Ontario Rent Deposit Laws

New tenants are required to pay a rent deposit at the start of their tenancy. In Ontario, however, a rent deposit isn’t used to cover potential damages or neglect by the renter but to ensure the last month’s rent is paid. 

With that said, requiring tenants’ rent deposits in Ontario comes with certain responsibilities. Landlords must ensure they stay legally compliant to avoid possible financial and legal repercussions. The following are important rules and regulations that landlords must keep in mind as a landlord in Ontario. 

Rent Deposit Limits in Ontario

As a landlord in Ontario, there is a limit to how much rent deposit you can charge new tenants. You must not require a rent deposit exceeding the equivalent of one month’s rent as it is meant to cover the last month’s payment. This is unlike a traditional security deposit, which helps cover possible renter damage. As a landlord, you must ensure you collect the rental deposit before the lease or rental agreement becomes effective. 

Nonrefundable Fees

As a landlord in Ontario, you cannot charge tenants any nonrefundable fees. Its sole purpose should be to cover the last month’s rent. This means that it’d be illegal to charge for things like cleaning costs or any damages to the unit. To cover such costs, landlords in Ontario must find alternative ways that are separate from the initial deposit.

How Landlords Must Store Tenants’ Rental Deposits

Ontario rent deposit laws require that landlords store their tenants’ rental deposits in an interest-bearing account. How much interest to pay the tenant will depend on the Ontario rent increase guidelines. The interest is calculated annually and is due to the tenant every 12 months. 

These interest payments are meant to compensate the tenant for the time their money is held up by the landlord. If landlords fail to make this payment, the tenant may be able to make appropriate deductions from future rent payments or seek a rebate. 

Providing a Written Notice After Receipt of Rent Deposits in Ontario

Landlords must provide their tenants with a receipt after receiving their deposit. This will act as proof for both parties. Being a pre-payment for last month’s rent, the rent deposit is still technically a rent payment. That’s why issuing a tenant a receipt is important for record-keeping purposes. 

Withholding a Renter’s Rent Deposit in Ontario 

Traditionally, a security deposit covers a landlord against potential liabilities that can arise during a tenancy. The following are some common scenarios:

• In the event, the tenant breaks their lease or rental agreement unjustifiably leading to rent losses for the landlord. 
• If the tenant fails to pay due rent or pending utility bills. 

In such cases, the landlord would be able to deduct appropriate amounts from the rental deposit. However, this is not the case in the Province of Ontario.

Under the Ontario rent deposit law, a tenant’s rental deposit is for the payment of last month’s rent. To cover yourself from such possibilities, you must do so through separate means. This helps protect the tenant from unfair practices and potential misuse of the rent deposits by landlords. 

Walk-Through Inspections

Under landlord-tenant law, landlords have a right to conduct a walk-through inspection before the tenant moves out of the unit. They can either conduct it on the day the tenant is moving out, or a few days after they do so. A thorough walk-through inspection can help landlords assess the property’s condition and identify whether there are any excessive damages. 

For a proper walk-through inspection, make sure to have a detailed checklist that covers all areas of the rental property including the interior areas like floors, ceilings, doors, fixtures; and exterior areas like walkways and landscaping. 

During the inspection, carefully check every room of the rental unit. Specifically, look for any cleanliness issues, and damages exceeding normal wear and tear. Use photos for the documentation. If you have found any issues, share the report with the tenant. The Ontario Residential Tenancies Act (RTA) sets out specific rules to follow when dealing with conflicts arising from tenant damage. 

Changes in Property Ownership 

In such a case, the new property owner assumes all the responsibilities under the Ontario rental deposit laws. This includes the handling and return of the rent deposits. The new landlord should ensure they get all relevant details from the previous landlord to minimize any potential conflicts or misunderstandings later down the road. 

Refunding a Tenant’s Rent Deposit

As already mentioned, a renter’s rent deposit is specifically meant to cover the last month’s rent. If you had also asked the tenant for a key deposit, you must use it for the said purpose and nothing more. Because these are meant to cover specific expenses, a refund is unnecessary.

Bottom Line 

Now you are familiar with all your responsibilities regarding the handling of tenants’ rental deposits in Ontario. This is key to ensuring a smooth landlord-tenant experience. 

But should you need further clarification, please don’t hesitate to get in touch with Stewart Property Management. We provide full-service property management to property owners in Ottawa. Our personalized approach is specially designed to meet your property’s unique requirements. Get in touch to learn more!

Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.