Quick Reference: Arkansas Security Deposits at a Glance

Arkansas has a security deposit statute that many Arkansas landlords are not subject to. Whether your owner is one of them can depend on whether they hired you.

Under Ark. Code § 18-16-303(a), the subchapter does not apply to dwelling units owned by an individual where that individual, their spouse and minor children, and any partnerships, corporations or other legal entities formed for the purpose of renting dwelling units and of which they are officers, owners or majority shareholders, own or collectively own five or fewer dwelling units.

Then subsection (b): this exemption does not apply to units for which management, including rent collection, is performed by third persons for a fee.

The key applicability point sits in those two sentences. A third-party management arrangement may bring an otherwise exempt owner within the subchapter, so the cap, the 60-day deadline and the double-damages penalty become live, and the file that has to satisfy them is yours. Because application can depend on the ownership and management structure, confirm unusual arrangements with Arkansas counsel.

The Exemption, and How the Counting Works

Section 18-16-303(a) is drafted to prevent the obvious workaround. The five-unit threshold is not counted per entity. It aggregates across:

• the individual

• the individual's spouse and minor children

• any and all partnerships, corporations, or other legal entities formed for the purpose of renting dwelling units and of which they are officers, owners or majority shareholders

The test is whether those persons and entities own, or collectively own, five or fewer dwelling units. Splitting eight units across three LLCs does not produce three exempt owners.

Two practical points for a manager taking on new business.

• The threshold is based on the ownership group in subsection (a), not on the size of your portfolio.
  An owner with four units is exempt on the face of subsection (a) whatever your book looks like. An owner with six is not.

• Subsection (b) then overrides it. Where management including rent collection is performed by third persons for a fee, the exemption falls away regardless of unit count. Read literally, the trigger is fee-based third-party management of the units, so a four-unit owner who self-manages is outside the statute and the same owner who signs with you is inside it.
  
  

  That has a consequence worth raising with owners at onboarding rather than at move-out. The rules described below did not apply to them last year and do apply now, and the reason is the management agreement.

  Because subsection (b) turns on how a specific arrangement is structured, confirm the position with Arkansas counsel for any owner close to the threshold or on an unusual fee arrangement.

The Cap: Two Months

Section 18-16-304 is a single sentence: a landlord may not demand or receive a security deposit, however denominated, in an amount or value in excess of two months' periodic rent.

Two features are worth noting.

• "However denominated" closes the labelling route. A charge called a pet deposit, a cleaning deposit, a key deposit or a redecoration deposit still counts toward the ceiling if it functions as security. The statute does not carve out pets or additional risks, as some states do.

• "Amount or value" reaches non-cash security. The limit is expressed in value, not only in money demanded.

The section caps the deposit. It is silent on where deposits are held, and that silence is where a manager can go wrong, because a different body of rules answers the question.

The Trust Account Rule the Subchapter Does Not Mention

The security deposit subchapter says nothing about where deposits sit. Arkansas Real Estate Commission rules do, and they bind licensed managers directly. Confirm your own position against the Commission's current licensing requirements as well, since the rule attaches to licensed activity.

Under 17 CAR § 220-1007(a)(1), "trust funds" expressly includes rents and deposits received by a principal broker or any of the broker's licensees in connection with real estate activity.

Then subsection (h)(1)(A) is direct: all security deposits made under a rental or lease agreement shall be deposited in the principal broker's trust account, including deposits on property owned by a licensee under that principal broker, unless the licensee who owns the property has a written agreement with the tenant allowing the deposit to be kept in the licensee's separate account. A copy of any such agreement must be furnished to the principal broker.

Five further requirements shape day-to-day handling:

• No commingling. Under (b), a principal broker may not commingle trust funds with personal or other non-trust funds, or hold them in any business account other than a specifically designated trust account.

• Separate account or escrow agent. Under (c)(1), a principal broker receiving trust funds must either maintain a separate trust account or use an escrow agent, and under (c)(2) the principal broker is solely responsible and accountable for all trust funds received by the firm.

• Naming and institution. Under (c)(5), the account name must include "trust" or "escrow" and the institution must be federally insured. Under (c)(4), the account is non-interest-bearing unless one of the stated exceptions applies.

• Three days. Under (g)(1)(B), funds delivered to the broker pending performance of any act must be deposited to the trust account, delivered to an escrow agent, or handled under a written agreement no later than three days, extended where the third day falls on a Saturday, Sunday or legal holiday. The rule distinguishes this from funds delivered after execution of a real estate contract in (g)(1)(A), so confirm how the timing provision applies to the receipt of a particular security deposit.

• Monthly reconciliation. Under (g)(2), trust account statements must be reconciled in writing at least monthly and balanced to undisbursed trust funds, with copies kept at least three years, and all trust fund records open to inspection by Commission investigative staff.

So the answer to "does Arkansas require a separate account for deposits" depends on who is asking. The deposit subchapter does not impose one. If you hold the money as a licensee, § 220-1007 does.

The 60-Day Deadline

The statute provides a 60-day deadline. Some secondary summaries state 30 days, so check the section rather than a chart.

Under Section 18-16-305(a)(1), within sixty days of termination of the tenancy, property or money held by the landlord as security shall be returned to the tenant.

Under (a)(2), the money may instead be applied to:

• the payment of accrued unpaid rent, and

• any damages which the landlord has suffered by reason of the tenant's noncompliance with the rental agreement

all as itemised by the landlord in a written notice delivered to the tenant, together with the remainder of the amount due, sixty days after termination of the tenancy and delivery of possession by the tenant.

Three drafting points follow from that wording.

• Damages are tied to the rental agreement.
  The measure is noncompliance with the rental agreement, so a deduction has to trace to a lease obligation rather than to a general sense of what the unit should have looked like.

• The itemised notice and the payment travel together.
  The statute contemplates the written notice delivered "together with the remainder of the amount due." Sending an itemisation now and the balance later does not match the structure.

• Two events appear in the deadline language.
  Subsection (a)(1) runs the sixty days from termination of the tenancy. Subsection (a)(2) refers to sixty days after termination and delivery of possession. Where those dates differ, for example where a tenant's term ends before they hand back the keys, the conservative course is to work from the earlier date so that you are inside both readings.

• Mailing is compliance.
  Under (b)(1), the landlord is deemed to have complied by mailing the written notice and any required payment via first class mail to the last known address of the tenant. Arkansas does not require certified mail here, though proof of mailing remains worth keeping.

• Returned mail has its own clock.
  Under (b)(2), if the letter containing the payment is returned and the landlord is unable to locate the tenant after reasonable effort, the payment becomes the property of the landlord 180 days from the date the payment was mailed. That is a second date to diary, and it starts from the mailing date rather than from the return.

The Penalty and the Two Statutory Limitations on Liability

Section 18-16-306(a)(1) sets out what a tenant recovers where the landlord fails to comply with the subchapter:

1. The property and money due to the tenant

2. Damages equal to two times the amount wrongfully withheld

3. Costs

4. Reasonable attorney's fees

Note the base for the multiplier. It is twice the amount wrongfully withheld, not twice the deposit. A landlord who returns most of a deposit but wrongly holds back a small sum faces double that sum, not double the whole.

Then the limitations. Under (a)(2), the landlord is liable only for costs and the sum erroneously withheld if the landlord shows by the preponderance of the evidence that the noncompliance either:

• (A) resulted from an error which occurred despite the existence of procedures reasonably designed to avoid such errors; or

• (B) was based on a good faith dispute as to the amount due

Subparagraph (A) is unusual and deserves attention, because it is the rare statutory provision that rewards having a documented process. The defence is not that a mistake happened. It is that a mistake happened despite procedures reasonably designed to avoid it. A landlord with no system cannot run it.

Subparagraph (B) covers the ordinary contested deduction: a genuine disagreement about the amount, held in good faith, caps exposure at costs and the sum withheld.

Under (b), the section does not preclude either party from any other relief to which they may lawfully be entitled.

What the Security Deposit Subchapter Does Not Expressly State

Managers arriving from other states should note the absences, because building a process around requirements that do not exist wastes effort and building one around requirements you assume are absent creates risk.

Based on §§ 18-16-303 to 18-16-306, the subchapter does not expressly state requirements for the following. Other statutes, regulations, leases, court decisions, local requirements or licensing obligations may still affect your process.

• A move-in condition report or inspection

• Written notice of the tenant's right to be present at a move-out inspection

• Advance notice before making a deduction

• Certified mail for the itemisation

• Payment of interest on deposits

What it does require is the cap, the 60-day return with itemisation, and mailing to the last known address. Note that the account question is answered elsewhere: the subchapter is silent, but 17 CAR § 220-1007 requires a licensee to hold deposits in the principal broker's trust account. Everything else governing your handling of deposit money comes from your licence obligations, the management agreement and the lease.

Where the Deposit Rules Sit in Arkansas Law

• The security deposit subchapter is relatively narrow. It governs the cap, permitted applications, the return procedure and the remedies. Other landlord-tenant obligations arise elsewhere in Arkansas law, and the handling of the money itself is governed by the Commission's trust account rules.

• It does not govern the rest of the money. The subchapter does not establish general rules for application fees, administrative fees, late fees or pet rent. Whether a particular charge is genuinely a fee rather than security for the tenant's obligations depends on its substance and the governing agreement. The risk runs one way: a charge labelled as a fee but functioning as security may still be subject to § 18-16-304's "however denominated" language.

The practical implication is that a manager cannot treat compliance here as evidence of compliance generally. Getting the 60 days right says nothing about the rest of the file.

Common Arkansas Compliance Mistakes

1. Telling a small owner the statute does not apply to them. Under § 18-16-303(b) the exemption falls away where third-party management including rent collection is performed for a fee.

2. Counting units per entity. Subsection (a) aggregates across the individual, spouse, minor children and their renting entities.

3. Using 30 days. Section 18-16-305(a)(1) provides 60 days, though some secondary summaries state 30.

4. Labelling around the cap. Section 18-16-304 says "however denominated" and reaches amount or value.

5. Sending the itemisation without the balance. The statute contemplates the written notice delivered together with the remainder due.

6. Deducting for something the lease does not cover. Damages are measured by noncompliance with the rental agreement.

7. Assuming double the deposit. The multiplier applies to the amount wrongfully withheld.

8. Relying on good faith without a process. Section 18-16-306(a)(2)(A) requires procedures reasonably designed to avoid the error, proved on the preponderance.

9. Losing the 180-day clock on returned mail. It runs from the date the payment was mailed.

10. Assuming no account rules apply. The subchapter is silent, but 17 CAR § 220-1007(h)(1)(A) requires security deposits to go into the principal broker's trust account.

11. Overlooking the applicable trust fund timing rule. Section 220-1007(g)(1)(B) addresses funds delivered pending performance of an act. Confirm how it applies to a given deposit rather than treating it as a separately stated security deposit deadline.

12. Holding deposits in an interest-bearing account. Under 17 CAR § 220-1007(c)(4) the trust account is non-interest-bearing unless a stated exception applies.

13. Treating a non-refundable fee as automatically outside the cap. Section 18-16-304 reaches a deposit "however denominated," by amount or value.

14. Skipping the monthly reconciliation. Under 17 CAR § 220-1007(g)(2) trust statements must be reconciled in writing monthly, with copies kept three years.

Building the Process the Statute Rewards

Section 18-16-306(a)(2)(A) reduces exposure from double damages plus fees to costs and the withheld sum where the error occurred despite procedures reasonably designed to avoid it.

A written procedure is not a safe harbour on its own. The landlord still has to prove, by the preponderance of the evidence, that the error occurred despite those procedures. But the defence is unavailable to a landlord who cannot show any procedure at all, which makes three things worth systematising.

• The onboarding record. For each owner, note the unit count and the fact that management including rent collection is performed for a fee, so the § 18-16-303 position is documented at the start rather than reconstructed later.

• The three dates. Track termination of tenancy, delivery of possession and the mailing date separately. Because the subsections use slightly different wording, the earlier potentially applicable date makes a sensible conservative internal deadline, with disputed timing questions referred to Arkansas counsel.

• The deduction trail. Each deduction should point to a lease clause and to the condition evidence behind it, because § 18-16-305(a)(2) measures damages by noncompliance with the rental agreement.

RIOO is a property management platform built on NetSuite. Agreement records sit in Contracts & Renewals, rent and deposit ledgers in Collecting Rent & Payments, move-out condition records in Move Ins & Move Outs, and the repair history behind a damage deduction in Service Request & Task Management. Running them in one system can help a manager document procedures and keep the supporting records together.

Two related guides may be useful. Arkansas regulates the manager separately, and our guide to Arkansas property manager licensing under AREC covers the Property Management Broker and Associate licences and the trust account obligations that come with them. 

Conclusion

Arkansas's deposit rules are short, and the hard part is knowing whether they apply.

The five-unit exemption in § 18-16-303(a) excludes certain small owners from the subchapter, but subsection (b) removes that exemption when third-party management, including rent collection, is performed for a fee. For a management company, that means the exemption can fall away for owners who would otherwise qualify under the five-unit threshold once you are engaged.

From there the rules are: two months' periodic rent however denominated, sixty days to return or itemise, itemisation delivered with the balance, first class mail to the last known address, and 180 days before returned funds become the landlord's. Get it wrong and the tenant recovers twice the amount wrongfully withheld plus costs and attorney's fees, unless you can prove a procedural error or a good faith dispute.

For managers in Little Rock, Fayetteville, Springdale, Rogers and Fort Smith, the practical sequence is: record the § 18-16-303 position for every owner at onboarding; audit lease templates so every intended deduction traces to a clause; where termination and delivery of possession fall on different dates, set a conservative internal deadline based on the earlier date rather than assuming the later event controls; route deposits into the principal broker's trust account and check the § 220-1007 timing rule; send itemisation and balance together by first class mail; and write down the process itself, because in Arkansas the process is a defence.

Last reviewed: August 2026. This blog is for informational purposes only and does not constitute legal advice. Arkansas statutes change, the application of § 18-16-303(b) turns on how a particular management arrangement is structured, and individual circumstances differ. Confirm the current text with the Arkansas Code and consult a licensed Arkansas attorney on a specific deposit dispute or owner arrangement.

Frequently Asked Questions

Q1. How much can an Arkansas landlord charge as a security deposit?
No more than two months' periodic rent, under § 18-16-304. The cap applies "however denominated," so pet, cleaning and similar deposits count toward it.

Q2. When must an Arkansas security deposit be returned?
Within 60 days of termination of the tenancy under § 18-16-305(a)(1). Some secondary summaries state 30 days; the statute provides 60.

Q3. Which Arkansas landlords are exempt from the deposit law?
Under § 18-16-303(a), an individual whose holdings, aggregated with a spouse, minor children and their renting entities, total five or fewer dwelling units.

Q4. Does hiring a property manager change that exemption?
It may. Under § 18-16-303(b), the exemption does not apply to units for which management, including rent collection, is performed by third persons for a fee, so a paid third-party arrangement may bring an otherwise exempt owner within the subchapter. Unusual ownership or management structures should be reviewed with Arkansas counsel.

Q5. What can an Arkansas landlord deduct from a deposit?
Accrued unpaid rent and damages suffered by reason of the tenant's noncompliance with the rental agreement, itemised in a written notice delivered with the remainder due.

Q6. What is the penalty for withholding a deposit in Arkansas?
The tenant may recover the property and money due, damages equal to twice the amount wrongfully withheld, costs, and reasonable attorney's fees under § 18-16-306(a)(1).

Q7. Is there any defence to the double damages?
Two. Under § 18-16-306(a)(2), liability is limited to costs and the sum erroneously withheld where the landlord proves by the preponderance of the evidence either an error occurring despite procedures reasonably designed to avoid it, or a good faith dispute as to the amount due.

Q8. Do non-refundable fees count toward the Arkansas cap?
A charge labelled a fee is not automatically outside the cap. If it functions as security for the tenant's obligations, the "however denominated" language in § 18-16-304 creates a classification risk. Whether a charge is a true fee or a deposit depends on its purpose, terms and operation, so have counsel review unusual fee structures.

Q9. Must Arkansas security deposits be held in a separate account?
The security deposit subchapter does not itself prescribe a separate-account procedure. However, where a principal broker or the broker's licensee receives deposits in connection with property management activity, AREC's trust fund rule applies. Under 17 CAR § 220-1007(h)(1)(A), deposits go into the principal broker's trust account, subject to an exception where a licensee-owner has a written agreement with the tenant. The rule also addresses commingling, account designation, federal insurance, interest, timing, recordkeeping and monthly reconciliation.

Q10. What happens if the refund cheque is returned undelivered?
Under § 18-16-305(b)(2), if the landlord cannot locate the tenant after reasonable effort, the payment becomes the landlord's property 180 days from the date it was mailed.