The Ontario Residential Tenancies Act of 2006 has strict guidelines regarding deposits. Ontario and Toronto landlords cannot require a pet deposit or a damage/security deposit. Key deposits may not be more than the actual cost of replacing the key. Landlords may only collect a rental deposit.
The amount of a rental deposit is limited by the rental agreement. The deposit may be either one month’s rent or the rent for one rental period, whichever is less. Even if the rental period spans multiple months, a Toronto landlord may not require a deposit that exceeds one month’s rent.
Interest on Deposits
The Tenancies Act also requires landlords to pay interest on the deposits they collect. Each year, the Ministry of Municipal Affairs and Housing sets guidelines as to how much rental rates may be increased. Whatever percentage is set for a given year, the landlord must compensate the tenant by an equivalent amount.
When a landlord increases the rent, they may require that the deposit amount reflect the new rate. Many landlords increase their rent by the full amount defined in the annual guideline from the Ontario government. Rather than request the tenant add the funds necessary to match the increased rent, many Toronto landlords apply the interest payment to the deposit and inform their tenants, in writing, that they have done so.
When Rental Deposits May Be Retained by Ontario Landlords
The Tenancies Act does not allow for a deposit to be applied toward damages to the rental unit. The deposit may only be used for the last month’s rent.
Toronto landlords should make their policy regarding deposits clear in their application for tenancy. If that document is worded properly, a landlord may retain that deposit if a tenant changes their mind about renting the property. However, a Toronto landlord is not entitled to double-recovery should a tenant change their mind. Landlords must attempt to re-rent the unit and cannot retain a deposit from one tenant if they have rented the unit to another tenant for the same rental period. On the other hand, if the landlord declines the application, the deposit must be returned in full.
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