Area of Law: Landlord and Tenant
Answer # 436
Rent, security deposits and interestRegion: Ontario Answer # 436
The only deposit legally allowed is a rent deposit
Most landlords require that new tenants pay a deposit before they move in. When a landlord asks a tenant to pay the last month’s rent, this is a rent deposit not a security deposit. Security deposits are not allowed in Ontario. Generally, landlords are not allowed to charge tenants additional fees or charges above rent. For example, a landlord cannot charge a “key deposit,” or a repair deposit, or any amount other than a last month’s rent deposit. One exception to this is found under Section 17(3) of the Residential Tenancies Act: “payment of a refundable key, remote entry device or card deposit” is allowed as long is it is “not greater than the expected direct replacement costs”.
If the landlord charges a rent deposit, it must be held and used to cover the tenant’s last month’s rent. Each time the rent increases, the landlord can require the tenant to top up their last month’s rent deposit to the new amount.
Landlords required to pay annual interest on last month’s rent
Since the landlord does not use the rent deposit until the end of the tenancy, the landlord is required to pay the tenant interest on the deposit. However, if a tenant rents a unit for only part of a year, the interest owing is proportionate to the length of time that the deposit was held by the landlord.
Although landlords are supposed to pay interest to tenants every 12 months, if they do not, the interest owing to the tenant is compounded each year. Interest is payable on the total rent amount being held by the landlord, including any subsequent increases in rent.
If tenants want to collect the interest owing, they may be able to subtract it from their rent if the landlord consents. If a landlord refuses to pay interest to a tenant, the tenant can apply to the Landlord and Tenant Board for an order requiring the landlord to pay, or for an abatement of rent.
For additional information about security deposits, rent deposits and interest, visit the Landlord and Tenant Board.
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