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. But according to Jerry Larkowski, Managing Broker at ESQ. Realty Group, LLC in Little Rock and a licensed attorney, that friendliness does not extend to ignoring security deposit requirements. Larkowski, who is also a rental property owner, warns that deposit mistakes can carry real financial consequences, particularly for out-of-state investors who rely on local property management.
Arkansas law 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 is critical: 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 notes that the vast majority of out-of-state investors he sees use local property management companies, which handle deposits for them. Those who self-manage from another state need a plan for holding and returning that money.
While Arkansas law does not require landlords to keep deposits in a separate account, Larkowski recommends it. "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 spent on a roof repair or mortgage payment is still owed to the tenant, and 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 deposit is not a substitute for the final rent payment. Arkansas law requires that within 60 days after the tenancy ends and the tenant turns over possession, the landlord must return the deposit. Deductions for unpaid rent or damage caused by the tenant's failure to follow the lease must be itemized in a written notice sent with any remaining balance. For example, a landlord holding a $2,000 deposit who incurs $1,100 in repairs must return the remaining $900 to the tenant. A tenant who proves money was wrongfully withheld can recover twice that amount, plus attorney's fees.
Sometimes damage exceeds the deposit, and landlords can sue for the 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, 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, but a clear deposit process should be part of the plan before the first lease is signed. In a state that gives landlords significant latitude, the security deposit remains one of the few areas where the law demands a receipt. Failing to follow the rules can turn a landlord-friendly environment into a costly legal battle.
