of your reading. Please contact us for any questions you have in regards to this content or any other aspect of your property management needs.