Landlord & Tenant

Deposits

Before signing a lease agreement, it's important to make sure you understand what deposits you'll need to pay and when they'll be returned to you. Make sure you read the lease agreement carefully and ask questions if you're unsure about something.

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Deposits for Rentals

Are you looking to rent a property in Ontario? Knowing the rules and regulations for rental deposits can help you navigate the process and ensure that you and your landlord are both legally protected.


In Ontario, a landlord may require a tenant to pay a security deposit before occupying a rental unit. The deposit must be no more than one month’s rent, and the landlord must provide a written receipt that states the amount of the deposit and the date it was received. The security deposit acts as a guarantee for the landlord, should the tenant fail to pay rent or otherwise violate the terms of the lease agreement.


The security deposit must be kept in trust in an interest-bearing account at a financial institution in Ontario. The interest earned on the security deposit must be paid to the tenant each year. The landlord must also provide a written statement to the tenant that shows the balance of the account, the rate of interest, and the annual interest earned.


Once the tenant has moved out, the landlord must return the security deposit, minus any deductions for unpaid rent, within 30 days. If the landlord withholds any portion of the security deposit, they must provide the tenant with a written explanation of the deductions.


By understanding the rules and regulations surrounding security deposits for rental properties in Ontario, tenants and landlords can enter into a rental agreement with confidence. Knowing the rules will help ensure that both parties are legally protected and can avoid any misunderstandings.



First Month's Rent & Deposits

In Ontario, post-dated payments are not allowed for residential rental homes. This means that when a tenant signs a lease agreement with a landlord, they cannot make payments in advance of their rental due date. This is because the Ontario Residential Tenancies Act does not allow it and it can be considered an illegal transaction.


Making post-dated payments can sometimes be a temptation, especially if a tenant is able to save money by paying rent in advance. However, this is not allowed under the law and can lead to serious consequences for the landlord.

The Ontario Residential Tenancies Act states that a landlord must not accept post-dated cheques or any other form of payment for rent in advance. If a landlord does accept such payments, they can be fined up to $25,000 for each violation. This is a serious consequence that can be avoided by adhering to the law.


It is important for tenants to understand that post-dated payments are not permitted for residential rental homes in Ontario. This is to protect both tenants and landlords from potential legal issues and to ensure that tenants are not taking on more financial responsibility than they can handle. It is the responsibility of both landlords and tenants to understand and abide by the Ontario Residential Tenancies Act.


By understanding the rules regarding post-dated payments, tenants and landlords can ensure that their rental agreements are in line with the law. This will help to create a safe and secure environment for both parties and ensure that the rental agreement is legally sound.


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Deposits

Here you can find some useful information about deposits in housing law. 

An Initial Deposit From a New Tenant

A landlord may only request a last month's (or last week's) rent deposit, plus a key deposit. Tenants are often asked to pay the "first and last month's rent" when they sign a tenancy agreement. The law prevents a landlord from charging the first month's rent before it's due - which is normally the first day of the tenancy.


Landlords Cannot Request:

  • Deposits for pets
  • Deposits for damage
  • Rent for the first month (or first week in a week-to-week rental) before the tenant moves in
  • Payments made with post-dated cheques or other forms of preauthorization


Landlords may not even realize that what they are asking for is illegal. It may be possible for the tenant to explain the law to them, thereby preventing further legal problems.


If the landlord refuses to rent to an applicant without receiving the unlawful deposit, the tenant may decide to pay it to them. In that case, the tenant can attempt to get it back once they have moved in. In some cases, this may involve involving the Landlord and Tenant Board (LTB).


A Deposit for the Key(s)

A key deposit cannot be more than what it would cost to replace the keys. It cannot also be used for damage or other expenses. After the tenant moves out, the landlord must refund the deposit if they return the keys.


Extra keys can be made for the cost of making them - nothing more. A keyless entry system, fob, or other device might be used instead of keys in the building. These things follow the same rules as keys.


Paying Interest on the Tenant's Deposit

Landlords are legally required to pay interest on the last month's rent to their tenant. Interest rates are equal to the guideline rent increases for the year the interest payment is due.


Rent deposits made on November 1, 2016, for example, must have been credited to the tenants' accounts on November 1, 2017. In 2017, the rent guideline was 1.5 percent, so the landlord owed the tenant 1.5 percent interest on their deposit.


Landlords must pay the interest either by reducing the rental payment or by adding it to the tenant's last month's rent deposit. 


Landlords Must Provide Receipts to Tenants

When a tenant asks for a receipt for payments, the landlord must provide one. Landlords cannot charge a tenant for a receipt or refuse to provide one. Whenever a landlord receives a deposit, rent payment, or any other money from a tenant, they should always give them a receipt immediately.


Receipts Should Include:

  • Name of the tenant
  • Their address
  • Landlord's legal name
  • Payment amount
  • Payment date
  • The purpose of the money
  • Landlord's signature


Be Sure to Put it in Writing

Needless to say, we cannot stress enough the importance of any landlord resisting the urge to demand an unlawful deposit. Nonetheless, if the landlord does request it and the tenant pays it, the latter can tell the former afterwards that it's unlawful.


The tenant can request a refund of the deposit. A landlord then has the option to return the deposit(s) if they were unaware that the deposit was unlawful. If they refuse to return the deposit(s), the tenant can apply to the Landlord and Tenant Board (LTB) to have it refunded. The landlord would then have to prove the payment was voluntary and not required to defend themselves.


Make sure you get everything in writing if this is the case. The tenant should provide the landlord with proof that they are voluntarily paying the amount (e.g. letter, email, text) and the reason why. In the rental agreement, note that the additional funds are being provided voluntarily (not as a requirement). Ensure both parties sign all documentation.



Frequently Asked Questions

Here are answers to some common questions. 

Deposits

  • After agreeing to rent to a tenant, I later changed my mind. What should I do?

    If you breach the contract, a lawsuit may be brought against you by the tenant. The best thing you can do is to make sure that you document everything as soon as possible.


    It is beneficial for the tenant if they receive as much notice as possible so that they can find another place to live. As a landlord, you are responsible for returning the tenant's deposit as soon as possible. 


    You can either do it electronically through an e-transfer or in person with a witness.


  • Landlords can cash out rent deposits and deposit them in banks. Tenants have a right to interest on their last rent payment. Landlords are responsible for paying that interest.

    Landlords can cash out rent deposits and deposit them in banks. Tenants have a right to interest on their last rent payment. Landlords are responsible for paying that interest.

  • A natural disaster destroyed my rental unit. What are my rights and the rights of the tenant?

    In this circumstance, the doctrine of frustration would apply per section 19 of the Residential Tenancies Act. Since unforeseen circumstances prevent the performance of the contract, it applies here. As neither you nor the tenant are at fault, the lease is likely to be automatically terminated. As soon as a natural disaster occurs, the contract ends. 


    You cannot collect rent beyond the event date, and your obligation to provide accommodation also ends on that date. In addition to returning the tenant's last month's rent deposit, you must refund any rent collected after that date.


    If you are in this situation, Cordaie Paralegal Services can assist you. Our team can issue a letter and refund to the tenant, along with a receipt for your records.


  • My tenant left my apartment very dirty and with a lot of trash left behind. Can I deduct the cleaning fees from the tenant's last month's rent?

    Rent deposits cannot be used for anything other than rent. You cannot deduct cleaning costs or damages from it.


    If the tenant vacated the rental unit after September 1, 2021, you can request reimbursement of damage costs through the Landlord and Tenant Board. In addition, this must be done within one year of the tenant's departure.


    The charge of an additional deposit above the last month's rent deposit is illegal in Ontario. Charges on top of a tenant's last month's rent deposit are illegal. A full refund of the deposit should be given to the tenant. 


  • Do we need to keep a separate bank account for the last month's rent deposit?

    Landlords do not have to keep the last month's rent deposit separately. It is necessary to keep accurate records, however, since you must pay interest on the rent deposit every 12 months.

  • A former tenant applied to the Board, but we reached an agreement before I received notice. I refunded their deposit and they moved out, but the application is still listed as open on the Board. How do I know if it will still proceed?

    The applicant must request that the application be withdrawn from the LTB. Your former tenant must notify the LTB in writing. You will have to attend the meeting if your former tenant fails to do this. You can explain your situation to the LTB at that point, and your application will be dismissed.


  • The lease was verbal, and there was no last month's deposit. After having difficulty with the tenants, we would like to enter into a written lease agreement. Can this be done?

    An existing tenancy agreement must continue to apply when the tenancy begins. A lease cannot be forced on someone unless they are willing to sign one.


    If the tenants want a written agreement, you must use the Ontario Residential Tenancy Agreement (Standard Form of Lease).

  • Is it possible to enforce a lease that states that post-dated cheques are the only forms of rent payment accepted?

    As per section 108 of the Residential Tenancies Act, a landlord cannot require tenants or prospective tenants to provide post-dated cheques, other negotiable instruments, automatic debit from a financial institution, credit or any other form of payment.


  • I have been renting to my tenant for 2 years and just learned that I have to pay interest on the last month’s rent deposit.

    The easiest way to calculate the interest rate is to use the rent increase guidelines. Rent increases need to be accounted for differently each year based on the rent increase guidelines. Suppose your tenant moved into the rental unit on January 1, 2018. In January 2019, the first interest payment will be due, then yearly thereafter. 

  • The tenancy ended a few months ago and my former tenant is asking me for a receipt for rent paid via direct deposit last year. Why can she not get this receipt from her bank? Do I have to provide her with the rent receipt?

    Per section 109 of the Residential Tenancies Act (RTA), rent receipts must be provided to current and former tenants. Former tenants may request receipts from you up to 12 months after their tenancy ends. 


    Under the RTA, refusing to issue receipts is an offence.