Keep security deposit due to early termination

[John Yu]

I have a renter that broke the lease and moved out early. In the lease agreement they signed says "Security Deposit will be not be refunded to the TENANT and will be used as a penalty for early termination of the Lease term". The problem is that I did not give renter the written notice stating the reason for the retention of the security deposit, and they've moved out over 60 days. And the Colorado law says if the notice is not given within 60 days, the landlord no longer has the rights to withhold any portion of the security deposit. This renter is a real estate related lawyer and is aware of this law. Should I keep the deposit or return it in this case, and in case I got sued, any chance I could win because the lease agreement says deposit will not be returned to the renter due to early termination?

Below is the Colorado Statutes on this matter:

(1) 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 sixty days. No security deposit shall be retained to cover normal wear and tear. In the event that actual cause exists for retaining any portion of the security deposit, the landlord shall provide the tenant with a written statement listing the exact reasons for the retention of any portion of the security deposit. When the statement is delivered, it shall be accompanied by payment of the difference between any sum deposited and the amount retained. The landlord is deemed to have complied with this section by mailing said statement and any payment required to the last known address of the tenant. Nothing in this section shall preclude the landlord from retaining the security deposit for nonpayment of rent, abandonment of the premises, or nonpayment of utility charges, repair work, or cleaning contracted for by the tenant.

(2) The failure of a landlord to provide a written statement within the required time specified in subsection (1) of this section shall work a forfeiture of all his rights to withhold any portion of the security deposit under this section.