It’s a common practice to require tenants to pay a security deposit along with their first month’s rent before signing a lease agreement and moving into the rental. However, in Ontario, this isn’t the case. The Ontario rental laws do not allow landlords to charge tenants a security deposit.
What Ontario landlords can charge is a rent deposit. A rent deposit is a deposit of a sum of money that the tenant puts down to hold the rental unit for them. If the tenant fails to move into the rental within the agreed time period, they will lose their rent deposit.
If the tenant does move in within the agreed time period, they will receive their rent deposit back. The only reason they would not receive this deposit back is if they agreed that the landlord could apply it as the last rental payment of their lease agreement. This is the only reason that the landlord could withhold this deposit if they moved in.
This is different than a security deposit, which is a deposit that the landlord holds in trust for the entire term of the tenant’s lease agreement. At the end of the term, they can return the security deposit either partially or wholly depending on various reasons.
Ontario has specific laws and regulations that guide landlords in the process of collecting and holding a tenant’s rent deposit. In this post, we’ll cover the basics of these laws by answering some of the most commonly asked questions regarding rent deposits.
Question #1: Is there a limit to how much a landlord can charge as a rent deposit in Ontario?
How much you can collect as a rent deposit depends on the terms of the rental agreement. If the terms state that the tenant should pay their rent monthly, then you can collect a rent deposit that’s equivalent to one month’s worth of rent.
Similarly, if a tenant is paying rent on a weekly basis, you can collect a rent deposit that’s equivalent to one week’s worth of rent.
Question #2: Does the rent deposit serve any purpose?
Unlike a security deposit, you cannot use the rent deposit to pay for things like property maintenance or damage repairs before or after a tenant moves out. As an Ontario landlord, you can only use the rent deposit as the last month’s rent payment. This will depend on the payment plan that you have with your tenant.
Under no circumstances can use the rent deposit for any other purpose.
Question #3: Can you increase the rent deposit?
Yes, you can increase the rent deposit if the amount you’re charging for rent also increases. You only need to make sure that your rent deposit continues to be equal to the amount of rent being charged per month or per week.
Question #4: Does a rent deposit earn interest?
According to the Residential Tenancies Act, you must pay your tenant any interest accrued on their rent deposit each year. The interest must be proportionate to the length of the tenancy.
The interest should be paid to your tenants every twelve months. However, if you fail then the interest you owe to the tenant must be compounded every year. The interest payable is based on the entire rent amount you hold, including subsequent rent increases if there are any.
If your tenant wants to collect the interest you owe them, then you can subtract it from their rent with their consent.
Question #5: Does Ontario allow landlords to collect security and damage deposits as well?
No, Ontario doe not allow landlords to mitigate their risk by asking tenants for a security and damage deposit. With that in mind, it’s important for you to select a tenant carefully, to minimize the chance that you face losses for excessive property damages, unpaid utilities, or other issues.
Ensuring that you screen all prospective tenants thoroughly can help you minimize the chances of renting to a problematic tenant. Ideally, you want to find a tenant that will pay their rent on time and take care of your property. To find such a tenant, you may want to ask any or all of the following questions in your screening process:
- Have you ever violated a lease agreement? If they have, look for legitimate reasons for doing so such as breaking a lease early due to job relocation.
- Do you have an eviction history? Being evicted for reasons such as excessive noise or excessive property damage are red flags. Such behaviors aren’t likely to change.
- Do you have any references from your landlord or employer? This will allow you to confirm that they will take good care of your property.
- What is your monthly income? You want to rent to a tenant that is able to pay the rent without difficulty. Consider requiring your tenants who make at least 2X the price of rent.
- Why are you moving? Beware of red flags, such as moving because they are being evicted or because they are suing their former landlord.
It goes without saying that all screening questions must adhere to the Fair Housing Act. This prohibits discrimination against tenants on the basis of their color, race, religion, sex, disability, national origin, disability, and familial status.
Question #6: Does Ontario permit key deposits?
A key deposit is a sum of money a tenant gives a landlord to hold until they safely return the keys at the end of the lease term. The deposit can include the unit’s key, as well as the key main entrance to the building and other mechanisms such as fobs and garage remotes.
Ontario permits landlords to charge key deposits. However, that amount cannot be more than it would cost to replace the keys. The deposit must be refundable to the tenant at the end of the lease term.
Question #7: Can a landlord ask for a pet deposit?
No, Ontario landlords cannot ask their tenants for a pet deposit.
With these questions and answers in mind, you should have a better working knowledge of the Ontario laws regarding rent deposits. If you have any more questions, AMR Property Management can help answer them. We are a full-service property management company with over 20 years of experience. Contact us today!