Arkansas has built a reputation as one of the most landlord-friendly states in the country, with statutes that favor property owners on eviction timelines, abandoned property, and the absence of rent control. Yet that reputation can breed complacency, especially when it comes to security deposits. Jerry Larkowski, Managing Broker at ESQ. Realty Group, LLC in Little Rock, Arkansas, a licensed attorney and rental property owner, warns that deposit mistakes carry real penalties even in a state that generally leans toward landlords.
One common misstep is charging more than the law allows. Arkansas caps security deposits at two months’ rent. While the statute’s deposit rules exempt an individual owner with five or fewer rental units, that exception typically disappears when a third-party manager is paid to oversee the property. Most out-of-state investors hire local property management, so the deposit rules generally apply to them even if they own only one or two homes. Larkowski notes that the vast majority of out-of-state investors he sees use local property managers, which handle deposits for them. Investors who self-manage from another state need a plan for holding and returning that money.
Another frequent error is mixing the deposit with operating cash. Arkansas law does not require landlords to keep deposits in a separate account, but Larkowski recommends it anyway. “It would be wise to keep that money in a different account than the bank accounts that they use to collect rent and pay expenses from,” he says. “The reason for that is that you need to be able to refund those security deposits when they move out.” A deposit that has been spent on a roof repair or a mortgage payment is still owed to the tenant. Keeping it separate makes it much easier to return on time.
Landlords also sometimes treat the deposit as last month’s rent. That arrangement works only when both sides agree to it, Larkowski says. The deposit is not meant to be a substitute for the final rent payment. Arkansas law lays out a more specific process: within 60 days after the tenancy ends and the tenant turns over possession, the landlord must return the deposit. The landlord may keep money for unpaid rent and for damage caused by the tenant’s failure to follow the lease, but those deductions must be itemized in a written notice sent with any remaining balance. For example, if a landlord holds a $2,000 deposit and repairs after move-out cost $1,100, the remaining $900 goes back to the tenant once contractors are paid. Larkowski acknowledges that many landlords skip these steps, and that trouble usually comes only if a tenant takes it to court. He does not recommend taking that chance. A tenant who proves money was wrongfully withheld can recover twice that amount, plus attorney’s fees.
Sometimes the damage is bigger than the deposit. If repairs in the example came to $3,300, the landlord would be $1,300 short. Arkansas landlords can sue for that balance, but Larkowski says it rarely makes sense. “It’s really hard to get money out of people, assuming that they win,” he says. “By the time they hire an attorney and pay filing fees and service fees and take time out of their day, to most of them, it’s just not worth it.” That makes the deposit, the move-in inspection, and tenant screening the landlord’s real protection. For investors evaluating rental property in Central Arkansas, current listings are a starting point, and a clear deposit process should be part of the plan before the first lease is signed. In a state that gives landlords this much room, the deposit is one of the few places where the law asks for a receipt.
