Deposit Violations

What the Law Says

RTA ss.105-106 are among the most frequently violated sections because landlords often collect illegal deposits and tenants don't know they can recover them.

RTA s.105(1): "A landlord may collect a deposit ... if the deposit is the amount of rent payable by the tenant for the last month of the tenancy."

RTA s.105(2): "No landlord shall ... demand or collect a deposit, including a damage deposit, unless the deposit is the last month's rent."

RTA s.106: "A landlord shall pay interest ... at the rate set by the Board [annually, currently matching Bank of Canada prime rate]."

Key principle: A landlord's only right is to collect one month's rent in advance. Everything else is illegal.

Legal vs Illegal Deposits

Legal Deposit (Only)

• Last month's rent: Equivalent to one month's rent (the exact amount of the rent for a normal month)
• Held in trust: Landlord must hold it separately and use it only for the last month's rent
• Interest paid: Landlord must pay annual interest at Bank of Canada rate

Illegal Deposits (All Forbidden)

• Damage deposit: Any deposit labeled for wear and tear, damage, cleaning, etc.
• Key deposit: Deposit for replacement of lost keys
• Security deposit: Any amount for "security"
• Cleaning deposit: Deposit for end-of-lease cleaning
• Pet deposit: Extra deposit if you have a pet
• Parking deposit: Deposit if parking is provided
• Admin or application fees: Some fees are illegal if they're deposits

Gray Area: Admin Fees vs Deposits

Legitimate admin fees: Some one-time administrative charges for processing application may be legal if not called a deposit and actually cover admin costs (e.g., $50 application processing fee).

Illegal deposits disguised as fees:A "$300 damage deposit" called an "admin fee" is still a deposit and illegal.

If unsure, consult a legal clinic or file a T1.

Damage Deposits Are ILLEGAL in Ontario

This Is Important

In some provinces or countries, damage deposits are standard. In Ontario, they are explicitly forbidden. Period.

Why No Damage Deposits?

Ontario law assumes tenants will cause normal wear and tear. The landlord cannot charge for this. Instead:

• If there is damage beyond normal wear, the landlord can pursue the tenant in court (small claims court)
• The landlord cannot pre-collect money for potential future damage
• Damage must be documented and the tenant has the right to dispute it

Normal Wear and Tear vs Damage

Normal wear and tear (NOT damage):

• Scuff marks on walls from living
• Minor paint fading from sunlight
• Worn carpet from normal use
• Small nail holes for pictures
• Worn grout between tiles

Actual damage (can be charged):

• Large holes in walls
• Broken windows not from normal use
• Stains from pet accidents (if pet not allowed)
• Broken fixtures beyond wear and tear

Key Deposit (Illegal)

What Is a Key Deposit?

A key deposit (also called a "key fee") is an amount charged for replacement of lost or unreturned keys. This is illegal under RTA s.105.

Why It's Illegal

A key deposit is not "last month's rent." It's a contingent charge for potential future damage/loss. This falls squarely under the prohibition on collecting deposits for anything other than last month's rent.

What Landlord Can Actually Do About Keys

If a tenant loses keys or doesn't return them:

• Landlord can charge reasonable cost of re-keying locks (must be actual cost, not inflated)
• This is NOT a "deposit" — it's a charge for actual expense incurred
• Landlord can only charge after the tenant has left and the damage is known
• Tenant can dispute the charge if unreasonable

If Charged a Key Deposit

1. Know it's illegal — demand return from landlord
2. Document the amount and when charged
3. Keep proof of payment (receipt, bank statement)
4. If landlord refuses, file T1 to recover

Last Month's Rent Rules

What Last Month's Rent Is

"Last month's rent" is the amount of one month's rent, held by the landlord and applied to your final month of tenancy.

Example: You agree to pay $1,500/month. At the start, you pay:

• First month's rent: $1,500
• Last month's rent deposit: $1,500
• Total move-in cost: $3,000

Using Last Month's Rent

When you leave, the last month's rent deposit is applied to your final month:

• You do not pay rent for your final month (the deposit covers it)
• If there's damage or rent owed, landlord deducts from the deposit (in writing)
• Landlord must return any excess within 30 days of you vacating

If Rent Increases

If your rent goes up during tenancy, what about the deposit?

Rule: Last month's rent deposit is based on the rent at the time of the tenancy start, NOT the final rent amount.

Example: You start at $1,500/month, deposit $1,500. After 2 years, rent is $1,600/month (legal increase). When you leave, your last month is covered by the $1,500 deposit. You owe the difference ($100) for that final month.

Common Violations

• Not returned on vacating: Landlord keeps last month's rent and charges for damages (should return excess after deducting documented damages)
• Held without interest: Landlord keeps deposit for 2+ years without paying interest
• Increases with rent: Landlord demands higher deposit when rent increases
• Kept for "general" damages: Landlord deducts without itemizing or without giving you chance to dispute

Interest on Last Month's Rent

Legal Requirement

RTA s.106 requires landlords to pay interest on last month's rent annually at the Bank of Canada annual rate.

Current Interest Rate

For 2025, the prescribed rate is set by Ontario regulation. Check Ontario.ca or ask your legal clinic for the current rate (typically 1-4% depending on economic conditions).

How Interest Is Calculated

Example: Last month's rent deposit: $1,500. Rate: 2.5% (2025). Interest owed annually:

$1,500 × 0.025 = $37.50 per year

When Interest Must Be Paid

RTA s.106: "The interest shall be credited to the tenant on the anniversary of the day on which the deposit was taken."

• Annually: On each anniversary of when you paid the deposit
• How paid: Either added to the deposit (so you get more back at the end) or paid to you directly
• If not paid: Tenant can claim it, with consequences for landlord

If Landlord Doesn't Pay Interest

Many landlords forget or refuse to pay interest. You can:

1. Calculate interest owed (annual rate × number of years × deposit amount)
2. Request payment from landlord (in writing, citing RTA s.106)
3. If landlord refuses, file T1 to recover interest
4. At the LTB, you will be awarded the interest plus compensation

Getting Your Deposit Back

When Vacating

1. Final month: You don't pay rent; the deposit covers it
2. Move-out inspection: Landlord may inspect and document any damage
3. Itemized deductions: Landlord must provide written list of any damages deducted, with costs
4. Return within 30 days: RTA requires return of any excess within 30 days of move-out

Common Problems

• No itemized list: Landlord doesn't provide details of what was deducted
• Inflated charges: Landlord charges excessive amounts for repairs or cleaning
• Deducting normal wear: Charging for paint, worn carpet, or normal scuffs
• Late return: Money not returned within 30 days
• No interest paid: Deposit returned without annual interest accrued

What to Do If Deposit Isn't Returned

1. Request payment in writing (email, certified mail) citing RTA s.105-106
2. Set a deadline (e.g., "Please return by [date]")
3. If landlord responds with itemized deductions, review and dispute if unreasonable (normal wear vs damage)
4. File T1 at LTB if deposit isn't returned or if deductions are unjustified

Documentation to Keep

• Receipt or proof of payment (lease, bank statement)
• Move-in photos (if you took them)
• Move-out inspection report (if provided by landlord)
• Any written communication about deductions or return
• Quotes from contractors showing reasonable repair costs

Filing T1 Application

When to File T1 for Deposits

You can file T1 to recover:

• Illegal deposits (damage, key, pet, parking, etc.)
• Last month's rent not returned within 30 days
• Interest not paid on last month's rent
• Unreasonable deductions from deposit for normal wear

How to File

1. Download T1 form from Ontario.ca/ltb
2. Fill out with:
   • Your name and rental unit address
   • Landlord's name and address
   • Description of deposits collected: which deposits, amounts, when
   • Which are illegal (damage, key, etc.) and which violated RTA s.105-106
   • Amount owed with calculation (deposit + interest)
   • Proof of payment (copy of receipt or lease)
3. Attach evidence:
   • Copy of lease showing deposits collected
   • Bank statement or receipt proving payment
   • Written itemization (if landlord provided one)
   • Any photos from move-in or move-out
   • Repair quotes showing deductions were inflated
4. File with LTB (pay filing fee, usually around $45.50)
5. Serve copy to landlord

Damages You Can Seek

• Return of illegal deposits (full amount)
• Interest on last month's rent (calculated from date of payment)
• Reasonable portion of last month's rent if wrongfully deducted
• Compensation for inflated or unjustified deductions

At the LTB Hearing

Be prepared to:

• Explain what deposits were collected and why they're illegal
• Show proof of payment (lease, receipt, bank statement)
• Explain if deductions were unreasonable (normal wear vs damage)
• Provide evidence (photos, repair quotes)

Key Statutes

• RTA s.105: Only last month's rent deposit allowed; all other deposits forbidden
• RTA s.106: Landlord must pay interest on last month's rent at Bank of Canada annual rate
• RTA s.119(2): Return of deposit within 30 days with itemized deductions
• RTA s.203: Penalties for breach (up to $50,000)
• O. Reg 516/06, s.1.1: Prescribed rate (Bank of Canada annual rate, updated yearly)