Whether you are a property owner seeking to protect your investment or a tenant preparing to sign a new lease, understanding the legal rules around rental finances is essential. One of the most significant misunderstandings in the Ontario rental market centers on the term “damage deposit.”
If you’re involved in a residential tenancy in this province, here is the fundamental fact that governs your financial agreement: Damage deposits—and all general security deposits—are illegal in Ontario.
The provincial Residential Tenancies Act, 2006 (RTA) is clear on this point. Landlords may not collect any money intended as security against potential damages to the unit. This often comes as a surprise, but compliance is key for both parties to avoid costly legal disputes.
This guide clarifies exactly which deposits are permitted, how they must be handled, and what the legal process is for addressing property damage when a security deposit is not an option.
What Landlords Can Legally Collect
While a “damage deposit Ontario” search might lead you to believe otherwise, there are only two types of deposits a landlord is permitted to collect:
- Last Month’s Rent Deposit (LMR): This is the most common and significant deposit you’ll pay.
- Purpose: It’s strictly for the rent of the last rental period (usually the last month) of your tenancy.
- Amount: Cannot exceed one month’s rent (or one week’s rent for a weekly tenancy).
- Interest: Your landlord must pay you interest on this deposit annually. The interest rate is tied to the annual rent increase guideline set by the province. If your rent goes up, the landlord can use the interest to “top up” the deposit so it matches the new monthly rent.
- Crucial Point: This deposit absolutely cannot be used by the landlord to cover damages to the unit, cleaning fees, or any other costs.
- Key Deposit:
- Purpose: To cover the cost of replacing keys, fobs, or other entry devices if you lose them or don’t return them at the end of your tenancy.
- Amount: Must be a reasonable amount, typically reflecting the actual cost of replacement.
- Refundable: This deposit must be fully refunded to you when you return all the keys and devices at the end of your lease.
What About Pet Deposits? Cleaning Deposits?
Just like damage deposits, pet deposits, cleaning deposits, and any other type of general “security deposit” are also illegal in Ontario. A landlord cannot ask you for extra money because you have a pet, nor can they charge a separate fee for cleaning the unit at the end of your tenancy.
So, What Happens if a Tenant Causes Damage?
If you, as a tenant, cause damage to the property beyond normal wear and tear, the landlord still has recourse. However, they cannot simply deduct it from your last month’s rent deposit. Instead, the landlord must:
- Attempt to resolve it directly with you: They can ask you to pay for the repairs.
- Apply to the Landlord and Tenant Board (LTB): If an agreement cannot be reached, the landlord can file an application with the LTB to seek an order for you to pay for the costs of repair or replacement. The LTB will then make a ruling based on the evidence presented by both parties.
Why is This Important for You?
Understanding the rules around “damage deposit Ontario” is vital for both tenants and landlords:
- For Tenants: Knowing your rights prevents you from paying illegal deposits and ensures your last month’s rent deposit is used correctly. If a landlord demands an illegal deposit, you can refuse and, if you’ve already paid it, apply to the LTB to get it back.
- For Landlords: Adhering to the RTA protects you from potential disputes and orders from the LTB to return illegally collected funds. It ensures you’re operating within the legal framework.
In a Nutshell:
Forget the term “damage deposit Ontario.” Instead, remember:
- Last Month’s Rent Deposit: Legal and for rent only.
- Key Deposit: Legal, refundable, and for keys only.
- Everything Else: Illegal.
