Colorado enacts new regulations on landlord security deposit retention practices

A new legislative proposal, House Bill 1249, aims to overhaul security deposit regulations in Colorado, addressing long-standing tenant-landlord disputes over deposit retention practices. Introduced on April 16, 2025, the bill seeks to protect tenants from unfair practices by establishing clearer guidelines on how security deposits should be handled.

At the heart of House Bill 1249 is a provision that prohibits landlords from retaining security deposits in bad faith. This includes retaining amounts that exceed actual damages by 125% or more, or holding deposits for unlawful reasons such as retaliation or discrimination. The bill shifts the burden of proof to landlords, requiring them to demonstrate the actual damages incurred when retaining any portion of a tenant's deposit.

One of the bill's key provisions mandates that landlords must return security deposits or transfer them to a successor within 60 days of ceasing their interest in a rental property. Additionally, if a refund check is returned to the landlord, they are required to hold it for a year and must disburse it to the tenant within three business days upon request.

The bill also clarifies what constitutes "actual cause" for retaining funds for damages, specifically stating that landlords can only charge for substantial and irreparable damage beyond normal wear and tear. Notably, landlords cannot claim damages for carpet replacement if the carpet was not replaced within five years prior to the lease's termination.

While the bill has garnered support from tenant advocacy groups, it faces opposition from some landlord associations who argue that the regulations could impose undue burdens on property owners. Critics express concerns that the bill may lead to increased rental costs as landlords adjust to the new requirements.

The implications of House Bill 1249 could be significant, potentially reshaping the rental landscape in Colorado. Experts suggest that if passed, the bill could enhance tenant protections and promote fairer rental practices, but it may also lead to higher rents as landlords seek to offset compliance costs.

As the legislative process unfolds, stakeholders on both sides are closely monitoring the bill's progress, anticipating its potential impact on the state's housing market and tenant rights.