Rental agreements can be overwhelming. The seemingly never-ending complicated legal jargon can leave any person feeling confused and puzzled, and for first-time renters, this might even come across as more complicated than it needs to be.
This, however, is the industry standard at which rental agreements have been established, but for both landlords and tenants, it’s becoming increasingly important to understand how rental deposits, often referred to as “security deposits” work in Ontario to avoid running into any problems down the road.
Establishing the landlord-tenant relationship can seem complicated. However, there are plenty of rules and regulations that protect both landlords and tenants and ensure that the proper responsibilities are applied to each party under Ontario’s Residential Tenancies Act, which has been designed to assist individuals in navigating the rental market more appropriately.
What is the Residential Tenancies Act in Ontario
The Residential Tenancies Act (RTA) in Ontario is a guideline that helps to establish the rights, responsibilities, and obligations of both landlords and tenants once both parties have entered a tenancy agreement for a rental property.
Ontario’s Landlord and Tenancy Board (LTB) helps to effectively enforce the RTA guidelines for landlords and tenants and to ensure that the appropriate conditions are met by both parties throughout their tenancy agreement and that any disagreements are resolved through the LTB as part of a tribunal branch.
Rent Deposit vs Security Deposit
Going forward, it’s important to understand the differences between a rent deposit and a security deposit as people often use both these terms interchangeably, however when renting in the province of Ontario, these terms may mean different things.
Rent Deposit: An amount required by landlords equal to one month’s rent, either for the first or last month of the rental agreement. This amount is used to cover the rent for the agreed month, either the first or last month and is not returned to the tenant unless otherwise agreed. The rent deposit is not used to cover the cost of maintenance, damages, or repairs throughout the duration of the lease agreement or once a tenant has vacated the property.
Security Deposit: Second to this, a security deposit is not legal under current tenancies regulations, and landlords are not required to collect a security deposit, often referred to as a “damage deposit” from any current or future tenant. Landlords seeking to cover costs relating to damages or maintenance needed to a unit or building during a tenancy will need to submit an application through the Landlord and Tenant Board (LTB) for assessment and payment calculations. Though some landlords may require a security deposit as part of the first month’s rent, future tenants will need to review their lease agreements carefully before signing.
Rent Deposit For First and Last Month In Ontario
When entering a rental agreement, a landlord may request the first and last month’s rent as a form of rental deposit. This is not a requirement in Ontario and will need to be specified in the signed rental agreement.
A landlord that requests a first and last month’s rent as a form of rental deposit will need to apply these amounts to the first and last month as a sum of payment for the agreed month as future rent payment.
For example, the rental deposit for an apartment with rent at $1,500 per month could be $3,000, as this is equal to two months’ rent, both the first month and the last month of the rental agreement.
The rental deposit is technically not considered a deposit, seeing as the landlord will use these amounts to cover the costs of the rent for the first or last month of your tenancy. This deposit amount is not used to cover any damages, repairs, or maintenance costs that may have occurred to the unit during your tenancy.
In the province of Ontario, you may only be required to pay the first and last month’s rent should a landlord request this in the lease agreement. A landlord is not allowed to request a rental deposit from any tenant that has not been agreed upon in the lease agreement beforehand or throughout their tenancy.
Is First And Last Month S Rent Deposit Legal In Ontario?
In Ontario, the Residential Tenancies Act provides the necessary oversight for landlords and tenants equally. The act makes it legal for landlords to request a rental deposit from new tenants who have signed a rental agreement that outlines deposit requirements.
A landlord may only request the first or last month’s rent as a form of deposit; however, the amounts should be used to cover the agreed period of rent and are not allowed to be used to cover damages and repairs.
The tenant’s rent deposit is not returned to the tenant unless otherwise agreed upon in the lease agreement. The landlord is only allowed to withhold this amount to cover the period of rent, i.e. the first month of the lease, the last month of the lease, or both.
The maximum amount a landlord can request as a rental deposit should be equal to one month’s rent or the maximum amount of rent cost for one rental period, i.e. the first month of the lease agreement or the last month of the lease agreement.
For tenants, it’s important to take into account how their lease agreement has been arranged and that they do not pay more than required. Ontario tenancy laws and regulations restrict landlords from requesting unreasonable deposit amounts from current and new tenants that have not been agreed upon in their leasing contracts.
Can A Landlord In Ontario Collect a Rent Deposit Before You’ve Moved In?
A landlord may request any new tenant to pay a rent deposit equal to one month’s rent before the lease agreement period begins, although this amount is subject to be applied as either the first or last month’s rent amount, depending on the lease agreement.
Tenants that have signed a lease agreement that runs on a month-to-month basis may also be required to pay a rental deposit upfront. Similarly, this amount can be equal to one month’s rent and will need to be applied to cover the sum of one month’s rent, i.e. the first or last month, depending on what has been agreed upon in the lease.
Can A Landlord In Ontario Request You To Pay a Key Deposit?
There are some restrictions considering key deposits in Ontario:
Key deposits are refundable to tenants.
Key deposits should be used to cover the costs of replacing the keys.
Key deposits are required to be returned to tenants once they have returned all of their keys.
Landlords may withhold key deposits to cover the cost of replacing any damaged, lost, or missing keys.
Landlords can collect a key deposit that’s within a reasonable amount.
Terms of the key deposit should be outlined in the lease agreement.
Key deposits are legal in Ontario, and a landlord may request that you as a tenant pay a key deposit, however, the amount thereof should be within reasonable terms, and should be used to cover the cost of replacing missing or damaged keys.
Once you have returned all keys to your landlord at the end of your tenancy, you are legally allowed to receive your key deposit should it not be used to cover the cost of replacing keys.
Interest Rates On Rent Deposits In Ontario
Landlords of residential properties are required to pay tenants interest on their rental deposit, which may either be the first or last month of rent, and the interest is to be paid each year or after 12 months of signing the rental agreement.
How Much Is the Interest Rate on a Rental Deposit?
The interest paid by landlords to tenants each year is calculated on an annual basis and should be equal to the Consumer Price Index of Ontario, which is similar to the annual rent increase set by the Landlord and Tenant Board.
The annual rent increase guideline for 2025 is currently set at 2.5 percent, which is lower than the national average inflation rate of 3.1 percent. The rent increase guideline is the cap placed on how much landlords can increase rent during the year for tenants without first requiring approval from the Landlord and Tenant Board.
Interest rates on current rental deposits will be set at 2.5 percent for 2025 and will change again in the following year.
What Happens if My Landlord Does Not Pay Interest on My Rental Deposit?
Should you find that your landlord has not paid you the interest accrued on your rent deposit, you can deduct the amount from your rent, should your rental agreement be extended beyond the initial agreed period.
For example, if your landlord has failed to pay you the annual interest on your last month’s rent you can inform them that you will be deducting the owed interest from your rent for the agreed month.
Keep in mind that under some circumstances, your landlord may request that you increase your rent deposit amount should they have legally increased your rent. The original rent deposit amount should be increased to the new legal rent limit, which is often referred to as a “top-up” amount. You as the tenant will be responsible for paying the difference, should you have been informed that your monthly rent has been increased, and your landlord requires you to increase the rental deposit.
Can a Landlord Withhold Interest on a Rental Deposit in Ontario?
Landlords are not allowed to withhold any interest owed to any tenant on their rental deposit. Depending on the lease agreement, renters are allowed to receive the annual interest incurred on their rental deposit amount.
In a similar vein, landlords are not allowed to withhold a rental deposit from a tenant and are required to repay or return the rental deposit in full or agree to be used to pay for the final month’s rent.
Landlords may not use any rental deposit to pay for damages, repairs, or cleaning of a rental unit unless otherwise agreed in the rental contract.
Returning A Rent Deposit In Ontario
A residential landlord is expected to return or refund a tenant’s rental deposit within 30 days following the end of the tenancy agreement. Depending on the lease agreement between the landlord and the tenant, the period in which a landlord is expected to repay the rental deposit will be different, and tenants should be informed of the repayment procedures following their tenancy.
Similarly, landlords can deduct from the rental deposit to cover unpaid or outstanding rent. Additional costs related to damages, cleaning, or maintenance are not allowed to be deducted from the rental deposit.
To Finish Off
Renting an apartment, house, condominium or any other type of residential property in Ontario can come with a bit of additional rules and responsibilities that both landlords and tenants should be informed of.
Though these rules don’t change often, both parties will need to be well informed about their rights and responsibilities before entering into any form of rental agreement. While these rules may add another level of bureaucracy to the rental market, they ensure the safe and equal treatment of all landlords and tenants who have entered into a tenancy agreement.
