If you've ever been a landlord in another province or country, Ontario's deposit rules will likely catch you off guard. The province has strict and specific rules about what landlords can and cannot collect upfront — and the penalties for getting it wrong can be steep.
Here's everything you need to know.
The Short Version
Ontario does not allow traditional security deposits. Full stop. You cannot collect a damage deposit, cleaning deposit, pet deposit, or any upfront money beyond what's specifically permitted under the Residential Tenancies Act.
What you can collect:
- A rent deposit (last month's rent)
- A key deposit (in limited circumstances)
That's it.
Rent Deposit (Last Month's Rent)
A rent deposit is commonly collected at the start of a tenancy. Despite being called "last month's rent," it functions as a deposit — it's applied to the final month of the tenancy, not held as a damage reserve.
Rules for Rent Deposits
- You can collect a maximum of one month's rent (or one week's rent for weekly tenancies)
- It must be collected at the time of, or before, the tenancy begins
- You cannot collect it mid-tenancy — only when the tenancy starts
- You must apply it to the last rental period of the tenancy
Interest on the Rent Deposit
Ontario landlords are required to pay annual interest on the rent deposit, at the same rate as the provincial rent increase guideline for that year.
For example, if the guideline is 2.5%, you must either:
- Pay the tenant 2.5% interest on their deposit, OR
- Top up the deposit with a rent reduction equivalent to that interest (most landlords just add it to the deposit)
In practice: most landlords don't write a cheque for interest — instead, they allow the deposit to grow slightly each year, or they simply account for it when applying the deposit to last month's rent.
Keep track of this. If you've held a deposit for 5 years without adjusting for interest, you may owe the tenant money at the end of the tenancy.
The Deposit Is Not a Damage Fund
This is the part that surprises most new landlords. You cannot apply the rent deposit to unpaid rent, damages, or cleaning costs. It applies to the last month of rent — period.
If the tenant causes $3,000 in damage and owes $500 in rent at the end of their tenancy, you cannot deduct from the deposit for damages. You would apply the deposit to last month's rent, and then file an application with the Landlord and Tenant Board to recover the damage costs separately.
Key Deposits
You may collect a deposit for keys, fobs, access cards, or parking passes — but only under these conditions:
- The amount cannot exceed the actual replacement cost of the item
- You must return the deposit when the tenant returns the item at end of tenancy
- You cannot withhold it for any other reason
So if your building fobs cost $50 to replace, you can collect a $50 fob deposit. You cannot collect $200 "just in case."
What You CANNOT Collect
To be completely clear, these are all prohibited in Ontario:
- Damage deposits — not allowed, regardless of amount
- Pet deposits — not allowed (even if you permit pets)
- Cleaning deposits — not allowed
- Additional months of rent upfront — you cannot collect first and last and an extra month
- Post-dated cheques — you can request them, but a tenant cannot be required to provide post-dated cheques as a condition of tenancy
What About Pets?
Many landlords try to collect a pet deposit to cover potential damage. This is not permitted under the RTA. You can prohibit pets in the lease (though note: the enforceability of no-pet clauses is limited for service animals and may be challenged in other situations), but you cannot collect extra money because of them.
If a pet damages your unit, your remedy is the LTB — same as any other damage.
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Collecting Illegal Deposits: The Consequences
If you collect money that isn't permitted under the RTA — say, a damage deposit or extra month of rent — the tenant can:
- Apply to the LTB for a refund of the money plus interest
- Potentially receive additional remedies depending on the adjudicator
The LTB takes these complaints seriously. Ignorance of the rules is not a defence.
If you've accidentally collected an illegal deposit and want to fix it, the simplest approach is to apply it to rent immediately and document the adjustment clearly.
How to Actually Protect Yourself Without a Damage Deposit
The absence of a damage deposit is frustrating, but there are ways to protect your investment:
1. Screen Tenants Thoroughly
The best protection against damage is having the right tenant in the first place. Verify income, check references, and don't ignore gut feelings about red flags in the application process.
2. Document the Unit Before Move-In
Complete a detailed written condition inspection report at the start of every tenancy — and have the tenant sign it. Photograph and video every room. This is your baseline for any future damage claim. Our move-in and move-out inspection guide covers exactly what to document and how.
3. Do Move-In and Move-Out Inspections
The RTA gives tenants the right to participate in a move-out inspection. Do this — it establishes a clear record of the condition when they left.
4. Act Quickly When Damage Occurs
If you discover damage during the tenancy, address it immediately with the tenant in writing. Don't wait until the end of the tenancy to raise it — the sooner it's documented, the stronger your position at the LTB if it comes to that.
5. File with the LTB When Needed
If a tenant leaves and the unit has significant damage beyond normal wear and tear, you have up to one year after the tenancy ends to file a T1/L10 claim at the LTB for damage costs. See our guide on tenant property damage in Ontario for how to document and pursue these claims.
A Quick Reference Summary
| Item | Allowed? | Maximum |
|---|---|---|
| Last month's rent deposit | Yes | 1 month's rent |
| Key/fob deposit | Yes | Actual replacement cost |
| Damage deposit | No | — |
| Pet deposit | No | — |
| Cleaning deposit | No | — |
| Multiple months upfront | No | — |
Getting It Right From the Start
Frequently Asked Questions
Can a landlord collect a damage deposit in Ontario?
No. Ontario's Residential Tenancies Act does not permit damage deposits, cleaning deposits, pet deposits, or any additional upfront money beyond last month's rent and a key deposit at actual replacement cost. If you collect a prohibited deposit, the tenant can apply to the LTB for a full refund plus interest.
What is a last month's rent deposit and how does it work in Ontario?
A last month's rent (LMR) deposit is collected at the start of a tenancy and held until the tenant moves out, when it is applied to the final month of rent. It is not a damage fund — it can only be used for last month's rent. You can collect a maximum of one month's rent, and only at the time the tenancy begins.
Does an Ontario landlord have to pay interest on the last month's rent deposit?
Yes. Landlords must pay annual interest on the LMR deposit at the same rate as the provincial rent increase guideline for that year. In practice, most landlords allow the deposit to grow slightly each year rather than writing a separate cheque. If you've held a deposit for several years without adjusting for interest, you may owe the tenant money when the tenancy ends.
What happens if a tenant damages the unit but the deposit can't cover it?
Because the LMR deposit must be applied to last month's rent — not damage costs — you must pursue damage claims separately. You can apply to the LTB or file in Small Claims Court (for claims up to $35,000) after the tenancy ends. Your move-in and move-out inspection reports, photos, and repair invoices are your primary evidence. You have up to one year after the tenancy ends to file a damage claim at the LTB.
Can a landlord in Ontario require post-dated cheques from a tenant?
You can request post-dated cheques, but you cannot make them a mandatory condition of tenancy. A tenant cannot be required to provide post-dated cheques, and insisting on them as a condition of signing the lease could be challenged. Many landlords and tenants prefer e-transfer arrangements, which are generally acceptable and create a clear payment record.
Ontario's rental deposit rules are counterintuitive if you're used to other markets — and mistakes can cost you money or LTB penalties. When in doubt, stick to what's explicitly permitted: one month's rent deposit and a key deposit at actual cost. Good landlord record-keeping practices will also protect you if deposit-related disputes ever arise.
If you want help setting up your rental correctly from day one — leases, deposits, condition reports, and tenant communication — Prospera Properties works with landlords across London, St. Thomas, and Strathroy to make sure the paperwork is airtight from the start. Get in touch with our team if you have questions.