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A Landlord’s Guide to Rental Deposits in Ontario Canada 2024
Are you a landlord or property manager in Ontario and wondering if your rental deposit is refundable? Are you unsure if security deposits are legal in the province? Or are you simply looking to understand the different types of deposits in Ontario? Well, you’ve come to the right place!
In this article, we will provide you with the information you need about rent deposits in Ontario. So, let’s dive in and clear up any confusion regarding rent deposits in Ontario.
What is a Rent Deposit?
In Ontario, landlords typically require rent deposits as a form of security against any potential damages or unpaid rent. It serves as a safeguard for landlords in case tenants fail to meet their financial obligations or cause any harm to the property.
Rent Deposit and Residential Tenancies Act (RTA)
The Residential Tenancies Act (RTA) states the following about rent deposits and security rent deposits:
A “security deposit” is defined as:
money, property or a right paid or given by, or on behalf of, a tenant of a rental unit to a landlord or to anyone on the landlord’s behalf to be held by or for the account of the landlord as security for the performance of an obligation or the payment of a liability of the tenant or to be returned to the tenant upon the happening of a condition.
105 (1) The only security deposit that a landlord may collect is a rent deposit.
Rent deposit may be required
106 (1) A landlord may require a tenant to pay a rent deposit with respect to a tenancy if the landlord does so on or before entering into the tenancy agreement.
Amount of rent deposit
(2) The amount of a rent deposit shall not be more than the lesser of the amount of rent for one rent period and the amount of rent for one month.
(3) If the lawful rent increases after a tenant has paid a rent deposit, the landlord may require the tenant to pay an additional amount to increase the rent deposit up to the amount permitted by subsection (2)
Types of Rent Deposits in Ontario
There are various types of Rent Deposits in Canada, and some of them are legal in Ontario, which are briefed as follows:
Rent Deposits
Rent deposits, also called Last Month Rent (LMR) are taken to cover the rent payment for the last month’s rent of the tenancy only, nothing else. The payment is made on moving or before moving into the rental property. The tenant is entitled to a receipt for the rent deposit.
Key Deposits
Key deposits are funds for emergencies related to the rental unit’s key. The fund covers the replacement of a lost or damaged key. If the key is not used during the tenancy, it is refunded at the end of the tenancy. The tenant is entitled to a receipt for the key deposit.
Damage Deposits
Damage deposits are funds to cover repairs for any damage done to the rental property by the tenant. It is not legal in Ontario for landlords to take damage deposits from the tenant.
Pet Deposits
Pet deposits are funds to cover the potential cost of owning a pet in a rental unit. In Ontario, landlords are not allowed legally to take pet deposits from tenants.
How Does First and Last Month Rent Work?
The landlord or the property manager collects the first month’s rent and last month’s rent upon signing the lease agreement. The first-month rent is the rent for the initial month of the tenancy and is not a rental deposit.
However, the last month’s rent collected during the lease agreement is the rental deposit, which is used as the rent payment for the last month of tenancy. This means that the tenant is only required to pay the second last month’s rent during the end of the tenancy.
It must be stated that the rental deposit is subject to refund after the lease has been signed, but the landlord has changed his or her mind about not allowing the tenant to move in.
Rent Deposit Receipt in Ontario
Like any payment that requires a receipt, the rental deposit requires a written receipt from the landlord or the property manager to be given to the tenant. Since the rent of last month of the tenancy is paid in advance, the rental deposit should be treated as a rent payment.
Are Security Deposits Legal in Ontario?
Security deposits (also known as damage deposits) are not legal in Ontario, according to the RTA.
Are Damage Deposits Legal in Ontario
Damage deposits are not legal in Ontario. Landlords cannot ask the tenant to provide a damage deposit. If the tenant causes any damage, the charges should be separate from rent deposits. If a tenant refuses to pay, the landlord is required to go through the Landlord and Tenant Board to seek payment.
Are Key Deposits Legal in Ontario
Key deposits are legal to charge under some conditions, according to section 9 of the residential tenancy agreement. The conditions are:
- The key deposit should not be greater than the estimated cost for the replacement of keys.
- The key deposit is refundable at the end of the tenancy.
Visit the Landlord and Tenant Board (LTB) for more information.
Are Rent Deposits Refundable in Ontario?
Rent deposits are refundable by the landlord or the property manager to the tenant. They are used as the final month’s rent or refunded to the tenant. The rent deposit cannot be used for other charges, such as cleaning or repair damages.
Even if the tenant terminates the tenancy earlier than the specified date in the agreement, the rent deposit is applicable for the last month of stay. Also, if a potential tenant makes a rental deposit before signing the lease, but does not sign the lease, the rent deposit is refunded.
Determining Rent Deposit Amounts in Ontario
In Ontario, the Residential Tenancies Act (RTA) sets specific rules and regulations regarding rental deposits. According to the RTA, landlords can ask for a maximum of one month’s rent as a deposit. This means that if your monthly rent is $1,500, the maximum rental deposit amount your landlord can ask for is also $1,500.
It is important to note that this rental deposit differs from last month’s rent deposit. The last month’s rent deposit is used to cover the tenant’s last month of rent, while the rental deposit is held by the landlord to cover any damages or unpaid rent during the tenancy.
Common Mistakes Landlords Should Avoid When Handling Rental Deposits
Many landlords make common mistakes that can lead to legal disputes and financial loss. To help avoid these pitfalls, here are some key tips for landlords regarding handling rental deposits.
1.Familiarize yourself with the laws and regulations around rental deposits in your region. For landlords in Ontario, the “Landlord’s Guide to Rental Deposits in Ontario 2024” is an essential resource.
Understanding your rights and responsibilities will ensure you comply with the law and protect yourself from potential legal issues.
2. One mistake landlord often make is failing to communicate the terms and conditions of the rental deposit to tenants. Ensure that your lease agreement clearly outlines the amount of the deposit, how it will be used, and under what circumstances it will be refunded.
This transparency will help prevent misunderstandings and disputes down the line.
3. Another common error is improper handling of the deposit itself. It’s crucial to keep rental deposits in a separate account and not combine them with personal funds. This ensures transparency and helps safeguard the funds in case of financial instability. Additionally, be sure to provide tenants with a receipt for their deposit, clearly stating the amount, date, and purpose.
4. Failing to return the deposit in a timely manner can lead to legal consequences. In Ontario, landlords must return the deposit within 10 days of the end of the tenancy, minus any lawful deductions. Failure to do so can result in penalties exceeding the original deposit amount.
Therefore, it is crucial to promptly conduct a final inspection, assess any damages, and return the remaining deposit to the tenant within the set timeframe.
Do Landlords Have to Pay Interest on Rent Deposits in Ontario?
A landlord is required to pay the tenant an interest on the rent deposit annually, that is, every 12 months. The interest percentage is based on the rent increase guideline of Ontario. The rent increase guideline is based on the Consumer Price Index and is decided by the provincial government of Ontario every year.
The tenant can apply to the Landlord and Tenant Board for an order requiring the landlord to pay the interest or to subtract the amount from the rent if the landlord or the property manager refuses to pay it.
The Walk-Through or Move-Out Inspection
The walk-through or move-out inspection can be done three days after or on the day the tenant moves out. This inspection is to check whether the tenant leaves the rental property in the same condition as it was during the start of the tenancy. The inspection is easier after the tenant moves out as there are no tenant’s belongings.
The landlord must take notes of any damages due to recklessness or carelessness or any illegal changes or modifications to the rental property. Damages should exceed regular wear and tear. Illegal modifications include any changes to the unit which were not agreed upon mutually in the agreement.
Sample Letter to the Landlord for Interest on Last Month’s Rent Deposit
As a tenant, you can use the sample letter if your landlord has not paid you interest on your last month’s rent deposit. You can ask to deduct the interest amount from the rent payment. Include the rent cheque for the month you wish to subtract the interest amount with this letter.
[Date]
[Landlord’s Name & Address]
Dear [Landlord’s Name]:
Sub: Interest on my Last Month’s Rent Deposit
It has been over a year since I was paid interest on my rental deposit. Under subsection 106(6) of the Residential Tenancies Act, you are to pay me interest once a year on my rent deposit in accordance with the Consumer Price Index for Ontario.
Upon failing to do such, and in accordance with subsection 106(6) of the Residential Tenancies Act, I will deduct the interest owing, that is $……., from my rent cheque [Cheque Number] for the month of [Month].
Yours truly,
[Your Signature]
[Your Name in Printing]
[Your Address]
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Conclusion
Landlords should stay informed of regulations surrounding rental deposits in Ontario and comply with the law. By understanding the rights and responsibilities and adhering to best practices for collecting, handling, and returning deposits, landlords can establish positive relationships with tenants and protect their investments.
