Ontario Rent Deposits Explained: What to Charge and Refund
According to the Ontario Residential Tenancies Act, landlords are allowed to charge a rent deposit in the amount of one month’s rent if the tenant pays month to month, or one week’s rent if they pay each week. This deposit can be used for the last month’s rent when the tenant moves out, and is not allowed to be applied against any damages to the unit.
Paying Interest on the Rent Deposit
If the landlord chooses to collect a rent deposit, they must pay the tenant interest on it at the end of each year. The interest rate is the same as the rate increase guideline for each year. To keep things simple, it is best to pay your tenant the interest on the rate increase at the same time each year.
It should be paid by traceable means, such as a cheque or e-transfer, so you can prove to the LTB that it has been paid if you need to do so.
To Charge or Not To Charge
Even with the extra task of having to pay the interest each year, you should charge the last month’s deposit as it proves an individual’s ability to pay the full rent amount each month. It also encourages the tenant to give you sufficient notice when they end the tenancy instead of just leaving.
Charging More in Advance Than the Deposit
Technically, you are allowed to accept as many rent payments in advance as you want, but you cannot legally ask for it. The tenant or their agent needs to offer it. This has become a common practice for Canadian newcomers with no credit to secure housing, but it is very important that you do not ask for it. It can also only be applied to the months it would naturally apply to and cannot be held as a deposit, with the exception of the last month’s rent deposit.
If offered, you need to consider if you want to rent to someone without credit or not. As property managers, we generally would advise against it except in extremely limited cases. Our screening process includes credit checks, and tenants must have stellar credit ratings to rent properties we manage.
What to Do If There Are Damages
Before the tenant moves in, make sure to get pictures of the unit. This way you will be able to prove damages if they happen. Keep in mind that damages can’t be something that is considered normal wear and tear, such as scratched or scuffed baseboards, worn carpeting, bills for deep cleaning, or similar things.
Damages are obviously damaged items, such as holes in walls or floors. You must apply to the Landlord and Tenant Board to receive an order for the tenant to pay damages; you cannot take them to small claims court as they do not have jurisdiction until you have an LTB order in-hand. You also cannot take money for the damages out of the tenant’s rent deposit.
In many cases, a tenant will offer to repair damages before they move out, or will settle with you for the amount it will take to fix the damage. It’s often best to settle rather than waiting to see how much the damage will cost to fix, since the next steps of going to the LTB and then small claims court can take up to a year, if not more.
One of the benefits of hiring a property manager is having us handle all of the financials for you. In addition to screening tenants and getting initial deposits, we collect regular rent payments and ensure that any interest payments are going to the tenants, with a record of everything going to you. Contact us today to see how affordable we are!
