Have you ever had a tenant who caused significant property damage or refused to pay rent? These unfortunate situations are why security deposits exist.
Security deposits can offset the cost of any potential damage to a property, unpaid rent or bills, or a tenant breaking their lease. But just as a security deposit protects landlords from these situations, there are laws that protect tenants Keep reading to learn more about security deposit laws in Denver.
Collecting a Security Deposit
There is no limit to the security deposit amount that a landlord may collect. However, if you charge too much you may scare off potential renters. A good rule of thumb is to charge one month's rent for a security deposit.
Landlords may ask tenants for an extra pet deposit. If a tenant uses a service animal, you are not allowed to charge a pet deposit.
When a tenant pays their security deposit, you do not need to provide a receipt. There are also no laws on how a security deposit must be held. This means you don't need to keep it in a certain type of account while the lease is active.
Returning a Security Deposit
Colorado law states that a security deposit must be returned within 30 days of the end of the lease unless or within a longer period stated in the lease. This period can't exceed 60 days. If the security deposit isn't returned on time, you may have to pay up to three times of the amount that was withheld.
If you are withholding any part of the security deposit, you must send a written statement detailing all the deductions. If this isn't sent within the agreed-upon timeframe, you lose all rights to keep the security deposit.
Landlords may withhold some or all of the security deposit amount if any damage was done to the property. However, the law prohibits you from keeping the security deposit for normal wear and tear. Some examples of this include faded paint, discolored grout, or loose hinges.
Other reasons you might keep a tenant's security deposit include unpaid rent, unpaid utility bills, or breaking the lease. You must justify the reason for withholding any part of the security deposit. The burden of proof falls on landlords if tenants sue because their security deposit is wrongfully withheld.
If you sell your property while a lease is active, there are a few things you can do about the security deposit. You must either transfer the security deposit to the new owner and notify the tenant or you must return the security deposit. In either case, you can make deductions to the security deposit.
Work with Property Management to Avoid Security Deposit Problems
You must take the law into consideration when deciding whether to make deductions from a tenant's security deposit. Anything you deduct needs to be justified, otherwise you may find yourself in court.
If you need guidance in this area, consider working with Investor's Realty. Our team of real estate professionals can help you through the process of collecting and returning security deposits.
Get in touch today to let us know how we can help!