$1MM Settlement Against Property Management Company Impacts All Colorado Real Estate Investors
On January 9th, 2024, the Colorado Attorney General announced a $1 million settlement against a Colorado property management company. This is relevant to all real estate investors and landlords in Colorado and should serve as a reminder on the importance of handling tenants security deposits.
Attorney General Phil Weiser announced that under the settlement, Four Star Realty agreed to pay $1 million for illegal tenant billing. Read the full 17-page signed stipulation and judgement here.
Four Star Realty is one of the larger property management companies in Colorado and the complaint largely focused on two major items:
1. Unlawfully withholding money from tenants' security deposits
2. Charging unfair and deceptive fees
A foundational piece of this investigation focused on security deposit returns, a process that every landlord must complete when a tenant moves out, making it critical for all real estate investors across to have a deep understanding of how to navigate laws properly and with integrity.
According to the Attorney General, one area where the company went wrong was not starting from the understanding that a tenants’ security deposit legally belongs to the tenant. Colorado state law is clear that landlords may only withhold or deduct from the security deposit for things that are direct damages or charges that are owed to the landlord. It should be the goal of the landlord to return as much of the security deposit back to the tenant as is possible while only retaining or charging for items which are legally permissible and owed to the landlord.
Examples of charges that were wrongfully withheld from tenant’s security deposits:
- Assess the condition of garbage disposals
- Caulk tile in kitchens and bathrooms
- Paint walls when tenants may have caused only minor scuffs or scratches
- Fix loose doorknobs
- Tightening door hinges and toilet seats
- Cleaning air conditioning filters
- Cleaning vent fans
- Paint an entire wall even if the only imperfections on a wall are superficial scuffs, minor indentations, or faded or peeling paint
- Overcharging for cleaning
- Baseless and undisclosed fees
Wear & Tear vs Damages
Many of the charges and deductions were for items that should have been considered ‘wear and tear’, (and thus the expense should be borne by the landlord) and should not have been charged to the tenant. This provides an example of why it is important that real estate investors and landlords understand the difference between damage and ‘wear and tear’.
The company was also accused of charging fees to the tenant which were not clearly disclosed in the lease agreement. This is a key component of completing security deposit returns – any and all fees must be legitimate, fair, and clearly stated in the lease agreement.
Click the link below to watch our video in which we discuss other common mistakes on security deposit returns:
https://www.rentgrace.com/blog/top-reasons-landlords-get-sued-on-tenant-security-deposit-returns
The complaint also noted that the company used an in-house maintenance company which was owned by the same owners of the property management company. While this is not illegal as long as it is disclosed property, it can blur the lines between the PM company and the maintenance company, as the property management company can profit from repairs being done on its properties. If any landlord or property management company does practice in-house maintenance it must be disclosed and there must be a separation between the PM company and the maintenance company.
Compliance:
At Grace Property Management we are committed to integrity, fairness, and full legal compliance in any and all retention of tenant security deposits. We believe that when property management is performed with integrity, both tenants and landlords’ benefit.
Property Management is not just our business - it is a relationship between us, our owner-clients, and our tenant-residents. If these are important to you, we may be a good fit to provide you, your property, and your tenant-resident with our award-winning property management service. Feel free to reach out to us for assistance.
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