Real Property
Management Service

Security deposits in Ontario

Residential Security Deposits in Ontario, Updated

A common question from landlords revolves around Security deposits and how much is acceptable. Landlords are looking to protect their investment and always ask about damage & pets deposits.

In Ontario, you are only allowed to collect deposits for residential tenants for Last month’s rent and a refundable key deposits.

The last month’s rent is really just as it sounds, this is the tenants last month’s rent. You cannot apply the last month’s rent to any other expenses or damages.

Paying interest to your tenants on Security Deposits / Last Months Rent

Interest must be paid to your tenant’s yearly. The amount is equal to the rental increase guideline published by the Ontario Government.

Pro tip: You can apply your last month’s rent interest to increase the last month’s rent.  Every year your rent goes up, so should your last month’s rent deposit.

You can not apply the last month’s rent to a month’s rent if the tenant is late.  The money should also always be available and held separately as it is legally the tenant’s funds you are holding.

Do you apply the Last Months Rent applied to the 11th month of a lease?

A common mistake revolving around new landlords is when to apply the last month’s rent. For example, you have a tenant on a 12 months lease.  You collected first and last months rent along with 10 postdated cheques. So when do you apply the Last Months Rent, is it in the 12th month? That all depends on when your tenants move out. If your tenants don’t provide you notice by end of the 10th month then expect a payment a payment for the 12th month.

Pro tip: if your tenants do serve notice to vacate, you should expect a cheque and serve notice to evict if it is not received as you only truly know when you tenants last month is when they are gone.

How refundable key deposits work

A refundable key deposit under the Residential Tenancy Act has to be reasonable. The Landlord and Tenant Board really want to see this at the actual material cost of getting keys copied. For example, your house has a standard deadbolt the typical cost for a key is under $5, a $200 deposit would not be considered reasonable.

Many condominiums these days have very expensive key replacements costs, keep in mind that you may need 2-3 copies of keys and fobs for the tenants, at $50 a fob and $25 a key requiring a deposit of $300 could be justified.

Pet Deposits, Damage Deposits, and Pre Paying extra Last Months Rent.

Should you ask your tenant for an additional deposit and they pay, be aware you could be ordered to pay the money back to the tenant and may face a penalty under the Residential Tenancy Act.  Getting creative requesting a deposit in different forms also does not work and may even have you defending your self in the Ontario Human Rights as many small landlords treat people new to Canada or people without credit history differently.

So please keep these facts in mind when you next decided to ask for a deposit.