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Rental Deposits

If you’ve got rental units, you likely have deposit disputes with tenants. Well, if you have more than five residential rental units or you contract out the management of your rentals, you’ve got some responsibilities with regard to that deposit that you need to know.

Now, the short version to what you can do with the deposit is what you’d expect – apply it to the unpaid rent and costs. But there are a couple of catches.

Arkansas Code Sec 18-16-305 lays out the basic rules along with the first catch:

1. You have 30 days after moveout to refund a security deposit;
2. However, you can retain any amount of the deposit for unpaid rent or as necessary for damages, if you give the tenant an itemization of these expenses;
3. You must mail the itemization and any money left over to the tenant’s last known address;
4. If the itemization is returned to you as undeliverable, 180 days after you mailed it the tenant forfeits any sums they are owed.

The second catch is the penalty for failing to comply with the first one: In A.C.A. 18-16-306, if the landlord fails to give the notice, the tenant is not only entitled to their money back, but damages of twice the deposit, as well as attorney’s fees and costs. This penalty applies unless the landlord can show either 1) they have procedures in place to comply with the law but there was a reasonable error; or 2) there is a good faith dispute over the amount the tenant owes.

This is one of the few areas where Arkansas law favors the tenant, although most tenants are unaware of these statutes. However, if a tenant gets angry and talks to a knowledgeable attorney, it’s a costly penalty for a landlord even if the security deposit had to be used for repairs.

A landlord’s best bet is to develop a simple checklist with the amount of the tenant’s deposit, their last known address before moving in, the date of moveout, the date of mailing the letter, and a copy of the letter. Even if by an honest mistake you forget the last part, you’ve at least got your procedures to rely on and possibly avoid the penalty.

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