Arkansas has long been considered one of the most landlord-friendly states in the country, with statutes that favor property owners on eviction timelines, abandoned property, and rent control. But according to Jerry Larkowski, Managing Broker at ESQ. Realty Group, LLC in Little Rock and a licensed attorney, that reputation can breed complacency—especially when it comes to security deposits.
“I plead guilty to having said multiple times that we’re the most landlord-friendly state,” Larkowski said. Yet he points to clear deposit rules that carry real financial penalties for owners who ignore them. 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 out-of-state investors, who often hire local property managers. “The vast majority of out-of-state investors I see use local property management companies, which handle deposits for them,” Larkowski said. 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. “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 said. “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; 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 to it. The deposit is not meant to be a substitute for the last 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 must be itemized in a written notice sent with any remaining balance. For example, a $2,000 deposit with $1,100 in repairs leaves $900 owed 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, but suing for the balance rarely makes sense. “It’s really hard to get money out of people, assuming that they win,” Larkowski said. “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.
