Your Guide to Security Deposit Laws in Colorado

This post was last updated on 1/10/2025.

Navigating security deposit laws can be challenging for property managers and residents alike. That’s why we’ve assembled this guide to the key rules and regulations governing security deposits in Colorado.

In this blog, we’ll cover:

• The basics of security deposit laws in Colorado, including what they’re used for and how they’re handled.
• Common questions about security deposits, such as what constitutes normal wear and tear and how long before deposits must be returned.
• Best practices for creating clear communication around security deposits, including how to write refund letters.

A note on language: Here at Second Nature, we prefer to use the terms "resident" and “residency” rather than “tenant” and “tenancy,” in order to emphasize the relationship element of property management work. However, there may be instances where terms such as "tenant" are used for legal purposes within documents or communications related to security deposit laws. In these cases, please understand that our intent remains the same—to provide clear, accurate, and meaningful information to all people involved in the business relationship.

Disclaimer: This is not legal advice. Any information contained in this blog is provided for informational purposes only and should not be construed as legal advice on any matter. This is especially true given that laws change on a regular basis. You should review specific security deposit laws for your state in detail to make sure you have the most up-to-date information available, and consult with your local counsel for applicability to your property.

Why are security deposit laws in Colorado important?

If you’re fortunate, you’ll never actually need to touch your security deposits beyond some minor damage here and there. But much like car insurance or a fire extinguisher, you’ll be really glad you have it when you need it. Horror stories of resident damage are just a quick Google search away, and you don’t want to become one of them.

Imagine you have a house that you rent to Kennedy and Heidi, two best friends who are fresh out of college. Not content with neutral wall colors, and feeling inspired by some DIY TikToks, they decide to repaint their living room. Three gallons of paint and six months later, their lease is up and you enter the property to do routine turnover maintenance. Now you have to bring in a painter to paint over their trendy artwork.

Luckily, that expense may come out of their security deposit, so you aren’t on the hook for the expenses.

Overview of security deposit laws in Colorado

Security deposit regulations in Colorado are designed to clarify the rights and responsibilities of property managers and residents. 

Below, we break down the key aspects of these regulations and statutes:

Purpose of security deposit

The purpose of a security deposit is to provide landlords/property managers with financial protection in scenarios such as unpaid rent, damage beyond normal wear and tear, or costs incurred due to eviction. It also encourages residents to maintain the property and adhere to the lease terms. 

At the end of a lease, residents who meet their obligations typically receive their deposit back, minus any legally allowable deductions.

Security deposit limit

In Colorado, the current statute governing security deposit limits is CO Revised Statutes § 38-12-102.5. Effective August 7, 2023, this law stipulates that property managers cannot require a security deposit exceeding the equivalent of two months' rent. Please be aware that laws are always subject to change.

Storing a tenant’s security deposit

Colorado law does not specify requirements regarding the storage of resident security deposits. Specifically, there is no state statute mandating that security deposits be held in a particular type of account or location.

Inspection of rental property

A final walkthrough upon moveout allows property managers to assess property conditions and identify issues such as damages beyond normal wear and tear. The repair costs for these types of damages may be deducted from the security deposit. Note that property managers are obligated to maintain rental units in a habitable condition, ensuring they are safe and livable for residents. This obligation is outlined in the CO Revised Statutes § 38-12-503, known as "Warranty of Habitability". 

Written notice of security deposit

Colorado landlords and property managers are required to provide residents with a written statement detailing any deductions from the security deposit, within 30 days unless the lease allows for additional time, up to a maximum of 60 days. 

This requirement as specified in CO Revised Statutes § 38-12-103(1), mandates that property managers must furnish a written statement listing the exact reasons for the retention of the security deposit. This statement must accompany the payment of any remaining deposit amount and be sent to the renter’s last known address.

Deductions

CO Revised Statutes § 38-12-103 permits property managers to retain portions of a security deposit for specific reasons, including:

• Unpaid rent
• Abandonment of the premises
• Nonpayment of utility bills/charges
• Repair work
• Cleaning contracted for by the resident

It's important to note that property managers cannot retain any part of the security deposit to cover normal wear and tear. 

Wear and tear is generally considered to be signs of use, like small scuffs on flooring, carpet wear, and minor scrapes to walls or baseboards. It does not typically include more significant damage like broken windows or fixtures, holes in walls, or stains on carpet or countertops.

Nonrefundable deposits

Nonrefundable deposits are prohibited in Colorado and cannot legally be retained if the resident has fulfilled all financial obligations and left the property in good condition.

Returning a security deposit to the tenant

Property managers are obligated to return the security deposit within the timeframe stipulated by law, which by default is one month after the lease's termination or the resident’s surrender of the premises, unless the lease agreement specifies a longer period, not exceeding 60 days.

Selling the property

In Colorado, when a rental property changes ownership, the handling of security deposits is governed by CO Revised Statutes § 38-12-103(4). This statute outlines the responsibilities of the person holding the security deposit upon cessation of their interest in the property, whether by sale, assignment, death, appointment of a receiver, or otherwise. The individual in possession of the security deposit must, within a reasonable time:

• Transfer the deposit: Transfer the security deposit, or any remainder after lawful deductions, to the property manager's successor in interest and notify the resident by mail of such transfer and the transferee's name and address; or
• Return the deposit: Return the security deposit, or any remainder after lawful deductions, directly to the resident.

Upon compliance with these requirements, the original holder of the security deposit is relieved of further liability regarding the deposit. The new owner or successor in interest then assumes all rights and obligations concerning the security deposit.

Failure to comply with Colorado’s security deposit laws

In Colorado, CO Revised Statutes § 38-12-103(3)(a) addresses the consequences for property managers who fail to comply with security deposit regulations. If a property manager willfully retains a resident's security deposit in violation of the statute, they may be liable for treble (three times) the amount wrongfully withheld, in addition to reasonable attorney fees and court costs. However, before initiating legal proceedings, the resident must provide the property manager with notice of their intention to file a lawsuit at least seven days before filing the action. 

Learn more:

• Security Deposit Alternatives for Property Managers and Residents
• What is Security Deposit Insurance? Pros and Cons

Additional FAQs about Colorado security deposit laws

Are deposits refundable in Colorado?

Yes. Deposits must be fully refunded minus any valid deductions.

What is considered normal wear and tear?

Wear and tear includes minor scuff marks on flooring, worn carpet, general wear on appliance handles, and the like. Damage, like large stains/holes or broken fixtures, may  not be included.

Do property managers need to provide receipts for deductions?

Yes. Landlords must furnish a written statement itemizing deductions, accompanied by receipts, if applicable.

How long does a property manager have to return the deposit?

Under Colorado law, landlords must return the security deposit to the resident within one month after the termination of the lease or the resident’s surrender of the premises, however, this timeframe can be extended to 60 days after the termination or the lease or resident’s surrender of the premises if specified as such in the executed lease.

What happens if the deposit is not returned within 30 days?

Property managers failing to return the deposit or an itemized list of deductions within the required period can face legal consequences and additional costs, such as triple the amount of the security deposit wrongfully withheld, attorney fees, and court costs.

Best practices for property managers:

• What to Include in a Security Deposit Letter
• How to Write a Security Deposit Letter - Templates for Full Refund, Partial Refund, No Refund, and Request for Payment
• How to Send a Security Deposit Letter
• Mistakes to Avoid When Writing a Security Deposit Return Letter 

Final thoughts

Navigating Colorado's security deposit laws requires careful attention to detail. At Second Nature, we’re here to support you in security deposit law compliance, with the philosophy that ensuring compliance not only protects your business but also fosters better resident relationships. 

The fact is, we’ve built our entire company on the idea that resident experience can change the game in property management. Our Resident Benefits Package is an all-in-one resource for property management companies that saves money for you and your residents and delivers the best in convenience and resident experience. 

Learn more about the Resident Benefits Package.

Legal Disclaimer: The information contained in this blog is provided for informational purposes only and shall not be construed as legal advice. The laws referenced in this blog are subject to change. Please consult with your local counsel for applicability to your property.