Landlord has burden to prove security deposit withholding
Colorado Real Estate Journal -
The Colorado security deposit statute, C.R.S.§ 38-12-101 through 104, provides that a landlord shall, within one month after the termination of a lease or surrender and acceptance of the premises, whichever occurs last, return to the tenant the full security deposit deposited with the landlord by the tenant, unless the lease agreement specifies a longer period of time, but not to exceed 60 days. The statute provides that no security deposit shall be retained to cover normal wear and tear, which is defined in the statute as “deterioration which occurs, based upon the use for which the rental unit is intended, without negligence, carelessness, accident, or abuse of the premises or equipment or chattels by the tenant or members of his household, or their invitees or guests.” The statute also defines a security deposit as “any advance or deposit of money, regardless of its denomination, the primary function of which is to secure the performance of a rental agreement for residential premises or any part thereof.” Accordingly, the statute’s security deposit provisions only apply to residential leases. Under the statute, where cause exists to retain any portion of the security deposit, the landlord must provide the tenant with a written statement listing the exact reasons for the retention of any portion of the deposit. It is good practice for the landlord to quickly perform needed repairs, and then include work orders, invoices, material receipts, proof of payment and the like to substantiate the amount retained. When the statement is delivered, it must be accompanied by payment of the difference between any sum deposited and the amount retained. The landlord is deemed to have complied with the statute by mailing the retention statement and any payment required to the last known address of the tenant. It is the landlord’s burden at trial to prove that its withholding of the security deposit or any portion of it was not wrongful. In other words, the landlord must be able to account for proper application of security deposit funds to items such as unpaid rent, unpaid utilities, repair work or cleaning contracted for by the tenant. If the landlord fails to provide the written statement within the required time period, the landlord’s right to withhold any portion of the deposit is automatically forfeited. Even if the landlord comes back later and attempts to account for the security deposit, and even if the landlord has damage or other legitimate basis for retention, the landlord has forfeited all right to retain the deposit. Accordingly, by failing to timely account for a security deposit, or by accounting for it in bad faith, a landlord is deemed to have wrongfully retained the deposit. At that point, to recover damages for the wrongful retention, the tenant must give the landlord notice of the tenant’s intention to file legal proceedings a minimum of seven days prior to filing legal action.
The landlord must be able to account for proper application of security deposit funds to items such as unpaid rent, unpaid utilities, repair work or cleaning contracted for by the tenant.
Notably, the statute does not specifically state that the tenant’s notice must be in writing. If the landlord fails to return the unaccounted for portion of the security deposit within the seven days, the landlord is liable for treble the amount wrongfully withheld, plus the tenant’s attorneys’ fees and court costs. A landlord cannot avoid treble damages simply by accounting for the security deposit during the seven-day notice period. In other words, the purpose of the seven-day notice is to give landlords a final seven-day window to avoid treble damages by returning the tenant’s security deposit. The purposes of the statute generally is to insulate the award of damages to the plaintiff from being substantially depleted by attorneys' fees, and to encourage attorneys to pursue violations of the statute, which generally involve only small sums of money. Torres v. Portillos, 638 P.2d 274 (Colo. 1981). There are two other notable aspects of the security deposit statute. First, the statute provides that any provision, whether oral or written, in or pertaining to a rental agreement whereby any provision of the statute for the benefit of a tenant or members of his household is waived shall be deemed to be against public policy and shall be void. Second, the statute requires a landlord to – within a reasonable time, and upon cessation of its interest in the dwelling unit, whether by sale, assignment, death, appointment of a receiver or otherwise, the person in possession of the security deposit, including but not limited to the landlord, his agent or his executor – 1) transfer the funds, or any remainder after lawful deductions to the landlord's successor in interest and notify the tenant by mail of such transfer and of the transferee's name and address; or 2) return the funds, or any remainder after lawful deductions to the tenant. Upon compliance with either of these two requirements, the landlord is relieved of further liability with respect to the security deposit. The transferee of the funds is then deemed to have all of the rights and obligations of a landlord holding the funds as a security deposit.