Security Deposits in Ontario

The Short Answer: No Security Deposits

Under the Residential Tenancies Act (RTA), Ontario landlords cannot collect a security deposit or damage deposit. This is one of the most misunderstood aspects of Ontario landlord-tenant law. If you are coming from another province or country where damage deposits are standard, this rule may be surprising, but it is the law.

The only deposit a landlord can legally collect at the start of a tenancy is a rent deposit, commonly referred to as last month's rent (LMR). This deposit can only be applied to the last month of the tenancy. It cannot be used to cover damages, cleaning costs, or any other expenses.

Last Month's Rent Deposit

The rent deposit cannot exceed one month's rent (or one week's rent for weekly tenancies). It must be applied to the last rental period of the tenancy. You cannot use it for any other purpose, including repairs or unpaid utility bills.

If you increase the rent during the tenancy, you have the right to request that the tenant top up the rent deposit to match the new rent amount. However, the tenant can choose to pay the difference in monthly instalments rather than a lump sum.

You are also required to pay interest on the rent deposit annually. The interest rate is set by the Ontario government and corresponds to the annual rent increase guideline. This interest can be paid directly to the tenant or applied as a credit against a rent increase.

What About Damage

If a tenant damages your property beyond normal wear and tear, you cannot simply deduct the cost from their deposit, because the deposit can only be applied to the last month's rent. Instead, you have two options for recovering the cost of damages.

First, you can file an application with the Landlord and Tenant Board (LTB) while the tenant is still in possession of the unit or within one year after they leave. The LTB can order the tenant to pay compensation for damages. Second, you can pursue the matter through Small Claims Court if the amount is within its jurisdiction.

This is why thorough documentation is essential. Take detailed photos and videos of the unit before the tenant moves in and after they move out. These records serve as evidence if you need to file a claim for damages.

Deposits You Cannot Collect

• Damage deposit or security deposit of any kind
• Pet deposit (even if you allow pets)
• Cleaning deposit
• Move-in or move-out fees
• Post-dated cheques as a condition of the tenancy (you can accept them voluntarily but cannot require them)

If you collect an illegal deposit, the tenant can apply to the LTB to have it returned. The Board may also order you to pay the tenant's filing costs. Collecting illegal deposits is a common reason landlords face LTB complaints, so understanding these rules is critical.

Practical Tips for Protecting Your Property

Since you cannot collect a damage deposit, protecting your property comes down to prevention and documentation. Screen your tenants thoroughly, maintain the property proactively, and build a positive landlord-tenant relationship that encourages your tenant to take care of the unit.

• Conduct thorough tenant screening before signing the lease
• Document the unit's condition with photos and video at move-in and move-out
• Require tenant insurance, which covers the tenant's liability for accidental damage
• Address maintenance issues promptly to prevent small problems from becoming large ones
• Conduct periodic inspections with proper notice (24 hours minimum)

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