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All About Rent Deposits for Landlords in Ontario

There are two types of deposits that you can ask for as a landlord in Ontario, the rent deposit and the key deposit. While the latter can only cover the actual cost of a key replacement, the rent deposit is limited to the amount of one month's rent (or 1 week's on a weekly rental). The deposit has to be used for the final rent period and cannot be applied to damages or other costs. You can also not ask for any other types of deposits like a damage or security deposit. The legally permitted deposit in Ontario is therefore not a security deposit as may be found in other jurisdictions, but simply a rent deposit.

This is a definite downside for landlords in Ontario. Without a security deposit you may be exposed to the hassle of chasing a tenant for damage caused to the property. Tenant screening becomes the most essential task for you as a landlord. Regular inspections of the premises will be you early warning system.

You have an obligation to pay interest on the rent deposit annually. The interest rate is based on the rent increase guideline. Instead of paying out the interest you are allowed to add it to the deposit. You can also ask for a top-up in cases where the deposit is lower than one month's rent.

For example if the initial rent is $1000, you would generally increase it after 12 months by the guideline percentage. Assuming that is 2%, then the new rent would now be $1020. Equally, the one month rent deposit of initially $1000 would bear interest at 2%, so your tenants deposit has now grown to $1020. You can also pay out the $20 but in practice this is rare. This way, the rent deposit usually lines up with the amount due for last month's rent.

The LTB has a Q&A section on the topic here.

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