When starting a new tenancy in Ontario, the exchange of money between landlords and tenants often extends beyond the first month's rent. However, Ontario's Residential Tenancies Act (RTA) strictly regulates what deposits landlords can collect, creating a complex landscape that both parties frequently misunderstand. The consequences of getting it wrong can be significant, with landlords facing orders to repay thousands of dollars in illegally collected deposits.
Understanding Ontario's deposit rules isn't just about compliance—it's about protecting your rights and avoiding costly disputes at the Landlord and Tenant Board (LTB). Whether you're a tenant who suspects your landlord collected illegal deposits or a landlord wanting to ensure your practices are lawful, this comprehensive guide will clarify what's allowed, what's prohibited, and how these disputes typically unfold.
What the Law Allows: The One-Deposit Rule
Ontario's approach to rental deposits is surprisingly restrictive compared to other jurisdictions. Under Section 105 of the RTA, landlords can collect only one type of deposit: a last month's rent deposit, and it cannot exceed the amount of one month's rent.
This means that regardless of the rental amount, property value, or perceived risk, landlords are limited to collecting:
- First month's rent (due upon occupancy)
- Last month's rent deposit (maximum one month's rent)
- Nothing else
The simplicity of this rule is deceptive, as the cases we'll examine show that both landlords and tenants frequently misunderstand its implications.
The Prohibited Deposits: What Landlords Cannot Collect
Security Deposits
Security deposits—money held to cover potential damage to the rental unit—are completely prohibited in Ontario, regardless of the amount or the tenant's agreement to pay them.
KN-and-TN-v-MB-and-AB-20160711 demonstrates this principle clearly. The landlords collected a $500 security deposit in addition to the last month's rent deposit, even though the tenants had agreed to it in their lease. The LTB found this violated Section 105 of the RTA, noting that "the Act applies despite any agreement or waiver to the contrary, so the agreement is unenforceable." The landlords were ordered to pay $582.43, including the $500 security deposit, interest, and the application filing fee.
In zhou-v-he-20240906, a landlord collected an illegal damage deposit of $6,400 in addition to the last month's rent deposit. The LTB ordered the full amount returned, demonstrating that the size of the illegal deposit doesn't matter—all security deposits are prohibited.
Key Deposits
Key deposits represent one of the most commonly misunderstood areas of Ontario rental law. While landlords often view key deposits as reasonable protection against the cost of replacing locks, the RTA treats them as illegal charges.
LS-v-CY-20170413 illustrates this principle. The landlord collected a key deposit and later discovered $8,500 in damage to the rental unit after the tenant vacated. Despite wanting to apply the last month's rent deposit to cover repair costs, the LTB ruled that "the Landlord is required to apply the Tenant's last month's rent deposit to the last month's rent, and cannot use it for any other purpose." Additionally, "the key deposit must be refunded to the Tenant, as a key deposit is considered an illegal charge under the Residential Tenancies Act."
However, the practical reality of key deposits creates some nuance. In FM-v-FS-20190408, a tenant paid a $500 deposit for "damages, keys, smoke alarm and carbon monoxide detector" but failed to return the keys when vacating. The landlord incurred $140 to replace the locks. The LTB found that while the deposit was largely illegal, the $140 cost for lock replacement was "considered a refundable key deposit that the Tenant forfeits" due to not returning the keys. The landlord was ordered to return $360 of the $500 deposit.
Pet Deposits
Pet deposits are another category of prohibited charges, regardless of whether the landlord allows pets or has concerns about potential pet-related damage.
chiasson-v-kaur-20240619 involved a landlord who collected a $300 pet deposit along with a $300 key deposit and failed to apply the $2,200 last month's rent deposit properly. The LTB ordered the landlord to pay $4,010.28, including refunds of both illegal deposits.
Utility and Other Deposits
Landlords sometimes attempt to collect deposits for utilities, garbage, or other services, but these are also prohibited under the RTA.
adam-kendall-v-christine-carr-20230425 involved a landlord who collected a $2,000 garbage deposit and $200 key deposit in addition to the last month's rent deposit. The LTB ordered the landlord to pay $2,332.20, including the return of both illegal deposits and interest on the last month's rent deposit.
terpening-v-lu-20241121 shows how creative landlords can get with illegal charges. The landlord collected a $300 key deposit, $800 water security deposit, $1,000 pet security deposit, and even charged $100 for electrical panel repair. The LTB found all these charges illegal, noting that "security deposits for water and pets are not allowed under the Act" and that landlords are "responsible for repairs due to normal wear and tear." The total award was $2,400.40.
Last Month's Rent Deposit: The Rules and Complications
While landlords can collect a last month's rent deposit, this seemingly simple concept creates numerous complications in practice.
Interest Requirements
Landlords must pay annual interest on last month's rent deposits, calculated according to the rent increase guideline percentage set by the province each year.
jayaraman-v-modi-20240730 involved a landlord who collected an illegal $200 security deposit and failed to pay interest on the last month's rent deposit. The LTB ordered payment of $261.07, which included the illegal deposit, interest owed, and the application fee.
Proper Application of the Deposit
The last month's rent deposit must be applied to the actual last month of the tenancy, not retained for damage repairs or other purposes.
dimitropoulos-v-yazdi-20240327 demonstrates the importance of proper deposit application. The original LTB order found that the landlord had applied the last month's rent deposit to the final month's rent, which the tenant disputed. On review, with new evidence showing the tenant had actually paid the October 2022 rent, the LTB found the landlord had "unlawfully retained the Last Month's Rent deposit" and ordered payment of $1,210.00 plus costs.
Partial Month Calculations
When tenancies end mid-month, landlords must calculate the proper application of the last month's rent deposit and return any unused portion.
bennett-v-toor-20230926 involved tenants who moved out on January 21, 2022, but the unit was re-rented with a new tenant moving in on February 15 or 20, 2022. The LTB found that "landlord cannot collect rent from different tenants for the same rental period" and ordered the landlord to refund $667.38 for the period from February 15 to February 28, 2022, plus the $25 key deposit.
Common Landlord Mistakes and Their Consequences
Collecting Multiple Deposits
The most common violation involves landlords collecting security deposits in addition to the last month's rent deposit, often justified by concerns about potential damage or the tenant's agreement.
RD-and-SC-v-AZ-20181002 involved a landlord who collected a $250 security deposit and failed to pay interest on a $2,500 last month's rent deposit. The case was complicated by a bad faith N12 eviction notice, resulting in a total award of $5,148.22, including compensation for the tenants' increased rent costs and moving expenses.
Exceeding the One-Month Limit
Some landlords attempt to collect more than one month's rent as a deposit, which violates the RTA's clear limits.
M-W-v-W-Y-T-20180509 involved a landlord who "improperly required two months' rent as a deposit, which is not allowed in Ontario." The LTB ordered the return of $1,150, representing both the excess security deposit and last month's rent.
Retaining Deposits for Damage
Landlords cannot use last month's rent deposits to cover damage repairs, even when significant damage exists.
Hitimana-v-Sterling-Silver-Development-20210531 involved a landlord who retained the tenant's last month's rent deposit after the tenant passed away, claiming damage to the unit. The LTB ruled that "the Landlord was not entitled to deduct any alleged damages from the deposit" and ordered the return of $1,476.08.
Tenant Rights and Remedies
The T1 Application Process
Tenants who believe their landlord has collected or retained money illegally can file a T1 application with the LTB. This application covers various illegal charges, including prohibited deposits.
The application must be filed within one year of the tenancy ending or the illegal collection occurring. Tenants should gather evidence including:
- Receipts showing payments made
- Lease agreements or written communications about deposits
- Evidence of key return (for key deposit claims)
- Documentation of the tenancy end date
Potential Awards
Successful T1 applications typically result in orders requiring landlords to pay:
- The full amount of any illegal deposits
- Interest on last month's rent deposits (where applicable)
- The tenant's application filing fee
- Interest on outstanding amounts if not paid by the deadline
Camirand-v-Zheng-20211101 shows a substantial award where landlords were ordered to pay $2,257.35, including a $1,900 last month's rent deposit, $200 key deposit, and $107.35 in interest on the rent deposit.
Limitation Periods
Tenants must be aware of limitation periods for filing T1 applications. Generally, applications must be filed within one year of the tenancy ending or the illegal collection occurring.
luan-v-song-20241220 demonstrates this principle. While the tenant successfully recovered a $200 key deposit, their claim for a $1,200 damage deposit was "dismissed as filed too late."
Best Practices for Landlords
Stick to the Basics
The safest approach for landlords is to collect only:
- First month's rent upon occupancy
- Last month's rent deposit (maximum one month's rent)
- Nothing else
Proper Documentation
Landlords should:
- Provide written receipts for all money collected
- Clearly identify what each payment represents
- Maintain records of annual interest payments on last month's rent deposits
- Document the proper application of deposits at tenancy end
Interest Calculations
Landlords must pay annual interest on last month's rent deposits. The interest rate is set annually by the province and typically matches the rent increase guideline percentage.
Tenancy Termination Procedures
When tenancies end, landlords must:
- Apply the last month's rent deposit to the final month's rent
- Calculate any pro-rated refunds for partial months
- Return any unused portion of the deposit
- Pay any outstanding interest on the deposit
Red Flags for Tenants
Tenants should be alert to these common illegal practices:
Multiple Deposit Requests
Any request for deposits beyond the last month's rent should raise immediate concerns. Common illegal requests include:
- Security deposits for potential damage
- Key deposits for lock replacement costs
- Pet deposits for animal-related damage
- Utility deposits for service connections
- Cleaning deposits for move-out cleaning
Excessive Last Month's Rent Deposits
Requests for more than one month's rent as a deposit violate the RTA, regardless of the rental amount or property type.
Deposit Retention at Tenancy End
Landlords who refuse to apply last month's rent deposits to the final month or who retain deposits for damage repairs are violating the law.
The Economics of Illegal Deposits
The financial impact of illegal deposit collection can be substantial for both parties. For tenants, illegal deposits can represent significant upfront costs that may strain budgets and create barriers to housing access. For landlords, the consequences of collecting illegal deposits often exceed the original amounts collected.
YK-v-JHL-2016-TNT-81730-16 illustrates this point. The landlord collected illegal deposits and implemented rent increases without proper notice. The total award of $3,735.00 for "illegally collected deposits, void rent increases, and unpaid interest on the rent deposit" far exceeded what the landlord would have saved by following the law.
Special Circumstances and Exceptions
Death of Tenant
When a tenant dies, the last month's rent deposit must still be properly applied to the final period of occupancy, with any unused portion returned to the estate.
Resch-v-Lakebreeze-Niagara-Studio-Suites-20200911 involved a tenant who passed away on October 11, 2019. The LTB found that landlords were "entitled to apply deposit to October 1-11, 2019 rent" but that the "Tenant's Estate entitled to remainder of deposit for Oct 12-31, 2019" plus interest. The estate was awarded $896.21.
Early Termination Scenarios
When tenants terminate tenancies early, the application of last month's rent deposits can become complex, particularly in fixed-term leases.
Assignment and Subletting
The rules around deposit transfers in assignment and subletting situations require careful attention to ensure compliance with the RTA.
Enforcement and Compliance
LTB Approach to Deposit Violations
The LTB takes a strict approach to deposit violations, consistently ruling that illegal deposits must be returned regardless of:
- Tenant agreement to pay them
- Lease provisions authorizing them
- The landlord's good faith belief in their legality
- The existence of actual damage or costs
Landlord Defenses That Don't Work
Common landlord arguments that consistently fail at the LTB include:
- "The tenant agreed to pay it"
- "It's in the lease agreement"
- "Other landlords do it"
- "We need protection against damage"
- "The deposit covers actual costs incurred"
Recent Trends and Developments
Increased Enforcement
Recent LTB decisions show increased awareness of deposit violations, with more tenants successfully challenging illegal collections.
Higher Award Amounts
The financial consequences for landlords collecting illegal deposits have grown, with awards often including interest, application fees, and in some cases, additional compensation.
Educational Initiatives
Various organizations have increased efforts to educate both landlords and tenants about proper deposit practices, though violations remain common.
Practical Implications
For Tenants
- Know Your Rights: Understand that only last month's rent deposits are legal
- Document Everything: Keep receipts and records of all payments made
- Act Quickly: File T1 applications within the one-year limitation period
- Seek Help: Consider legal advice or paralegal assistance for complex cases
For Landlords
- Review Current Practices: Audit your deposit collection procedures
- Update Lease Forms: Ensure lease agreements don't reference illegal deposits
- Train Staff: Educate property managers and staff about legal requirements
- Seek Professional Advice: Consult with legal professionals when uncertain
The Broader Housing Context
Ontario's restrictive approach to rental deposits reflects broader policy goals around housing accessibility and tenant protection. By limiting upfront costs, the province aims to reduce barriers to rental housing, particularly for lower-income tenants who might struggle to pay multiple deposits.
However, this approach also creates challenges for landlords who may feel exposed to potential losses from tenant damage or non-payment. Understanding and working within these constraints is essential for successful property management in Ontario.
Key Takeaways
- One Deposit Only: Landlords can collect only a last month's rent deposit, maximum one month's rent
- No Security Deposits: All forms of security deposits are prohibited, regardless of amount or tenant agreement
- Key Deposits Are Illegal: Despite common practice, key deposits violate the RTA
- Interest Must Be Paid: Annual interest is required on last month's rent deposits
- Proper Application Required: Deposits must be applied to the last month's rent, not retained for other purposes
- Violations Have Consequences: Illegal deposit collection often results in orders exceeding the original amounts
- Time Limits Apply: Tenants have one year to challenge illegal deposits through T1 applications
- Documentation Matters: Both parties should maintain detailed records of all financial transactions
Moving Forward
The deposit rules in Ontario's rental market are clear in principle but complex in application. For landlords, the key is understanding that the province has chosen to prioritize housing accessibility over landlord protection through deposits. This means developing alternative strategies for managing risk while staying within legal boundaries.
For tenants, knowledge of these rules provides powerful protection against illegal charges and can result in significant financial recovery when violations occur. The cases examined here demonstrate that the LTB consistently enforces these rules, making it worthwhile for tenants to challenge suspected violations.
As Ontario's rental market continues to evolve, these fundamental rules around deposits remain constant. Success in navigating this landscape requires understanding not just what the law says, but how it's applied in practice through real LTB decisions. Whether you're starting a new tenancy or dealing with an existing dispute, these principles provide the foundation for protecting your rights and interests in Ontario's rental housing market.
The deposit dilemma in Ontario rental housing ultimately comes down to a simple principle: less is more. By keeping deposit practices simple and legal, both landlords and tenants can avoid the costly disputes that arise when these clear rules are ignored or misunderstood.
