Security Deposit Rules for Ontario Landlords: Last Month's Rent Explained

Ontario landlords must distinguish a final-period rent deposit from a damage deposit. For residential tenancies covered by the RTA, the rent deposit cannot be used for repairs or cleaning, and a refundable key deposit has a separate cost-based limit.

What the law permits

A rent deposit can be required on or before the tenancy agreement is entered into. Its maximum is the lesser of one rental period's rent and one month's rent. That distinction matters for weekly tenancies: the limit is one week's rent, not a full month.

Ontario Regulation 516/06 also permits a refundable deposit for keys, remote entry devices or cards, no greater than expected direct replacement cost. Damage, cleaning and pet deposits are not substitutes for either permitted payment.

When the deposit requirement is established

The RTA speaks of requiring a rent deposit on or before entering into the tenancy agreement. A general statement that a landlord can impose it at any later point before move-in is too broad.

Record the amount, its purpose and receipt of payment separately from the first rent payment. The RTA requires a free receipt when one is requested. If lawful rent later increases, an additional amount may be required to bring the deposit to the permitted maximum.

Annual interest and the top-up credit

Interest is payable annually at the rent-increase guideline rate in effect when payment becomes due. The RTA permits interest owed to be applied toward the difference between the deposit held and the permitted maximum.

This is not a general permission to retain interest without an account. Show the interest owed, any amount credited toward a lawful top-up and the balance remaining. No current percentage is assumed in this guide.

Applying the deposit when the tenancy ends

The landlord must apply the deposit to rent for the final rent period before termination. Damage, cleaning and other compensation claims are separate. A move-out inspection does not change the deposit's purpose.

Do not assume that every mid-month departure produces an automatic prorated refund. The termination date and rent liability need to be established. A disputed final account may require the applicable LTB process or legal advice.

Damage claims use a separate process

The LTB distinguishes tenant-caused damage from normal wear and tear. Photographs, condition records and repair or replacement costs can support a claim, but do not guarantee compensation.

For a qualifying former-tenant claim, the L10 route has a one-year filing limit after move-out. Where a tenant remains in possession, L2 can address claims such as damage. The L1 rent-arrears application is not a general damage-claim form. Current instructions should be checked before choosing a process.

Common deposit questions

Can a pet deposit make a no-pets clause enforceable?

No. A pet deposit is not permitted, and RTA section 14 makes a tenancy-agreement prohibition on animals void. Actual damage, interference and applicable condominium rules raise separate issues.

Is annual interest determined by the bank account?

No. The statutory benchmark is the applicable rent-increase guideline rate. Section 106 does not impose the separate trust-account requirement sometimes stated in generic deposit guides.

What if money was collected improperly?

The LTB's T1 instructions explain specified claims for improperly collected or retained money and unpaid rent-deposit interest, including relevant application requirements.

Devon Moore, Operations Lead Co-Founder & Operations Lead — D&D Property Management

Devon Moore is the co-founder and Operations Lead at D&D Property Management, managing rental properties across Kitchener-Waterloo, Cambridge, Guelph and Waterloo Region.