In Guide
Security Deposits vs. Last Month’s Rent in Ontario
No matter how familiar the name “security deposit” sounds, it’s not allowed in the province. Tenants are more likely to hear the phrase “last month’s rent.”
But what makes this different from a security deposit? What are the rules in Ontario for this? This guide will explain the main differences between last month’s rent and security fees, look at the applicable rules, and answer questions about what’s interesting and useful about renting in Ontario.
We will clarify things and ensure you know what you can and can’t do in Ontario regarding paying last month’s rent.
What is Last Month's Rent?
Tenants typically pay the landlord an initial payment equal to one month’s rent when they sign the lease. This sum of money is called “last month’s rent.” It is not a security deposit but rather a down payment on the final month’s rent.
Purpose
The rent for the previous month is usually used to guarantee that the landlord will be paid for the final month of the lease, regardless of when the tenant gives notice to vacate the premises.
Because of this, the owner does not have to be concerned about financial issues between the last month of the tenant’s lease and the beginning of the replacement lease.
Common Practices in Rental Agreements
- In most cases, the first and final months’ rent are paid at the same time.
- The security deposit for the previous month’s rent cannot be greater than the rent for the current month.
- The landlord is required to store the rent for the final month in a separate account that can accumulate interest.
- The rent from the previous month is applied to the rent for the next month, and any interest still owed to the renter for the previous month is returned to the renter if the tenant gives sufficient notice and leaves the unit in good condition.
Last Month's Rent vs. Security Deposit in Ontario
It may seem like “security deposit” and “last month’s rent” are the same thing, but they are two different ideas with different formal meanings in Ontario. Both renters and owners need to know about these differences.
Differences
- Security Deposit: A security deposit is a sum of money the landlord holds back from the tenant to cover any damage they might do to the property that isn’t regular wear and tear. In Ontario, it is against the law for landlords to ask for protection deposits.
- Last Month’s Rent: As we already said, last month’s rent is a payment in advance for the last month of rent. It’s not held back for damages; instead, it makes sure the owner gets the last month’s rent, no matter when the tenant moves out.
Usage
- Security Deposit: In Ontario, renters can’t ask for security deposits because they aren’t allowed.
- Last Month’s Rent: In Ontario, landlords can ask for a last month’s rent fee, but it can’t be more than the current monthly rent.
Legal Distinctions
- Security Deposit: Security deposits must be kept in a separate account and given back to the renter when they move out properly. An exact process must be followed for any damages to be deducted.
- Rent for the previous month: There are fewer formal rent limits for the previous month. The landlord has to keep it in an interest-bearing account and give it back to the tenant, along with any interest that has built up, as soon as the tenant moves out properly and meets all of their lease responsibilities.
Last Month Rent Rules in Ontario
Knowing the rules about last month’s rent in Ontario gives renters and owners more power. The main rules, laws, rights of tenants, and duties of landlords are broken down below:
Regulations
The Residential Tenancies Act, 2006 (RTA), set last month’s rent rules in Ontario. It tells both renters and landlords their rights and duties regarding this type of deposit.
Legal Requirements
- Amount: The owner can’t ask for a deposit equal to last month’s rent but less than the unit’s current monthly rent.
- Holding: The landlord has to put the last month’s rent in a different account that earns interest.
- Interest: The landlord is legally required to give the renter interest on the last month’s rent deposit yearly. The interest rate is linked to the maximum amount that rent can go up each year, which is set by the state.
- Return: If the tenant gives the landlord enough notice and follows all the lease rules, like leaving the unit in good shape, the landlord has to give the tenant back the last month’s rent deposit plus any interest that has built up.
Tenant Rights
- Tenants have the right to know how their deposit for the last month’s rent is being held and what interest rate is being used.
- If the landlord doesn’t pay the rent every year, the tenant can ask that the interest on the deposit be deducted from their rent payment.
- Tenants can sue their owner and the Tenant Board if their owner doesn’t return their security deposit for the last month’s rent or any interest that has built up.
Landlord Obligations
- Landlords must follow the rules in the RTA when it comes to last month’s rent payments.
- They need to keep good records of the deposit and any interest that has built up.
- For landlords, the last month’s rent payment can only be used to pay the last month’s rent.
The landlord must return the deposit plus interest within a reasonable
Ontario Last Month Rent Interest
For Ontario renters, the money they put down last month comes with a bonus: interest! By law, landlords have to pay interest on the deposit every year.
Here is a breakdown of how interest is calculated, how much interest has been charged in the past, and what rights tenants have.
Interest Accrual
Interest builds up on last month’s rent payments every year. For this reason, the interest is only added to the deposit once a year, starting from the day the owner gets it.
Calculation Methods
If you put down rent last month, the interest rate on your deposit is based on the province’s annual rent rise recommendation.
The Ontario Consumer Price Index sets this rule, and it is usually made public in late autumn or early winter. To find the interest gained each year, multiply the current interest rate by the last month’s rent deposit amount.
Historical Rates (2021-2023)
- 2021: Because of the pandemic, there was a rule that said rent could not go up by any amount. This meant that last month’s rent deposits made no interest that year.
- 2022: The rent increase guideline for 2022 was set at 1.2%, which meant that renters got 1.2% interest on their last month’s rent deposits.
- 2023: The maximum rent increase was 2.5%, meaning deposits made 2.5% interest.
Tenant Entitlements
- Renters have the right to know what interest rate was added to their last month’s rent payment.
- If the landlord doesn’t pay the interest every year, the renter can deduct it from their rent payment.
- Tenants can get their full deposit back plus any interest that has built up after properly moving out and meeting all of their lease obligations.
How Does Last Month Rent Work in Ontario?
It may seem simple to pay last month’s rent in Ontario, but there are some things that both renters and landlords need to know. From making a payment to the end of the lease, here’s how the process works:
Payment Process
The first month’s rent and the deposit for the last month’s rent are usually paid all at once when the lease is signed. The owner should give you a receipt for the deposit.
End of Lease Scenarios
- Standard Move-Out: The last month’s rent deposit is applied to the last month’s rent if the renter gives enough notice (usually 60 days) and leaves the unit in good condition.
The landlord must also refund the renter any interest accrued on the deposit within a reasonable amount of time, usually 30 days.
- Breaking the Lease Early: Things get trickier if the tenant breaks the lease early. If the tenant moves out, the landlord can still use the deposit for the last month’s rent towards the last month’s rent.
However, the tenant may have to pay extra rent if finding a new roommate takes longer than expected.
Refunds and Deductions
Landlords can’t take anything away from the last month’s rent deposit for normal wear and tear. However, if the tenant leaves the unit in a state worse than regular wear and tear, the landlord may be able to take money out of the deposit to pay for repairs.
You must apply to the Landlord and Tenant Board (LTB) to do this.
Common Issues and Resolutions
- Missing Interest Payment: If the landlord doesn’t pay the yearly interest on the last month’s rent deposit, the renter can ask that the interest be deducted from a future rent payment.
- Withholding of Deposit: If the landlord doesn’t return the last month’s rent deposit or any interest built up after a proper move-out, the renter can ask the Landlord and renter Board to settle the matter.
Conclusion
To summarize, renters in Ontario need to have a solid understanding of the distinction between the rent from the previous month and the tenant’s security deposit. It is against the law in the province to require security deposits, although the rent from the previous month can be used as a prepayment for the last month.
Upon the tenant’s proper move-out, landlords must comply with regulations that require them to keep the deposit in an account that accrues interest and return it along with any accrued interest.
Frequently Asked Questions (FAQ) About Security Deposits vs Last Month’s Rent in Ontario
Jahangir Alam
As the Business Development Officer at Mi Property Portal, Canada's premier property management software provider, I've been fueling our growth and forging key partnerships since May 2016. Our mission? To deliver an all-in-one property management platform that's efficient, effective, and cost-cutting.
1 Comment
Christine Davidson
1 year ago -HI there,
My tenant informed me Aug. 15 that he was leaving mid Sept. as they found a place for Sept. After telling him he was required to give me 60 days notice, he obliged and gave me the proper form. He continually asked me if I would give him last month’s rent back. I told him I would give him him something if I found a tenant for Oct. (which i did). The only reason I agreed if because of his harrassment.
Since I have rented the place out (in Oct), he has sent me 3 texts and 1 email asking for his last month’s rent back. Out of the goodness of my heart, I was going to give him 1/2 month rent, but have been turned off by his constant badgering. Am I obligated to pay him his last month’s rent back?
Thank you
Chris Davidson