Security Deposits in Colorado: A Guide for Owners and Residents

Overview:

Security deposits in Colorado are governed primarily by: Colorado Revised Statutes 38-12-101 through 38-12-104 and HB25-1249.

Security deposits are not tenant fees. They are funds legally owned by the tenant and held in trust to cover potential lease-related damages or lawful charges.

At Grace Property Management, our approach to tenant security deposits is simple:

• Comply strictly with Colorado law.
• Document everything thoroughly.
• Charge only what is legally allowable, supported by documentation, and made in good faith.

Key Legal Guidelines in Colorado

Maximum Security Deposit

• According to CRS 38-12-102.5, a tenant security deposit may not exceed two months’ rent for most residential tenancies.

Ownership of Funds

• Security deposits legally belong to the tenant. They are not revenue for the owner - landlord or the management company.

Trust Accounting

• Per Colorado law all security deposits must be held in a properly designated security deposit trust account, in compliance with Colorado real estate regulations. Individual property owners who are NOT licensed in Colorado do NOT have to comply with this requirement.
• Per Grace Property Management internal processes, individual property owners may not hold tenant security deposits without prior written approval and lease disclosure. Grace Management does not authorize any owners to hold tenant security deposit funds.

Deposit Amount Disclosure Requirements

• Clearly disclosed in all online advertising.
• Clearly disclosed before an applicant applies.
• Stated on Page 1 of our Residential Lease Agreement.

The Security Deposit Process and Timeline

At Move-In

• Tenant receives a move-in condition report.
• Tenant has 5 days to complete and return it.
• The report documents baseline property condition.
• This becomes key evidence in any future deposit determination.

During the Tenancy

• The deposit remains untouched and held in trust.

At Move-Out the Executive Property Manager:

• Conducts a move-out inspection.
• Reviews the tenant’s move-in report.
• Compares before and after condition.
• Collects invoices, estimates, or receipts.
• Prepares a formal Security Deposit Disposition.

All withholdings must be:

• Lawful and in good faith.
• Based on Actual Cause.
• Supported by documentation.
• Itemized clearly.

Return Timeline

• Colorado law requires return within 30 days after termination or surrender unless the lease specifies a longer period, not to exceed 60 days. Grace Management includes the 60-day timeline in our leases.

Pre-Move-Out Walkthrough Rights

• Under HB25-1249, tenants may request a pre-move-out walkthrough.
• If reasonable and practicable, this walkthrough will be granted. It may be conducted electronically.
• The walkthrough inspection must occur prior to termination of the tenancy.

Normal Wear and Tear

Colorado Legal Definition:

• Deterioration, damage, or uncleanliness that occurs based on intended use of the property without negligence, carelessness, accident, or abuse.
• It is important to note that some property damage may legally be considered ‘wear and tear’ and NOT chargeable to the security deposit.

Important clarification:

• Under HB25-1249, Normal wear and tear does not include uncleanliness that renders a dwelling less clean than it was at move-in.

Examples of Normal Wear:

• Minor scuff marks on walls
• Faded paint
• Carpet wear from traffic patterns
• Loose door handles from normal use

Examples Not Considered Normal Wear:

• Large wall holes
• Pet urine damage
• Broken fixtures
• Excessive filth
• Unauthorized alterations

Tenants may not be charged for normal wear and tear.

What Cannot Be Charged to a Security Deposit

Under Colorado law and Grace Management policy, tenants may not be charged for:

• Normal wear and tear
• Property upgrades or improvements
• Betterment beyond original condition
• Standardized or flat “cleaning fees”
• Rekeying of locks
• Routine maintenance
• Charges not supported by documentation
• A landlord may not retain a security deposit for any damage or defective condition that preexisted the tenancy.

There may not be any standard or automatic charges against a tenant’s deposit. Every deduction must be specific and supported.

Carpet and Paint Restrictions

Under current Colorado law A landlord does not have actual cause to retain a security deposit for:

• Replacing carpet throughout a dwelling unit
• Repainting the entire interior

Unless there is substantial and irreparable damage that exceeds normal wear and tear and did not preexist the tenancy. Additionally:

• If carpet is 10 or more years old, no carpet charges may be made for any reason.
• Only the minimum amount necessary to repair or replace the damaged portion may be retained.

What May Be Charged To A Tenants Security Deposit

Lawful deductions may include:

• Unpaid rent
• Lease break fees if applicable (additional laws govern lease break fees)
• Damage beyond normal wear and tear
• Excess cleaning required to restore condition
• Unauthorized alterations
• Missing fixtures or property

Wrongful Withholding and Legal Exposure

A landlord is deemed to have wrongfully withheld a security deposit if they:

• Fail to timely provide the written statement
• Fail to provide required documentation
• Fail to return the balance within statutory deadlines
• Make incorrect deductions

Bad faith includes:

• Retaining amounts that unreasonably exceed actual damages
• Retaining amounts without actual cause
• Retaining amounts for retaliatory or discriminatory reasons
• Amounts retained that are 125 percent or more of actual damages are presumed excessive under HB25-1249.
• Failure to timely provide the required written statement results in forfeiture of the right to retain any portion of the security deposit.

If wrongful withholding occurs, a tenant may recover:

• Treble damages
• Attorney fees
• Court costs

All charges must comply with:

• CRS 38-12-102 through CRS 38-12-103
• HB25-1249

Documentation Standards

Security deposit deductions are supported by:

• Move-in condition report
• Move-out inspection survey
• Photos
• Invoices or receipts
• Vendor estimates

Grace Property Management’s Executive Property Managers are licensed Colorado real estate professionals and receive ongoing training on compliance and documentation standards.

If a tenant submits a written request for documentation, the landlord must provide relevant documentation in their possession or control supporting the retention. This could include:

• Photographs
• Inspection reports
• Receipts
• Invoices
• Estimates

Disputes

At Grace Property Management, we recognize that deposit determinations can sometimes feel subjective. In any dispute, the landlord bears the burden of proving compliance with statutory requirements and the amount of actual damages.

If a tenant disputes any deduction:

• A Security Deposit Dispute Form is provided by Grace Management
• The completed form is reviewed by the VP of Property Management
• A formal written response is issued

This structured review process ensures fairness, compliance, and professionalism.

Frequently Asked Questions:

• What is the maximum tenant security deposit allowed in Colorado?

  Under current Colorado law, a security deposit may not exceed two months’ rent for most residential tenancies.

• When must a security deposit be returned?

  Colorado law requires the security deposit to be returned within 30 days after lease termination or surrender, unless the lease specifies a longer period not exceeding 60 days.
  Failure to comply with the statutory deadline may result in forfeiture of the right to retain any portion of the deposit.

• What must be provided if money is withheld from a security deposit?

  If any portion of the deposit is retained, the landlord must provide:

  • A written statement listing the exact reasons for retention
  • The remaining balance owed
  • Relevant documentation supporting the charges

  
  Documentation may include photographs, inspection reports, invoices, receipts, or estimates.

• What qualifies as normal wear and tear?

  Colorado law defines normal wear and tear as deterioration, damage, or minor uncleanliness that occurs from ordinary use without negligence, abuse, accident, or carelessness.
  Examples may include:

  • Minor scuff marks
  • Faded paint
  • Carpet wear from normal traffic

  
  Normal wear and tear does not include excessive damage, abuse, or uncleanliness that renders the dwelling substantially less clean than it was at move-in.

• Can a landlord charge for repainting the entire unit?

  A landlord may not retain funds to repaint the entire interior unless there is substantial damage throughout the dwelling that exceeds normal wear and tear.
  Minor nail holes, scuffs, or normal aging do not justify full repainting

• Can a landlord charge to replace all carpet?

  Full carpet replacement may only be charged if there is substantial and irreparable damage beyond normal wear and tear that did not preexist the tenancy.
  Additionally, carpet may not be deemed substantially and irreparably damaged if it has not been replaced within the preceding 10 years.
  Only the minimum amount necessary to repair or replace the damaged portion may be retained.

• Can cleaning charges be deducted?

  Cleaning may only be charged if the property is returned substantially less clean than it was at move-in.
  Automatic or standardized flat cleaning fees are not permitted.

• What is considered wrongful withholding of a security deposit?

  A deposit may be considered wrongfully withheld if the landlord:

  • Fails to provide the written statement within the statutory timeframe
  • Fails to provide required documentation
  • Fails to return the balance within statutory deadlines
  • Retains funds in bad faith

  
  In court, the landlord bears the burden of proving compliance and actual damages.
  Amounts retained that are 125 percent or more of actual damages are presumed excessive under Colorado law.

• What are the consequences of wrongful withholding?

  If a security deposit is wrongfully withheld, the tenant may seek:

  • Up to three times the amount wrongfully withheld
  • Attorney fees
  • Court costs

  
  Security deposit handling is one of the highest litigation risk areas in Colorado residential property management.

• Is a pre-move-out walkthrough required?

  If requested and reasonable and practicable, the landlord and tenant may conduct a pre-move-out walkthrough inspection to identify and discuss any damage beyond normal wear and tear.
  If a walkthrough inspection occurs, the landlord may not retain funds for damage or defective conditions that were not documented during the inspection.

Our Philosophy

Our goal is to return the full security deposit whenever legally appropriate.
Security deposit determinations are one of the highest litigation risk areas in Colorado property management. For this reason, we:

• Follow current statute precisely
• Avoid flat or standardized charges
• Rely on documentation
• Train our Executive Property Managers on evolving legislative changes
• Escalate disputes to senior review

Colorado has significantly expanded tenant protections in recent years. Our systems reflect these changes and are designed to protect both residents and owners from avoidable disputes.

At Grace Property Management we believe that when property management is performed with integrity and transparence, both tenants and landlord’s benefit. Property is not just our business – it is a relationship between us, our owner-clients and our tenant-residents.