In Ontario, it is legal to collect a rental deposit prior to the tenant moving in. According to the Landlord Tenant Board, Landlords are allowed to collect the rent of up to one rental period as a deposit. As an example, if rent payments are made monthly, the landlord may collect a deposit of up to one months rent. If payments are made weekly, the landlord may collect up to one weeks rent as a deposit.
The deposit may only be used for the rent of the last month of tenancy, and cannot be used for other purposes (such as damages.)
My Tenant Offered More Than One Months Rent As A Deposit
In 2014, a Supreme Court of Ontario case set precedence towards landlords accepting rental deposits that are greater than the legal allowance. The judge ruled that landlords are not permitted to require rental deposits that are greater than the first month’s rent, though if the tenant offers the deposit (unprompted), it is legal.
It is important to note that though this ruling sets precedence, the Residential Tenancies Act doesn’t specifically state this is permitted. It is important you receive a signed letter from your tenant that they had offered the deposit unprompted.
Landlords are allowed to ask for key deposits, as long as the deposit is refundable, and the deposit is not more than the expected value of replacing those keys. Once the keys are returned to the landlord, the landlord must return the deposit.
In Ontario, landlords are not allowed to collect damage deposits. As outlined above, Landlords can only apply the collected deposit towards the last month’s rent. If the unit is damaged, the landlord is allowed to ask the tenant to pay for the damages, and (if desired) a notice of termination (this form to be exact).
My Tenant is Going Month To Month, What Now?
You are allowed to ask your tenant to ‘top-up’ their rental deposit by the rental increase amount set forth by the Ministry of Housing (if the unit was built or occupied prior than 1991), or the amount set by the landlord. You can click here for the rental increase amount.
You can also read our blog post on Rental Increases (Ontario) for more details.
Interest On Deposits
The landlord must pay interest on the rental deposit every twelve months. The interest percentage amount is the same as the rental increase amount set by the Ministry of Housing. You can find these rates by clicking here.
If the landlord does not pay the tenant the interest owed, the Tenant is permitted to deduct the interest payment from a future rent payment.
It is important (and required) to give deposit (and rental) receipts to your tenants.
Feel free to email with any questions at [email protected].
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