One of the biggest mistakes people new to the rental industry make is how they handle security deposits. Leaseholders’ security deposit rights are strong in Colorado. According to state law, these deposits belong to tenants. The improper management of security deposits can cause landlords to forfeit their rights to these monies, and tenants who disagree with their security deposit refunds can sue. Colorado courts can award three times the amount of the security deposit wrongfully withheld, plus attorneys’ fees and costs. The financial and legal risks of new rental owners or managers not understanding or skirting security deposit laws are steep.
Just ask Four Star Realty and Property Management. According to an article in the Colorado Sun, the property management company has agreed to pay $1 million over the next year to settle claims that it illegally charged tenants for normal wear and tear, changing locks, and other charges. Four Star manages over 4000 rentals near colleges located in Denver, Boulder, Fort Collins, and Greeley. The Colorado Attorney General’s office handled the case.
Below are common mistakes made by landlords in dealing with security deposits.
Not Understanding the Law – Colorado statute defines a security deposit as a sum of money used to secure the performance of a lease. When tenants move out, landlords must provide an exact accounting of any reductions in their tenants’ security deposits.
Improper Use – Landlords can make deductions to security deposit refunds for the following reasons:
- Repair property damage caused by tenants.
- Cover unpaid rent and unpaid fees or expenses.
- Cleaning the property after tenants vacate.
- Landscaping back to original condition.
Using these monies for other purposes is considered misuse—any other deductions besides those listed above must be agreed to in writing.
Overcharging – Tenants can sue if they believe they are being charged for regular use. Normal wear and tear occur from property use without carelessness, accident, or abuse by the tenant or guests. Below are examples of normal wear and tear.
- Slight wear on the carpet.
- Faded curtains.
- Worn-out keys.
- Dirty windows and screens.
- Chipped paint to an extent.
Bi-annual inspections during the tenancy and detailed move-in/move-out inspections help define normal wear and tear and document any property damage. Repairing a property can be deducted from the tenant’s security deposit.
It Is Not A Security Deposit – A rookie mistake some landlords make is calling security deposits another name, wrongly believing this makes them immune to Colorado law. If the purpose of the money paid guarantees that tenants meet their lease obligations, then it is a security deposit.
Non-refundable Lease Clause – Lease language that makes the security deposits non-refundable or automatically forfeited is not enforceable in court. The same goes for leases that try to limit attorneys’ fees in security deposit litigation. Judges typically frown on overreaching landlords trying to alter tenant security deposit rights.
Lack of Documents – Owners and property managers who do not have a formal lease are setting themselves up for trouble if there is a tenant dispute. A lease agreement sets the basis of the landlord and leaseholder relationship and should be as specific as possible to avoid misunderstandings. The language should clearly define when and how landlords can deduct money from their tenants’ security deposits. Documentation of damage and exact accounting of deductions is crucial. In court, the person with the best documentation usually wins.
Not Screening – Proper screening helps property managers know who they are renting to. Poorly screened tenants typically have rent and security deposit issues, damage rentals, and violate the terms of their lease. A formal screening process is a must to manage rental properties successfully.
Hiring Property Management Company
Hiring an experienced property management company like DenCO Property Management Company (DenCO) helps owners avoid many of the above mentioned mistakes. We are a locally owned and operated property management company that has been doing business in Denver since 1999. Our residential rental agreement and all our addenda come from a 20-year effort reviewed periodically by attorneys to ensure it complies with current Colorado real estate rental laws. Click here to see the benefits of a strong lease.
Part of the property manager’s job is to manage rental properties in compliance with state and local regulations. Colorado state law does dictate that the deposit must be returned within one month after a tenant moves unless the lease specifies an extended period not to exceed 60 days. We recommend the extended period because this allows us time to hire contractors to fix any tenant damage to prepare the residence for the next tenant. We thoroughly document any damage before deducting for repairs from tenants’ security deposits.
DenCO is here for owners when they decide to put their investments under expert management. DenCO manages over 150 homes, duplexes, and apartment rentals in the DU, Washington Park, and other Denver neighborhoods and has been in business since 1990. Call us at 303-722-9688 or click here to complete a Contact Us form.
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