Security deposits in Ontario: what landlords can (and can't) ask for

Security deposits are illegal in Ontario

Under the Residential Tenancies Act, a landlord cannot require a security deposit, damage deposit, pet deposit, or cleaning deposit — no matter what the lease says. A lease clause demanding one is void and unenforceable.

The single exception: a rent deposit for the last month's rent. That's it. Everything else a landlord collects up front beyond first and last month's rent is offside.

The last month's rent deposit, explained

A landlord may collect a deposit equal to one month's rent, to be applied to the last month of the tenancy. Key rules:

• It can only be collected at the start of the tenancy (or when rent increases, a top-up equal to the increase).
• It must be applied to the last month's rent — the landlord cannot keep it as a damage fund.
• The landlord owes the tenant interest on the deposit every year, at the provincial rent increase guideline rate. In practice this usually offsets the annual guideline rent increase.
• If the deposit exceeds the last month's rent actually owed, the tenant gets the difference back.

Deposits landlords sometimes try instead

Some landlords rebrand illegal deposits to get around the rule. None of these survive scrutiny:

• Key deposits — allowed ONLY up to the actual replacement cost of the keys or fobs, and refundable on return. A $500 'key deposit' is not a key deposit.
• Pet deposits — illegal, full stop. A landlord also cannot refuse to rent to you because you have a pet (a 'no pets' clause in an Ontario lease is void).
• Cleaning or damage deposits — illegal, regardless of what they're called.
• Mandatory post-dated cheques or automatic payments — a landlord cannot require them as a condition of renting, though a tenant may agree voluntarily.

If a landlord asks for an illegal deposit

You can refuse to pay it. If you already paid because you needed the unit, you haven't lost the money: a tenant can apply to the Landlord and Tenant Board on a T1 (Tenant Application for a Rebate) to get an illegal deposit returned, and the LTB routinely orders repayment.

Keep proof — the lease, receipts, e-transfer records, and any messages where the deposit was demanded. And remember: paying an illegal deposit does not make the clause legal, and it does not give the landlord any right to keep it for damages. Damage claims go through the LTB like everything else.

For landlords: staying compliant

Collect first and last month's rent only, receipt the deposit, and pay the annual interest (or apply it against the guideline increase with proper notice). If a tenant causes damage, document it and file with the LTB — withholding a deposit you were never allowed to take will cost you more than it saves.

Put the deposit terms in writing in the lease using the Ontario Standard Form of Lease, which has a dedicated section for the rent deposit. Clear paperwork prevents most deposit disputes before they start.