I’ve said it before: compliance is catching up to operations. States are tightening security deposit laws—and putting the burden of proof squarely on property managers. California’s AB-2801 set the precedent, and now Colorado’s HB-1249 makes detailed documentation the new norm.
Starting January 1, 2026, property managers must prove every dollar withheld with timestamped photos, invoices, and inspection reports — or forfeit their right to withhold. One gap can trigger triple damages and attorney fees, and across a portfolio, that exposure adds up fast.
The good news? Getting compliant doesn’t have to be complicated. Here’s what you need to know — and why every operator should be paying attention, not just those in Colorado.
What You Risk Without Proper Documentation
Under HB-1249, no documentation means no deduction.
You must provide a clear, written breakdown of any deductions and supporting proof within 30 days. If residents ask for more detail, you’re obligated to share it promptly—or risk forfeiting those claims.
Here’s how it plays out:
- Withhold $1,200 without the right documentation, and you could owe $3,600 plus legal costs.
- Retain more than 125% of actual damages, and you’re automatically presumed to be acting in bad faith.
These penalties can add up to material compounds — and they’re not covered by insurance.
What Changed Under the New Law
Colorado also clarified what counts as “normal wear and tear.” It’s broader than before and includes damage or uncleanliness from ordinary use.
The 10-Year Carpet Rule
If carpet hasn’t been replaced within 10 years of lease end, you can’t charge for it—no matter how it looks.
Paint Protection
Faded color, nail holes, or light scuffs? That’s all normal use.
Prohibited Deductions
- Routine carpet cleaning
- Minor wall touch-ups
- Standard turnover cleaning (unless the unit is clearly beyond normal condition)
- Flat cleaning charges regardless of actual state
Walk-Throughs Are Now Required
If a resident requests a walk-through and it doesn’t happen, you lose the ability to claim damages for that unit.
The Real Compliance Test
Ask yourself: could you pull up move-in photos from 18 months ago and send them to a resident the same day?
If your photos live on phones, your invoices in email threads, and your inspection notes on paper, you’re exposed. Documentation gaps aren’t just operational headaches; they’re financial liabilities.
How HappyCo Makes It Simple
At HappyCo, we’ve helped operators stay ahead of compliance standards long before laws like this came along. Our platform was built to make defensible documentation part of everyday operations — and keep you ahead of compliance well ahead of deadlines.
Built-in protection includes:
- Time-stamped photos that are tamper-proof and verifiable
- Inspection reports with condition notes and ratings
- One-click documentation delivery to residents
- PMS integrations that automate workflows
- Automated inspection triggers when residents give notice
- Walk-through scheduling with confirmation trails
If your current process can’t produce proof quickly and consistently, now’s the time to rethink it.
This Isn’t Just About Colorado
With California AB-2801 already in effect, it’s clear this level of transparency is becoming the new norm. Operators who’ve already digitized inspections with Happy Property are ready — not just for HB-1249, but for whatever comes next.
Ben Nowacky is the President at HappyCo and leads the product development and engineering teams across North America and Australia. In this role, Ben is responsible for executing the company’s overall product strategy while ensuring business continuity and data security. He leads with a customer-first methodology and promotes alignment between the product, engineering, and go-to-market teams. Prior to joining HappyCo in 2022, Ben was the Chief Product and Security Officer at Axcient and brings more than 20 years of product and technology experience to his role.
Ben Nowacky is the President at HappyCo and leads the product development and engineering teams across North America and Australia. In this role, Ben is responsible for executing the company’s overall product strategy while ensuring business continuity and data security. He leads with a customer-first methodology and promotes alignment between the product, engineering, and go-to-market teams. Prior to joining HappyCo in 2022, Ben was the Chief Product and Security Officer at Axcient and brings more than 20 years of product and technology experience to his role.
