Clearing the Confusion: Understanding Security Deposits for Tenants and Landlords in Ontario

Jon Sparling
2 days ago
2 min read

Security deposits can create confusion for both tenants and landlords in Ontario. Misunderstandings often lead to disputes and frustration. To navigate this complex topic, it's crucial to understand what can and cannot be collected according to the Residential Tenancies Act.

What is a Security Deposit?

The Residential Tenancies Act, specifically section 105(2), defines a security deposit as "money, property, or a right paid or given by, or on behalf of, a tenant of a rental unit to a landlord or to anyone on the landlord’s behalf."

The Last Month's Rent Deposit

In Ontario, the only "security deposit" landlords can request is the Last Month's Rent Deposit, which cannot exceed the cost of one rental period. Importantly, this deposit must be only be applied to the rent for the final month of the tenancy. Landlords cannot utilize it to cover damages, or another unpaid month during the tenancy. This ensures that deposits are protected and provides peace of mind for tenants.

The Key Deposit Exception

Though the Residential Tenancies Act limits security deposits, it does allow for a Key Deposit. This deposit covers the costs of any lost or damaged keys, fobs, or entry devices during the tenancy.

Key deposits are refundable, and landlords are obligated to return any unused portions upon lease termination. For instance, if a tenant pays a key deposit of $100 and returns all keys in good condition at the end of their lease, the entire $100 must be refunded. This policy safeguards both landlords and tenants.

What Security Deposits are NOT Permitted?

The Residential Tenancies Act at s 105(1) effectively bars any other attempts at deposits, including:

Damage deposits: Many landlords mistakenly believe they can ask for an extra amount to cover potential damages. This practice is not permitted under the Residential Tenancies Act in Ontario.
Pet deposits: Landlords cannot request a separate deposit for pets, even in cases where they predict potential damages resulting from pet ownership.

Understanding these restrictions is vital for both tenants and landlords to minimize misunderstandings and disputes related to security deposits.

Best Practices for Tenants and Landlords

For Landlords:

Be Transparent: Clearly explain to tenants the type of deposit collected and its purpose. (either Last Month's Rent or Key Deposit)
Provide Receipts: Always issue written receipts for any deposits collected, maintaining transparency in all transactions.

For Tenants:

Know Your Rights: Familiarize yourself with what the Residential Tenancies Act allows regarding deposits.
Ask Questions: If you have any concerns about the deposit, don’t hesitate to seek clarification.
Document Everything: Maintain records of all transactions and agreements to protect yourself in potential disputes.

Wrapping Up the Essentials

Understanding "security deposits" is vital for maintaining a fair rental process in Ontario. The laws surrounding deposits aim to ensure transparency and fairness for both tenants and landlords. By being informed about the Residential Tenancies Act, both parties can sidestep common pitfalls and foster a smoother rental experience.

As always, remember that this blog should not be taken as legal advice and is no substitute for a consult about your specific facts. If you have questions about damage deposits or key deposits, call Jon today at 519-564-3242 to see how we can help.