CREJ - Property Management Quarterly - April 2016
Property managers run into various problems when dealing 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 damages in excess of the total security deposit for mistakes in handling the security deposit even when the mistake 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 articulation, 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 returning begins, where to send the security 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 property 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 security 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 provides protection for property managers 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 tenant 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 abandoning 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 former 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 managers to document that they have complied, including witnesses, business records or a logbook, and certified mail. Damages Colorado law does not allow landlords 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 property 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 difference 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. Therefore, the property manager must do one of three things within that period: Return the full amount; provide a written statement detailing the exaction reasons for a partial retention and tender payment of the remaining deposit; or provide a written statement detailing the exact reasons for retaining the entire deposit. Consequences When a property manager or landlord does not comply with the Colorado Security Deposit Act, he is wrongfully withholding the security deposit and forfeits any rights to retain it. State law then requires a tenant to provide at least seven days’ notice of his intention to file suit, and if the wrongfully withheld security deposit is not returned, the property manager may be liable for treble, or three times, damages and attorney fees. Bottom line: It can be confusing but property managers and landlords must comply with the Colorado Security Deposit Act to prevent liability for improperly retaining a former tenant’s security deposit.