Arkansas has a reputation as one of the most landlord-friendly states in the country, but that reputation does not eliminate the need for landlords to follow specific rules on security deposits. Jerry Larkowski, Managing Broker at ESQ. Realty Group, LLC in Little Rock, a licensed attorney, and a rental property owner, says he has often called Arkansas the most landlord-friendly state. He points to statutes that favor landlords on eviction timelines, abandoned property, and the absence of rent control. Arkansas also retains a criminal failure to vacate statute for nonpayment of rent, though Larkowski notes it is not used in Pulaski County and some judges have questioned its constitutionality.
However, landlord-friendly does not mean rule-free. Security deposits are one area where Arkansas law sets clear requirements, and Larkowski sees owners cut corners. Arkansas caps security deposits at two months' rent. The statute's deposit rules do not apply to an individual owner with five or fewer rental units, unless those units are managed by a third party for a fee. That exception matters for investors. Most out-of-state owners hire a local property manager, which means the deposit rules generally apply to them even if they own only one or two homes. Larkowski says the vast majority of out-of-state investors he sees use local property management companies, which handle deposits for them. Investors who self-manage from another state need a plan for holding and returning that money.
Arkansas law does not require landlords to keep deposits in a separate account, but Larkowski recommends it. He says it is wise to keep that money in a different account than the bank accounts used to collect rent and pay expenses, because the landlord must be able to refund the deposit when the tenant moves 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 easier to return on time.
Another common mistake is treating the deposit as last month's rent. Larkowski says that works only when both sides agree. The process Arkansas law lays out is more specific. 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 cost $1,100, the remaining $900 goes back to the tenant. Larkowski acknowledges that many landlords skip these steps, and 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 exceeds the deposit. If repairs cost $3,300 on a $2,000 deposit, the landlord would be $1,300 short. Arkansas landlords can sue for that balance, but Larkowski says it rarely makes sense. He notes that it is hard to collect money even if the landlord wins, and by the time they hire an attorney and pay filing and service fees, it is often 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.
