Last month's rent deposit: what is and is not allowed in Ontario

Rent deposits are one of the most misunderstood parts of renting in Ontario. Tenants worry about getting their money back, and landlords sometimes ask for things the law does not actually allow.

Here is a plain-language walk through the rules, based on the Residential Tenancies Act and the province's own guide for tenants and landlords. If you manage rentals across the GTA, knowing these rules cold saves you headaches later.

What deposit can a landlord actually collect in Ontario?

That single rule clears up most of the confusion. There is no such thing as a legal damage deposit in Ontario residential rentals.

How much is a last month's rent deposit allowed to be?

A rent deposit cannot exceed one rental period. The length of that period depends on how rent is charged, not on how long the lease runs.

• Monthly tenancy: the deposit cannot be more than one month's rent.
• Weekly tenancy: the deposit cannot be more than one week's rent.
• First and last: a landlord can collect first month's rent plus a last month's rent deposit, but nothing extra stacked on top of that.

If a landlord asks for two months as a deposit, or first, last, and a separate security amount, that request goes beyond what the Act permits.

What can the deposit be used for, and what is off limits?

The deposit can only be applied to the rent for the last rental period of the tenancy. It cannot be used to cover damage, cleaning, unpaid utilities, or anything else.

• Allowed: holding the deposit and applying it as rent for the final rental period.
• Not allowed: keeping the deposit for damage, wear and tear, cleaning, or missing keys beyond the actual replacement cost.
• Key deposits: a landlord can charge a refundable amount for keys, fobs, or cards, but only up to the actual cost of replacing them, and it must be returned when the tenant hands them back.

Does the landlord have to pay interest on the deposit?

Yes. The landlord must pay the tenant interest on the rent deposit once a year. The interest rate is tied to the annual rent increase guideline that applies at the time the interest is owed.

Because rent tends to rise over a long tenancy, the interest is often used to top up the deposit so it still equals one full rental period. If rent has gone up, the landlord can apply the interest owed toward the increase in the deposit rather than paying it out separately.

These are round, made-up numbers to show the shape of the calculation. The real rate follows the province's guideline for the year in question, so check the current figure before you rely on it.

What should tenants and landlords do to stay onside?

Keep it simple and keep records. Most disputes come from money collected that never should have been, or interest that was never paid.

• Tenants: only agree to first plus last, get a receipt, and ask about your yearly interest.
• Landlords: never label a deposit as damage or security, track the interest owed each year, and apply the deposit only to the last rental period.
• Both: put the deposit terms in writing on the lease so there is no confusion at move-out.

Frequently asked

Can a landlord in Ontario ask for a damage deposit?

No. In Ontario the only deposit a landlord can collect is a rent deposit, and it can only be applied to the last rental period of the tenancy. A separate damage deposit, key deposit beyond the actual cost of the key, or cleaning deposit is not permitted under the Residential Tenancies Act.

How much can a landlord collect for last month's rent?

A rent deposit cannot be more than one rental period. For a monthly tenancy that means one month's rent, and for a weekly tenancy it means one week's rent. A landlord cannot ask for more than that, and cannot ask for first and last plus an extra deposit on top.

Does a landlord have to pay interest on the last month's rent deposit?

Yes. The landlord must pay the tenant interest on the rent deposit once a year. The interest rate is the same as the annual rent increase guideline in effect at the time the interest is due, and the deposit and its interest are applied to the last rental period.