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Security and Rent Deposits for Landlords and Tenants in Ontario
With rentership growing at over twice the pace of homeownership in Canada since 2011, it is important that both landlords and tenants know their respective rights and responsibilities when it comes to rental agreements.
This transaction is a major and lawfully binding contract that comes with as many risks as it does rewards. For both parties, a bit of trust — and a lot of knowledge — go a long way.
In Ontario, a key step in initiating a rental agreement between a landlord and a tenant is paying a rent deposit. This article explains what exactly a rent deposit is, how it benefits both landlords and tenants, and the rules that surround it.
The Difference Between a Security Deposit and a Rent Deposit
When it comes to rental properties in Canada, a security deposit is generally a refundable lump sum that is given by the tenant to the landlord at the start of their lease.
There are 4 key factors of a security deposit:
- The amount of a security deposit varies from province to province, but ranges from half a month to a full month’s rent.
- It is paid by the tenant in addition to the initial rent cost.
- It is held by the landlord throughout the duration of the tenant’s lease to cover any potential damages and repairs (beyond everyday wear and tear), maintenance or cleaning costs, or even outstanding rent.
- Any and all unused funds from the security deposit are returned to the tenant at the end of their lease.
A rent deposit, on the other hand, is an amount paid by the tenant to the landlord that:
- Is paid in addition to the first month’s rent.
- Is used to cover the rental cost of the tenant’s final month in the unit or property.
- Cannot be used by the landlord to cover any cost other than rent for the tenant’s final month.
- Cannot exceed the amount of one month’s rent.
Ontario Is an Exception
In Ontario, according to the Residential Tenancies Act (RTA), a landlord cannot legally require or collect a security deposit from a tenant. In other words, the only official “security deposit” a landlord can ask for is a rent deposit that is used to cover the rental cost of the tenant’s final month in the prospective unit or property.
This is why, during the application process, a landlord will ask a tenant for “first and last month’s rent.” For landlords, the rent deposit signifies a tenant’s financial stability, proving they are able to afford to pay rent. Meanwhile, for tenants, it represents a commitment and desire to live in the rental property.
What Are the Rules for Rent Deposits in Ontario?
For both landlords and tenants, there are important rules to remember regarding rent deposits under Ontario’s Residential Tenancies Act.
| Rules | Explanation |
|---|---|
| A landlord cannot legally collect a security or “damage” deposit and a rent deposit from the prospective tenant. | In Ontario, the rent deposit is a “security deposit” on its own in the sense that it confirms a tenant’s seriousness in their application and proves their ability to afford the cost of rent. A landlord cannot legally ask for other kinds of security or damages deposit. They are able to ask for a “key deposit,” however, only if it is refundable and matches the actual replacement value of the key. |
| The amount of a rent deposit cannot exceed one month’s or one week’s rent. | If rent is to be paid monthly, per the lease agreement, the rent deposit cannot be more than the cost of one month’s rent. Likewise, if rent is paid weekly, it cannot be more than the cost of one week. It is illegal for a landlord to ask a tenant to pay a rent deposit that is higher than the rent cost as listed in the lease agreement. |
| A rent deposit can only cover the cost of the tenant’s last month’s rent. | This is where a rent deposit differs from a traditional security deposit. Whereas security deposits in other provinces can be used towards damages, repairs, and maintenance, a rent deposit in Ontario can only be used to cover a tenant’s rental cost. |
| A landlord can only collect a rent deposit from a tenant either on or before the start of a lease agreement. | It is typical for a landlord to request a tenant pay the initial month’s rent and the rent deposit — “first and last month,” colloquially — upon entering a lease agreement. If a landlord, however, does not collect a rent deposit before or at the start of a lease agreement, they cannot legally demand one at a later date. |
| If the cost of rent increases after a rent deposit is paid, a tenant may be legally required to pay additional amounts to match the increase. | After 12 months have passed in a lease agreement, a landlord can legally increase a tenant’s rent by 2.1%, with 90 days written notice. Since the rent deposit paid at the start of the lease agreement does not reflect this increase, the tenant may be required to pay the additional cost. |
| A landlord must pay their tenant annual interest on the rent deposit every 12 months. | If a landlord does decide to legally increase the tenant’s rent, this annual interest can instead be used to “top up” the rent deposit. In this case, a tenant is not required to pay additional amounts to the initial rent deposit. However, if a landlord fails to pay the tenant the interest, the tenant may legally deduct it from their rent. |
| A landlord must provide a tenant with a receipt (free of charge) for any rent payment, including the rent deposit, if the tenant requests. | Like any regular purchase from a store, a rent receipt confirms that the tenant has fulfilled their legal obligation of paying rent and/or a rent deposit. This is particularly important in cases of taxation, potential disputes, or personal financial planning and documentation. |
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How Are Rent Deposits in Ontario Used And/or Returned?
As previously mentioned, rent deposits in Ontario can only, by law, be used by a landlord to cover a tenant’s cost for their final month of rent. In this regard, it is nonrefundable and therefore cannot be returned to the tenant at the end of their lease agreement.
Key Takeaways
- In Canada, a security deposit is paid by tenants to landlords in addition to rent in order to cover potential damages, repairs, and maintenance costs. The sum varies from province to province, and in all cases is returned to the tenant at the end of their lease.
- In Ontario, there are a set of rules regarding rent deposits that landlords and tenants must adhere to, as outlined in the Residential Tenancies Act, 2006.
- A rent deposit is paid by tenants to landlords at the start of their lease to cover the last month’s rent.
- Ontario landlords cannot legally ask for a security deposit; they can only collect a rent deposit from tenants.
- A rent deposit can only be used towards the cost of a tenant’s final month’s rent, and is therefore nonrefundable.
Since a rental agreement is a legally binding contract between a landlord and a tenant, it is important for both parties to know their rights in this exchange. With increased access to listing websites, portals, and apps, it is unfortunately easy for both landlords and tenants to fall prey to disingenuous connections.
Connect with our GTA-Homes expert agents for professional and informed advice when it comes to your rental needs.
Whether you’re a property owner looking for a dependable tenant or a prospective resident in search of a secure home, we’re here to answer any questions you have about the rental application process.
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