How Should Property Managers Manage Security Deposits in Denver?

Security Deposit Management

Owners entrust their property managers with more than just their physical assets. Property managers handle rental income, reserve funds, security deposits, and write checks on the owner’s behalf. Part of the property manager’s job is to shield owners from legal liability by acting according to all laws. Colorado state law does not limit how much landlords may charge for a security deposit. However, it 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 longer period because this allows enough time to hire contractors to fix any tenant damage to prepare the residence for the next tenant.

A security deposit is a pre-set amount of money that a tenant pays to the landlord at the start of the lease. They are kept in escrow in a ledger named for the renter. Security deposits motivate tenant care and recoup losses due to tenant damage. If deposits are not handled correctly, the property manager/owner loses their right to keep any portion of the money or, worse, ends up owing the tenant treble times the security deposit amount. Owners count on DenCO Property Management & Sales to professionally manage the security deposit and move in/move out inspection process to decrease legal risks.

What Is a Rental Agreement in Colorado?

The rental agreement is a formal contract that details the responsibilities and rights of the landlord and tenant. Landlords must provide a habitable property that follows both state and local laws. If the rental damage exceeds normal wear and tear, landlords deduct all repair costs from the security deposit. In Colorado, the typical security deposit equals the value of one month’s rent, but more if pets are involved.

Tenants exercise their right to habitable housing by paying rent. Their monthly payment gives them the right to housing that includes working utilities, getting repairs in a reasonable amount of time, and collecting their security deposit once they leave the premises. To maintain a good relationship with their property manager, they agree to:

• Pay rent on time.
• Keep the property free of trash or waste.
• Keep the property safe and in good condition.
• Mow the lawn and shovel walks after snowstorms.
• Provide minor repairs.

If the tenant decides to terminate the lease, the landlord must return the security deposit within 30 or 60 days. If there is a hazardous condition in the unit, such as a gas leak or a flooded basement, landlords must return the security deposit in three days. A landlord may withhold part of a security deposit for:

• Damages exceeding normal wear and tear and in need of repairs
• Paying any utility bills
• Paying for professional cleaning
• Unpaid rent

DenCO Property Management understands a gray area exists between normal wear and tear and damage. Each situation needs to be evaluated separately and thoroughly documented. Dragging a dining room table across a wall is different from a sneaker scuff on a baseboard. The key is documentation and asking, “What would a judge decide?” Knowing what to do relies on experience and understanding of the existing legal housing environment.

Why Are Move In/Move Out Inspections Important?

Both landlords and tenants benefit from move-in and move-out inspections. These inspections assist landlords in tracking the property’s condition from the beginning and to the end of the lease period. Tenants benefit by identifying items that need repair by noting any issue in the move-in inspection checklist. For instance, if the landlord notices a hole next to the refrigerator in the kitchen wall during the move-out inspection, they will assume the tenant is responsible. But the move-in checklist shows that the tenant noted the hole. Upon review, the property manager takes it off, satisfying both parties. 

The move in inspection is done before the tenant takes possession, allowing the tenant to identify damages and disclose them to the landlord. Pictures and videos are essential and kept on file to be used, if necessary, later in a disagreement. DenCO Property Management recommends the following before a property is rented:

We note every damaged item with photographs and put the report in the tenant’s file. The comparison between the move in and move out inspection checklist identifies any tenant damage when they move out. Proper inspection documentation helps a property manager justify the deduction of monies from the security deposit for repairs and cleaning the property. Any damage or uncleanliness is well documented and would stand as evidence if the tenant decides to make a court claim to recover their deposit.

What Legal Rights Do Tenants Have in Colorado?

Tenants can file a claim to recover their money in Colorado through the legal system. Even though Colorado is considered a landlord-friendly state, it is up to a judge, which increases risk. Small claims courts hear disputes regarding rent and security deposits that total a maximum of $7,500. Landlord-tenant agreements in Colorado have a three-year statute of limitations. The best course of action is to avoid small claims court by excellent communication with the tenant of their obligations as a renter and conducting professional and detailed move in/move out inspections.

Taking the tenant security deposit for granted is a big mistake. Where landlords get in trouble is not understanding what a security deposit does and does not cover. Property managers can keep all or a portion of the deposit for unpaid rent, damage to the property beyond normal wear and tear, any cleaning agreed to in the lease, and other violations with a financial cost. Generally, the deposit does not cover “wear and tear.” Normal wear and tear occur from intended property use, without carelessness, accident, or abuse by the tenant or their guests. An example of normal wear and tear is worn tracking in the carpet, but it does not include carpet stains. Be sure to keep all receipts and documentation of any repairs to prepare the rental for the next tenant. 

Typical Issues Considered as Damage:

• Torn, stained, or burned carpet.
• Scratched wood floors.
• Torn or missing curtains.
• Lost keys.
• Torn or missing window screens.
• Nail holes from hanging pictures.
• Hole(s) in the wall.

Normal Wear and Tear

• Slight wear In carpet.
• Faded curtains.
• Worn-out keys.
• Dirty windows and screens.
• Chipped paint.

DenCO Property Management makes security deposits simple by carefully documenting everything along the way. We help owners avoid pitfalls by providing professional move in/move out inspections that are well documented and backed up by video and pictures. We also make sure tenants are paid any monies within the timeframe defined in the rental agreement.

The best course of action Is to: Always be fair and ask yourself, “what would a judge think?”