Rent Deposits in Ontario: Last Month's Rent, Key Deposits and What Landlords Cannot Ask For

Most Ontario leases start with the same request: first and last month's rent. The first month is simply rent paid in advance. The second payment is the rent deposit, usually called the last month's rent deposit or LMR, and it is governed by section 105 and section 106 of the Residential Tenancies Act (RTA).

The three limits that apply to every rent deposit

• Timing: the landlord can only require a rent deposit on or before the day the tenancy agreement is entered into. A landlord cannot come back three months into the lease and ask for one.
• Amount: the deposit cannot be more than the rent for one rental period. For a monthly tenancy that means one month of rent, so a unit renting at 2,200 dollars a month comes with a maximum deposit of 2,200 dollars. If you pay weekly, the cap is one week of rent.
• Purpose: the deposit can only be applied to the rent for the last rental period before the tenancy ends. It is not a fund the landlord can dip into for repairs, cleaning or unpaid bills.

The deposit is still your money

Think of the LMR deposit as rent paid early rather than a fee. The landlord holds it, owes you interest on it, and must put it toward your final month. You are entitled to a free receipt for it, as for any rent payment; ask for one that says what the money was for.

One caveat: these rules only apply where the RTA applies. If you rent a room and share a kitchen or bathroom with the owner or the owner's immediate family, most of the Act does not cover you, and neither do the deposit protections below. For a self-contained apartment, condo, basement unit or house, they do.

Renters arriving from other provinces are often surprised by how short the list of permitted charges is in Ontario. Section 134 of the RTA bars a landlord from collecting any fee, premium, bonus, penalty, deposit or similar amount beyond lawful rent, with only the exceptions set out in the regulations. In practice that rules out all of the following.

Security deposits and damage deposits

There is no such thing as a legal security deposit or damage deposit in Ontario. A landlord cannot hold money against possible damage to the unit, and cannot keep part of the rent deposit for repairs when you leave. If a landlord believes a tenant damaged the unit, the remedy is an application to the Landlord and Tenant Board (LTB) or a court claim, where the landlord has to prove the damage and its cost.

Pet deposits, cleaning fees and move-in charges

• Pet deposits: not permitted, and a no-pets clause in a lease is void under the RTA anyway (with narrow exceptions such as condo rules or allergies).
• Cleaning or carpet fees: not permitted as a deposit or a charge at signing.
• Application or holding fees: a landlord cannot charge you to apply, to be put on a list or to hold a unit.
• Post-dated cheques: a landlord can offer them as an option but cannot require them, and cannot require automatic debits as a condition of renting.

What if the lease says otherwise

Any clause in a lease that conflicts with the RTA is void, even if you signed it. A line that says the tenant agrees to a 500 dollar damage deposit does not make that deposit legal. The money is recoverable, and the clause cannot be enforced against you.

The regulations under the RTA allow a landlord to collect a refundable deposit for keys, remote entry devices or access cards. This is the only deposit other than the rent deposit that a landlord can lawfully ask for, and it comes with strict conditions.

Rules for a lawful key deposit

• It must be refundable. When you return the keys, fobs or cards at the end of the tenancy, the full deposit comes back to you.
• It cannot exceed the expected direct replacement cost. A fob for a condo building might genuinely cost a hundred dollars or more to replace, but a standard metal key does not. A 500 dollar key deposit for two ordinary keys is not a key deposit, it is an illegal security deposit with a different label.
• It is for the keys, not the unit. The landlord cannot keep a key deposit because of a dispute about cleaning, damage or rent.

Replacement keys during the tenancy

If you lose a key or fob, the landlord can charge you the actual cost of replacing it, but nothing more. A landlord also cannot charge for a key you are entitled to receive, for example after the landlord changes a lock.

Keep a paper trail

Ask for a receipt that lists how many keys, fobs or cards you received and the deposit amount. When you move out, hand everything over in person if you can and get a signed note confirming the return.

The rule most renters never hear about is interest. Under section 106 of the RTA, a landlord holding a rent deposit must pay the tenant interest on it every year. Here is how it works.

Step 1: The rate is set by the annual guideline

The interest rate is the same as the rent increase guideline the Ontario government publishes each year for that year. The guideline changes annually, so the interest you are owed in one year may differ from the next. The current figure is published on the Ontario government's renting pages at ontario.ca.

Step 2: Interest comes due once a year

Interest is payable annually, on the anniversary of the date the deposit was collected. If the landlord holds a 2,000 dollar deposit and the guideline for that year were 2 percent, the interest owed would be 40 dollars. (That rate is an illustration only; check the published guideline for the year in question.)

Step 3: The landlord may use the interest to top up the deposit

After a lawful rent increase, the landlord may require the deposit to be topped up to the new rent, and may apply the annual interest toward that top-up instead of paying it out. For many tenants the interest never appears as a cheque; it quietly raises the deposit to the current rent. Any interest left over after the top-up still has to be paid to you.

Step 4: If the landlord does not pay

If the landlord fails to pay the interest when it is due, the RTA lets you deduct the unpaid interest from a later rent payment. Calculate the amount, tell the landlord in writing what you are deducting and why, and keep a copy. You can also claim it through an LTB application, covered below.

Step 5: Keep your own running total

Few landlords send an annual interest statement. Note the deposit date, the amount and each year's guideline rate; the interest is modest, but it is yours.

The rent deposit does not come back as a refund. The landlord applies it to the rent for your last rental period, so you do not pay rent for your final month. Here is how that plays out in the common scenarios.

You give proper notice and leave at the end of a rental period

If your rent is 2,000 dollars and the deposit on file is 2,000 dollars, your last month is covered in full. If the deposit was never topped up after rent increases, say it is still 1,900 dollars, you owe the 100 dollar difference. Confirm the exact figure with the landlord in writing a month or two before you leave.

You move out early or assign the lease

If you end the tenancy early by agreement with the landlord, or you assign the lease to a new tenant with the landlord's consent, the deposit is still applied to the last rental period of your tenancy, whenever that is. In an assignment, make sure the written agreement says what happens to your deposit; usually the incoming tenant pays their own and yours is applied to your last month.

The landlord says the unit is damaged

The landlord cannot hold back any part of the rent deposit for damage, cleaning or missing items. The deposit must be applied to rent. If the landlord believes there is damage beyond normal wear and tear, the correct route is an application to the LTB (or court) for compensation, with photos, invoices and proof that the damage was caused by the tenant. Normal wear such as small nail holes or faded paint is not damage.

You leave without notice

If you leave without proper notice, the deposit is still applied to your last rental period, but the landlord may claim rent for the notice period you did not give. Giving at least 60 days of notice ending on the last day of a rental period avoids this entirely.

Most Ontario landlords follow these rules. Problems tend to show up with inexperienced landlords, informal room rentals and outright scams. Here is how to spot one and what to do about it.

Red flags to watch for

• A request for first, last and a security deposit, or for a damage deposit of any size.
• A deposit larger than one month of rent, or a deposit requested after you have already moved in.
• A key deposit that is far above what the keys or fobs would cost to replace.
• Pressure to e-transfer a deposit before you have seen the unit, met the landlord or received a signed lease. This is the pattern rental scams follow.
• A refusal to provide a receipt, or a lease clause stating that the deposit is non-refundable.

How to get illegal charges back: the T1 application

If you have already paid an illegal deposit or fee, or the landlord owes you interest or a key deposit refund, you can file a T1 application (Tenant Application for a Rebate of Money the Landlord Owes) with the Landlord and Tenant Board. The forms and filing instructions are on the Tribunals Ontario website at tribunalsontario.ca. Keep these points in mind:

• Deadline: a T1 must be filed within one year after the money was collected or became owing, so do not wait for move-out day if that is further away.
• Evidence: bring the lease, receipts, bank or e-transfer records and any messages in which the landlord asked for or acknowledged the money.
• Scope: the LTB can order the landlord to repay the amount; it can also order repayment of unpaid deposit interest.
• Free help: community legal clinics funded by Legal Aid Ontario advise eligible tenants at no cost, and the Ontario government's renting pages at ontario.ca explain the process in plain language.

Checklist before you pay any money

• View the unit in person, or have someone you trust view it for you.
• Confirm who the landlord is and that the person collecting money is the owner or an authorized agent.
• Read the lease, ideally the Ontario standard lease, and check that the only deposit listed is a rent deposit of no more than one month of rent, plus a reasonable refundable key deposit if any.
• Pay by a traceable method, never cash without a receipt, and never a wire or gift card.
• Get a receipt that names the amount and the purpose of every payment.
• Write down the deposit date so you can track the annual interest.

Knowing the deposit rules makes it easier to walk away from a bad listing and commit confidently to a good one. When you are ready to look, browse current apartments, condos and houses for rent across Toronto, the GTA and the rest of Ontario on GottaRent and compare what your budget gets you before you hand over a single dollar.