Ontario Rent Deposit Law

A rent deposit may sound similar to a security deposit, but the two are different. A security deposit is collected on or before the start of the lease and will be kept for the entire tenancy. 

It’s usually used as a landlord’s assurance that financial liabilities caused by the tenant’s negligence or carelessness will be covered.

Under the Ontario Landlord-Tenant Law, a landlord is prohibited from charging tenants a security deposit.

A landlord can instead ask for a rent deposit. This rent deposit is an amount of money paid upfront. Landlords can collect a rent deposit equal to two months’ rent to cover the first and last month’s rental fees.

Aside from the rent deposit, landlords are also legally allowed to collect a key deposit.

At Rent In Ottawa Property Management, we’ve put together this article to give you an overview on Ontario rent deposit laws.

A Guide to Ontario’s Rent Deposit Laws

Rent Deposit Limit

Ontario landlords can request a rent deposit amount equal to the first and last month’s rent as long as they consider the first month’s rent as paid. 

In fact, a rent deposit isn’t really considered as a deposit since you can only use the money as payment for the last month’s rent rather than to cover for damages.

After tenants give you notice to end the tenancy, they’ll only pay until the second-to-the-last month’s rent as the last month will be covered by the rent deposit.

Rent deposits should be collected on or before the day the landlord and tenant enter into a lease agreement. If it wasn’t requested before or at this time, the landlord would be unable to collect the deposit within the tenancy period.

Nonrefundable Fees

Rent deposits in Ontario must either be used to pay for the last month’s rent or returned to the tenant in full. Ontario landlords can’t withhold any portion of the deposit to cover for damages or cleaning.

Interest Rates on Rent Deposits 

Landlords are required to pay annual interest on last month’s rent. As a landlord, you’re required to pay the tenant interest on the rent deposit every 12 months. 

The percentage of interest paid will be based on the rent increase guideline that is decided by the province of Ontario every year.

If the landlord doesn’t pay the annual interest, they can reduce the amount needed to update the rent deposit to equal the current rent paid by the tenant. 

Tenants, on the other hand, may withhold the interest amount from their future rent payment or they can also file for a rebate.

Written Notice After Rent Deposit Receipt

Ontario landlords are required to provide receipts for any type of rent payment. Since tenants are technically paying a month’s rent ahead of time, the rent deposit is considered a type of rent payment. 

As a landlord, it’s a good practice to provide these receipts during collection of the rent deposit.

Reasons to Withhold a Tenant’s Rent Deposit

In Ontario, landlords can’t withhold any portion of the rent deposit other than to cover the last month’s rent. If there’s a need to collect payment for damages caused by the tenant, it should be requested independently of a rent deposit.

If the landlord doesn't return the rent deposit, the tenant may seek assistance from the Ontario Government’s Rental Housing Enforcement Unit to collect it on their behalf. They can also reach out to the Landlord and Tenant Board (LTB) for aid in the collection of the deposit.

The Walk-Through Inspection

A walk-through or move-out inspection is done to check if the rental property is in the same condition as it was during the move-in.

As an Ontario landlord, you must make note of illegal house modifications or damages due to carelessness or negligence. 

Damages must exceed regular wear and tear, whereas illegal modifications are those that have been made to the unit without the mutual agreement of both parties.

The move-out inspection can be done on the day the tenant is moving out or three days after. Conducting the walk-through inspection without the tenant’s belongings in the unit makes it easier for landlords to spot any physical damage and clearly identify various issues.

The inspection can also be done three days or weeks before the tenant leaves the property. This way, the landlord can give the tenants an opportunity to fix any damages or make any repairs to the rental space before moving out.

Rent Deposit Refund

In general, the rent deposit isn’t returned because it’s used to pay for the last month’s rent. If not used for this reason, landlords must return the full amount to the tenant. 

Landlords are required to return the rent deposit to the tenant within 30 days after the tenant has moved out of the rental property. Otherwise, tenants can reach out to the LTB to ask for assistance in asking for the rent deposit back.

In the case of a key deposit, this amount must only be used to replace lost keys, and the amount collected must not be higher than the reasonable cost.

If after the tenant has moved out, there is a need to collect money to cover for damages, Ontario landlords are not legally allowed to use any deposit to cover the cost. 

Bottom Line

As an Ontario landlord, you aren’t legally allowed to collect a security deposit. Instead, you can collect a rent deposit and/or a refundable key deposit.

If you still have questions regarding Ontario rent deposit laws, contact Rent In Ottawa Property Management today! We’re a full-service property management company that has the knowledge and skills to meet all of your property management goals.

Disclaimer: This blog isn’t intended to be a substitute for professional legal advice. Laws change and this information may become obsolete at the time you read it. For further help, please get in touch with a qualified attorney or an experienced property management company.