The only legal deposit a landlord can collect from a tenant in Ontario, held as prepayment for the final month of the tenancy. The deposit is equal to one month's rent at the time of collection and must be applied to the last month the tenant lives in the unit. The landlord must pay annual interest on this deposit at the rate set by the provincial rent increase guideline. If rent increases during the tenancy, the landlord can ask the tenant to top up the deposit to match the current rent.
Why It Matters
Last month's rent is your only allowable deposit as an Ontario landlord -- there are no damage deposits, no pet deposits, and no extra security deposits. This means your financial exposure if a tenant causes damage is real. It's one more reason why thorough tenant screening and detailed move-in condition reports are so important.
Real-World Example
You rent out a condo near Dundas and Ossington for $2,300 per month. At the start of the tenancy, you collect first month's rent ($2,300) and last month's rent ($2,300) for a total of $4,600. After two years, you increase the rent by the guideline to $2,415. You notify the tenant in writing that the last month's rent deposit needs to be topped up by $115 to match the new rent amount. The tenant can either pay the top-up or have it applied as a credit against their next rent increase. You also owe the tenant interest on the deposit each year at the guideline rate.
Ontario & GTA Context
Under Section 106 of Ontario's Residential Tenancies Act, the landlord may only collect a deposit equal to one month's rent to be applied to the last month of the tenancy. The landlord must pay interest on this deposit annually at the rate equal to the rent increase guideline. If the rent increases during the tenancy, the landlord may request the tenant top up the deposit to match the current rent. The tenant can choose to pay the top-up or have the landlord deduct the interest owed from the difference. The deposit cannot be used for anything other than the final month's rent.
How It Works in Practice
Collect the last month's rent deposit at the start of every tenancy -- it is your only permitted deposit in Ontario. Track the annual interest you owe and communicate it to the tenant each year. When the tenant gives notice to leave, apply the deposit (plus accumulated interest) to their final month. If the deposit has not been topped up to reflect rent increases, the tenant owes the difference for that final month.
Common Questions
Can a landlord use the last month's rent deposit for damages?▾
Does the landlord have to pay interest on the last month's rent deposit?▾
Related Guides
Need Guidance?
Get a second opinion on your real estate situation. No pressure, no obligation.
The RAZZ Report
Market insights and practical advice delivered to your inbox.