In This Article
No Security Deposits in Ontario
Under the Residential Tenancies Act, Ontario landlords are prohibited from collecting a security deposit. A security deposit — money held as a cushion against damage, unpaid rent, or cleaning costs — is simply not permitted for residential tenancies in Ontario.
This surprises many landlords who have operated in other provinces or who have seen the concept in American property management content. In Ontario, collecting a security deposit is illegal, and tenants can recover it at any time.
The reason: Ontario's tenancy laws are explicitly designed to limit the financial burden on tenants at the start of a tenancy. The trade-off is that landlords have less flexibility to protect against damage — which is why a thorough move-in inspection and detailed documentation are essential.
What You Can Legally Collect
| Item | Permitted? | Maximum Amount |
|---|---|---|
| Last month's rent deposit | Yes | One month's rent (or one week's rent for weekly tenancies) |
| Key deposit | Yes, with conditions | Actual replacement cost of the key only |
| First month's rent | Yes | One month's rent — collected at lease signing |
| Security deposit | No | Not permitted |
| Damage deposit | No | Not permitted |
| Pet deposit | No | Not permitted |
| Cleaning deposit | No | Not permitted |
| Multiple months' rent upfront | No | Only first + last permitted at signing |
Last Month's Rent Deposit — Rules
The last month's rent deposit (LMR) is the most common upfront amount collected. It is legally permitted and must be applied to the tenant's last month of occupancy. It cannot be used for anything else — not for damage, not for cleaning, not for unpaid utilities.
Key rules for the LMR deposit:
- Maximum amount is one month's rent at the time of collection
- Must be applied to the last month of the tenancy — it is not a general-purpose holdback
- If rent increases after the deposit was collected, you are entitled to collect the difference (to bring the deposit up to the current rent amount)
- The deposit earns interest annually at the Ontario rent increase guideline rate
- The deposit must be returned if the tenancy never begins
Cannot hold for damage: When a tenant moves out, you cannot withhold the LMR deposit because of damage to the unit. The deposit must be applied to the last month's rent. Damage claims must be pursued separately through an LTB application (T1/L10 forms).
Key Deposit
A landlord may collect a key deposit, but only up to the actual replacement cost of the key. You cannot charge more than it would cost to make a copy of that specific key. Collecting more than the actual replacement cost is an illegal charge under the RTA.
The key deposit must be returned to the tenant when they return all keys at the end of the tenancy, unless keys are not returned or are returned damaged.
Interest on the Last Month's Rent Deposit
The RTA requires landlords to pay annual interest on the last month's rent deposit. The interest rate equals the Ontario rent increase guideline for that year.
In practice, most landlords apply this interest by reducing the amount the tenant owes to top up the deposit when rent increases, rather than cutting a cheque. Either approach is acceptable.
| Year | Interest Rate (Guideline) |
|---|---|
| 2022 | 1.2% |
| 2023 | 2.5% |
| 2024 | 2.5% |
| 2025 | 2.5% |
| 2026 | 2.1% |
Practical tip: Keep a running ledger of the LMR deposit balance, annual interest credits, and any top-up payments. If a dispute arises at move-out, you need a clear record of what the tenant owes (if anything) to bring the deposit to the current rent level.
Applying the Deposit at Move-Out
When the tenancy ends, the last month's rent deposit is applied to the tenant's final month of occupancy. If the current rent is higher than the original deposit (due to intervening rent increases), the tenant may owe the difference — but only the rent amount, not damage costs.
If the tenant's final month is a partial month, the deposit is applied proportionally and any excess is returned to the tenant.
What Happens If You Collect Illegally
Tenants who have paid an illegal deposit can file a T1 application with the LTB to recover it at any time during the tenancy. There is no limitation period — a tenant can file for an illegal deposit collected years ago.
The LTB will order the return of the illegal amount plus any interest. Repeated violations or egregious conduct can also result in additional remedies.
Ontario Landlord Starter Kit
Includes a rent ledger template for tracking LMR deposits, interest, and top-ups — alongside the lease, inspection checklist, and tenant application. CA$24.99, instant download.
Get the Starter Kit — CA$24.99 →Summary
- Security deposits, damage deposits, pet deposits, and cleaning deposits are all illegal in Ontario
- You may collect first month's rent, last month's rent deposit (max one month's rent), and a key deposit (max actual replacement cost)
- The LMR deposit must be applied to the final month of rent — it cannot be used for damage
- Annual interest must be paid on the LMR deposit at the Ontario rent increase guideline rate
- Tenants can recover illegally collected deposits at any time through an LTB T1 application
This article is for informational purposes only and does not constitute legal advice. Consult a licensed professional familiar with Ontario's Residential Tenancies Act for your specific situation.