Ontario Security Deposit Laws: Rent Deposits, Rules, and Restrictions

Ontario's approach to security deposits is among the most tenant-protective in North America. The Residential Tenancies Act (RTA) strictly limits what landlords can collect upfront and prohibits many common deposit practices found in other jurisdictions.

What Deposits Are Allowed

Last Month's Rent Deposit

The only deposit a landlord may legally collect is a last month's rent deposit (LMR), which cannot exceed one month's rent at the current rate. This deposit is held specifically for the tenant's final month of occupancy.

Key Deposits

Landlords may collect a refundable key deposit but only if the amount reflects the actual cost of replacing the key. This deposit must be returned when the tenant returns the key.

Interest on Rent Deposits

Landlords are legally required to pay interest on the last month's rent deposit every year. The interest rate is set by the Ontario government and corresponds to the annual rent increase guideline:

In practice, most landlords apply this interest by reducing the top-up amount when rent increases. For example, if rent goes up by the guideline, the landlord tops up the deposit to match the new rent, and the interest paid covers part of that increase.

Prohibited Deposits and Fees

The RTA (§105) explicitly prohibits landlords from collecting:

• Damage deposits — You cannot require money to cover potential property damage
• Pet deposits — Even if you allow pets, you cannot charge extra for them
• Move-in fees — Beyond first and last month's rent
• Application fees — For processing rental applications
• Administrative fees — For lease renewals or other paperwork

Penalty for Collecting Illegal Deposits

If a landlord collects an illegal deposit, the tenant can file a T1 Application with the Landlord and Tenant Board to recover the money. The LTB may order the landlord to return the illegal deposit plus interest.

Using the Rent Deposit

The last month's rent deposit can only be applied to the tenant's final month of rent. It cannot be used for:

• Repairing damage caused by the tenant
• Cleaning costs
• Unpaid utility bills
• Covering arrears from earlier months

If a tenant causes damage, the landlord must pursue remedies separately — either through an L2 application to the LTB during the tenancy, or through Small Claims Court after the tenant has left.

What Happens at Move-Out

Since Ontario does not allow damage deposits, landlords have no deposit to deduct from for repairs. The move-out process is different from most other jurisdictions:

1. The LMR deposit is applied automatically to the tenant's last month of rent
2. If there is damage beyond normal wear and tear, the landlord must file a claim separately
3. L10 Application — Landlord can apply to the LTB for compensation for damages if filed within one year
4. Small Claims Court — For claims after the tenancy ends (up to $35,000)

Best Practices for Ontario Landlords

1. Document unit condition at move-in — Take dated photos and videos; have the tenant sign a condition report
2. Track interest obligations — Ensure you're paying annual interest on the rent deposit at the guideline rate
3. Never collect illegal deposits — No damage, pet, or cleaning deposits under any name
4. Keep records — Maintain documentation of the deposit amount, interest paid, and any rent increases
5. Use the Ontario Standard Lease — It includes proper deposit terms that comply with the RTA
6. Act quickly on damage claims — File an L10 application within one year if needed

How Landager Helps

Operating in Ontario's highly regulated rental market requires strict adherence to procedural timelines and the use of government-mandated forms. With the Landlord and Tenant Board (LTB) maintaining rigorous standards for evidence and notice accuracy, even small administrative errors can lead to months of delays. Landager simplifies Ontario property management by automating the generation of the mandatory Ontario Standard Lease, tracking the 90-day window for Form N1 rent increases, and maintaining detailed digital logs of maintenance requests to protect against rent abatement claims. Whether you are managing rent-controlled units in Toronto or multi-tenant commercial spaces in Ottawa, Landager provides the structural framework and record-keeping tools necessary to navigate the RTA with confidence and mitigate the risks of costly legal disputes.

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