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What can landlords deduct from a tenant’s security deposit?

Landlords and tenants in Colorado often have complicated relationships. Landlords may worry about the damages a tenant can do to their property, while tenants worry about that ability of a landlord to infringe on their rights or affect their daily stability.

The law has to take a very careful, nuanced approach to issues between landlords and tenants. All the legal concerns of those renting real estate have to be balanced against the concerns of those who own rental real estate. Understanding this approach may make it easier for you to understand the purpose and uses of a security deposit.

A security deposit helps protect a landlord against damages caused to a rental unit, above and beyond reasonable wear and tear during the length of tenancy. The funds in a security deposit also help protect tenants against financial consequences of minor damage as they relocate to a new space.

Landlords can only withhold security deposit funds for specific reasons

Colorado rental law is clear about the limited applications for which the landlord can withhold security deposit funds. At the time of the initial rental contract, the landlord should deposit those security funds directly into a special escrow account for their tenant.

When the tenant vacates the rental property, the landlord will have to inspect the property and provide the tenants with written claims for damages to the property. The tenant can then respond to those claims in writing, typically with reference to an inventory checklist performed at the time that they took tenancy.

If the damage is new, the landlord will have the right to deduct reasonable costs for repairs from the security deposit. They can also deduct fees related to cleaning the space, if not left in acceptably clean condition.

Damages aren’t the only reason a landlord can withhold funds

Damages to a rental property are only one of several approved reasons for a landlord to withhold funds from a security deposit. A landlord can also retain some or all of a security deposit to recoup unpaid rent at the time that tenants vacate a property.

If a tenant has not paid their rent in full every month, part or all of the security deposit will go to pay the rent that is still owed. Many times, issues with utilities can impact the rights of the next tenant’s quiet enjoyment of the property. To avoid complications related to unpaid utility bills, Colorado law also permits landlords to retain security deposit funds in order to pay any unpaid utilities bills.

Generally speaking, except in rare circumstances, a landlord cannot retain any of the security deposit paid on a property for other reasons beyond damages, cleaning expenses, unpaid rent and unpaid utilities. When landlords and tenants both understand the purpose of security deposits and what a landlord may legally use those funds for, it reduces the likelihood of a conflict at the end of a lease.

Landlords who find themselves in a situation where they have to recoup property damage costs out of a security deposit should take steps to documents everything involved in the process. This will protect them from legal claims related to the security deposit funds in the future. Tenants hoping to bring claims against landlords related to security deposits should make sure that their claims are valid under Colorado law.