Security Deposits and Last Month’s Rent in Ontario

One of the most common misunderstandings new tenants and even some landlords carry into a residential tenancy is the assumption that a “damage deposit” — a separate sum held against the cost of repairing anything broken during the tenancy — is a normal part of renting in Ontario. It isn’t. Under the Residential Tenancies Act, residential landlords are generally not permitted to collect a damage deposit at all, regardless of what a lease says or how the fee is labelled.

This is a deliberate policy choice, not an oversight. The legislation instead gives landlords other tools for dealing with damage beyond normal wear and tear — most notably, the ability to apply to the Landlord and Tenant Board for compensation after the fact — rather than letting landlords hold a tenant’s money upfront against a problem that may never materialize. A clause in a lease that calls for a damage deposit, a security deposit, or any similarly named upfront sum beyond what’s permitted is generally not enforceable, even if the tenant agreed to it and paid it.

This rule applies specifically to residential tenancies. Commercial tenancies work differently and commonly do include security deposits as a standard, negotiated term — see our commercial lease insights for how that side of the market generally operates.

It’s worth being alert to how a prohibited deposit can sometimes be disguised under a different label. A fee described as a “move-in fee,” an “administration deposit,” or a “holding fee” can, depending on how it actually functions, amount to the same thing the law doesn’t allow — money collected upfront and held against possible future damage or costs, outside the one deposit the Act permits. The label on a fee matters less than what it’s actually meant to cover and how it would be returned, or not, at the end of the tenancy.

What Ontario does permit is a last month’s rent deposit. A landlord can generally require a tenant to pay a deposit at or before the start of the tenancy, generally capped at the equivalent of one rental period’s rent — for a typical monthly tenancy, that means one month’s rent. This deposit is held by the landlord and is specifically earmarked, as the name suggests, for the tenant’s final rental period.

It’s worth being precise about what this deposit is not: it is not a general-purpose security fund the landlord can dip into whenever something goes wrong during the tenancy. It exists for one purpose — covering rent for the last period of the tenancy — and that narrow purpose is part of why it’s treated so differently from a damage deposit.

Because a last month’s rent deposit can sit with the landlord for years in a long-running tenancy, the law generally requires landlords to pay interest on it annually. The rate used is generally tied to that year’s rent increase guideline percentage — the same figure that governs how much rent itself can generally be raised. Since that percentage changes every year, so does the interest rate applied to deposits held during that year.

In practice, this interest is often credited toward the tenant’s rent rather than paid out as a separate cheque, though the specific mechanics can vary. What matters is that the obligation exists annually — a landlord generally can’t simply hold the deposit for several years and settle the interest only once, at the very end of the tenancy, without accounting for each year along the way.

A tenant who never receives this interest, year after year, isn’t necessarily losing the right to it — the amounts owed can generally still be claimed later, including at the Landlord and Tenant Board if the landlord doesn’t resolve it directly.

It’s a good habit to keep a simple running note of the deposit amount paid, the date the tenancy began, and any interest credited each year, rather than relying entirely on the landlord’s records. Over a tenancy that runs several years, these annual amounts can add up to a meaningful sum, and having your own record makes it much easier to confirm the final figure applied at move-out is accurate.

When a tenancy is ending, the last month’s rent deposit, together with any interest that has accrued, is generally applied to the rent owing for the tenant’s final rental period. In practice, this usually means the tenant doesn’t pay rent again for that last month in cash — the deposit already on file, plus interest, covers it.

This is different from how many people expect a “deposit” to work in other contexts, where a tenant pays rent as normal every month and then waits for a refund at the very end, following some kind of move-out inspection. In Ontario’s residential system, the deposit is already specifically earmarked for that last period from day one, rather than functioning as a refundable buffer assessed against the unit’s condition.

For a broader look at the issues that typically arise as a tenancy winds down, including notice periods and move-out logistics, see our guide to ending a lease agreement in Ontario.

A few practices are worth naming specifically because they come up often despite not being permitted. A landlord generally can’t collect a damage deposit, a security deposit, a cleaning deposit, or a pet deposit in addition to the single last month’s rent deposit. A landlord generally can’t use the last month’s rent deposit to cover damage, unpaid rent from earlier months, or costs unrelated to that final rental period. And a landlord generally can’t simply withhold the deposit at the end of a tenancy on the basis that the unit needs repairs — that’s a separate claim that generally has to be pursued on its own terms, typically through the Board, rather than resolved by keeping the deposit.

It’s also worth knowing that a tenant generally can’t be made to forfeit the deposit as a penalty for breaking a fixed-term lease early, independent of whatever process actually applies to ending the tenancy early. The deposit’s purpose stays the same regardless of how or why the tenancy is ending.

A landlord also generally can’t require the deposit to be topped up partway through a tenancy simply because rent has since increased. The deposit is generally fixed at the amount tied to the rent in effect when it was collected, and while some landlords may ask for an adjustment, a tenant is generally not obligated to pay more into the deposit just because the monthly rent has gone up since move-in.

Key or fob deposits are treated somewhat differently from the last month’s rent deposit. A landlord can generally charge a reasonable deposit tied to the actual cost of keys, fobs, or access cards, but this is generally meant to be refunded once the items are returned at the end of the tenancy, rather than functioning as rent or being folded into the last month’s rent deposit.

Beyond that, any other recurring charge — parking, storage, or utilities, for example — should generally be clearly disclosed and agreed to as part of the tenancy rather than introduced later as a surprise fee. If something about a deposit or fee you’ve been asked to pay looks unusual, our lease review checklist walks through what to check before signing, and our leases hub covers related topics in more depth.