Page 6
— Property Management Quarterly — April 2016
P
roperty managers run into
various problems when deal-
ing with returning a tenant’s
security deposit. However,
failure to properly handle the
security deposit can result in liability
of “treble [three times] the amount
of the portion of the security deposit
… together with reasonable attorney
fees and court costs,” according to
Colorado Revised Statues § 38-12-
103(3)(a).
Colorado case law is fraught with
examples of landlords paying dam-
ages in excess of the total security
deposit for mistakes in handling the
security deposit even when the mis-
take was made out of ignorance of
the law.
While the deposit is intended to
offset any damages caused by the
tenant, state law requires specific
procedures be followed once a tenant
has moved out. Despite their articu-
lation, the procedures are not as easy
to follow as the statute may imply.
There are several decisions that
a property manager must correctly
decide in order to comply with the
law, including when the deposit
needs to be returned, when that
timeline for accounting or return-
ing begins, where to send the secu-
rity deposit if the former tenant did
not leave a forwarding address, and
under what conditions can all or a
portion of the deposit be retained to
offset damages by the tenant.
The Colorado Security Deposit Act
is intended to protect tenants against
wrongfully withheld security deposits
and provides stiff penalties against
landlords and property managers
who fail to comply. Therefore, a prop-
erty manager must
correctly resolve
any security deposit
question in a timely
manner to avoid
liability. The most
common issues are
addressed below.
Return Time Period
The amount of
time a property
manager has to
return a secu-
rity deposit is first
dependent on the
lease agreement. If the lease provides
a time period greater than 30 days
for returning the security deposit,
the agreement will determine the
time period. However, this time
period may not exceed 60 days. If the
lease does not state the time period
for returning the security deposit,
Colorado law requires it be returned
within 30 days.
This time period will begin at the
later of two events – termination
of the lease (naturally or by mutual
termination) or when the tenant has
surrendered and the landlord accepts
possession of the property. This pro-
vides protection for property man-
agers when a tenant leaves early or
stays beyond the term of the lease.
In the first scenario, the time period
would not begin until the lease is
terminated, by the natural expiration
of the term or by mutual agreement
to terminate the agreement. The
problem area is determining the start
of this time period when the ten-
ant abandons the property or when
the landlord accepts possession but
does not agree to
termination of the
lease. A tenant
does not terminate
a lease agreement
simply by abandon-
ing or returning
possession of the
premises, so the
termination date
in this often is the
date on which a
new lease for the
property begins or
when the old lease
naturally times out,
if the property is unable to be relet
for one reason or another. Though
sometimes confusing, this flexibility
ensures the property manager has
the full amount of time agreed on to
return the security deposit.
No Forwarding Address
Not every instance will go as
smoothly as the tenant moving out
on time and providing the property
manager with a forwarding address.
When a tenant simply disappears
or abandons the property or returns
the keys in the night, complying with
the Colorado Security Deposit Act
becomes more difficult. Luckily, if
such a situation presents itself, the
property manager can comply with
the applicable laws by delivering the
security deposit to the last known
address of the tenant. The last known
address, if no address is delivered, is
the address of the leased premises.
It also is important for property
managers to understand that they
will have the burden of proof to show
compliance with the statute if a for-
mer tenant brings suit against them
in a claim that he did not receive a
proper accounting or a return of his
security deposit. There are several
options available to property manag-
ers to document that they have com-
plied, including witnesses, business
records or a logbook, and certified
mail.
Damages
Colorado law does not allow land-
lords to retain the security deposit
to pay for repairs that are required
as result of normal wear and tear.
Damages beyond normal wear and
tear include those that result from
the tenant’s negligence, carelessness,
accident or abuse of the property.
According to Colorado Statute 38-12-
103, when damages exist, the proper-
ty manager “shall provide the tenant
with a written statement listing the
exact reasons for the retention of any
portion of the security deposit. When
the statement is delivered, it shall be
accompanied by payment of the dif-
ference between any sum deposited
and the amount retained.”
The delivery of this statement and
payment is required to be made
within the same time period for
returning the security deposit. There-
fore, the property manager must do
one of three things within that peri-
od: Return the full amount; provide a
written statement detailing the exac-
tion reasons for a partial retention
and tender payment of the remaining
deposit; or provide a written state-
ment detailing the exact reasons for
retaining the entire deposit.
Donald
“Corky” Eby
Attorney, Robinson
and Henry PC,
Castle Rock
Levi Stubbs
Law clerk,
Robinson and
Henry PC,
Castle Rock
