Updated October 3, 2026 · DF Property Management
Two deposits, and only two
Under the Residential Tenancies Act, 2006, a residential landlord in Ontario may collect:
- a rent deposit, usually called last month's rent; and
- a refundable key deposit.
That's it. Damage deposits, pet deposits and security deposits aren't permitted, and a lease term requiring one is void. This is one of the biggest differences from other provinces, and a common mistake for owners who've rented elsewhere.
The rent deposit
How much and when
The deposit can be required only on or before the start of the tenancy. For a monthly tenancy it can't exceed one month's rent; for a weekly tenancy, one week's rent. If you didn't collect it at the start, you can't later demand it, and the LTB can't order the tenant to pay it.
What it can be used for
Only the rent for the last rental period before the tenancy ends. It can't be applied to damage, cleaning, unpaid utilities or arrears partway through a tenancy.
That last point catches landlords in arrears cases: don't apply the deposit to unpaid rent before serving an N4. When a tenancy ends through an LTB order, the Board deducts the deposit and any interest owing from what the tenant owes you.
Annual interest at the guideline rate
You must pay the tenant interest on the rent deposit every 12 months. The rate is Ontario's rent increase guideline in effect when the payment falls due.
| Interest falling due in | Rate |
|---|---|
| 2024 | 2.5% |
| 2025 | 2.5% |
| 2026 | 2.1% |
| 2027 | 1.9% |
The interest is owed even on units that are exempt from the guideline itself, such as units first occupied after November 15, 2018 — the guideline sets the interest rate, not whether interest is payable.
Topping up the deposit
When rent goes up lawfully, the deposit falls below one month's rent. You can ask the tenant to top it up by the same amount as the increase, and you can apply the interest you owe toward that top-up.
Example: the rent is $2,500 and you hold a $2,500 deposit. Interest due in 2026 is 2.1%, or $52.50. If you raise the rent by the 2026 guideline to $2,552.50, the deposit needs $52.50 more — exactly the interest owed. You keep the interest as the top-up, and the tenant pays nothing extra. Where the increase and interest differ, settle the difference.
If rent doesn't go up, pay the interest — by cheque, e-transfer or a credit on the next rent payment. If a landlord fails to pay, the tenant can deduct the interest from a rent payment.
The key deposit
- It must be refundable — non-refundable key fees aren't allowed.
- It can't exceed the expected direct replacement cost of the keys, fobs, remotes or cards.
- Refund it when the keys come back at move-out.
- If a tenant asks for extra or replacement keys, you can charge your actual cost for them.
Other charges you can and can't collect
| Charge | Allowed? |
|---|---|
| NSF cheque: bank charge plus your administration fee | Yes; the administration fee is capped at $20 per cheque |
| Damage, pet or security deposit | No |
| Non-refundable key fee | No |
| Interest on rent arrears | No |
| Fee for a rent receipt | No — receipts must be free on request, including for a former tenant within 12 months |
Protecting yourself without a damage deposit
Without a damage deposit, your protection is documentation. A detailed, photographed move-in inspection signed by both sides; required tenant liability insurance (section 11 of the standard lease); and prompt repairs with records. If a sitting tenant causes undue damage, an N5 notice can require repair or payment. Claims against a former tenant follow separate rules.
Refunds and receipts
If you collected a deposit but can't give the tenant possession of the unit — a previous tenant didn't leave, or a renovation ran late — the deposit must be repaid. And whenever a tenant asks, you must give a free receipt for rent, the deposit or any other charge; former tenants can ask for one up to 12 months after the tenancy ends. Clean records here save arguments later.
When the property changes hands
A sale doesn't end a tenancy. The buyer steps into the landlord's shoes, including the obligation to apply the deposit to the last month and pay interest on it. On closing, the deposits and accrued interest are normally credited to the buyer in the statement of adjustments, so the buyer needs an accurate list: unit, tenant, deposit amount and the date interest was last paid. Gaps in that list are a common source of disputes after closing.
Mistakes we see most often
- Never paying interest because nobody asked for it. Arrears of interest can add up over a long tenancy, and the tenant can deduct what's owed from rent.
- Using last month's rent to cover arrears partway through, then having no deposit left for the actual last month.
- Collecting a deposit after move-in, or asking for more than one month's rent "for security".
- Charging a flat, non-refundable fob fee instead of a refundable deposit tied to actual cost.
- Forgetting the top-up, so the deposit no longer matches the rent by the time the tenant leaves.
A simple annual routine
- Record the deposit — Amount, date received and the tenancy anniversary, in your ledger and on the standard lease.
- Check the rate — Use the guideline in effect on the date interest falls due.
- Coordinate with the rent increase — If an N1 increase takes effect the same month, calculate the top-up and the interest together.
- Pay or credit the balance — In writing, so the tenant sees the calculation.
- Apply it at the end — The deposit covers the last month; settle any interest owing at move-out.
Increases themselves follow the guideline rules — once every 12 months, with 90 days' written notice.
How we can help
In a building with dozens of units, deposits, anniversaries and interest dates multiply quickly. Our monthly owner statements track every deposit and interest payment by unit, with the paperwork attached.
General information, not legal advice. Check the current rent increase guideline with the Government of Ontario before calculating interest.