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.

Interest and top-ups: the money math

Two rules work in opposite directions, and most tenancies never think about either until a dispute starts. First, the landlord must pay you interest on the rent deposit each year, at the same percentage as that year's rent-increase guideline — 2.1% for 2026 — on or before the anniversary of the tenancy. On a $2,000 deposit, that's $42 for the year.

Second, when your rent lawfully increases, the landlord can require you to top up the deposit so it still equals one full month's current rent — a $42 increase means a $42 top-up request. Because the interest rate and the guideline increase are the same percentage, the two amounts usually cancel each other out, and many landlords and tenants simply acknowledge this in writing instead of exchanging money.

Two warnings: the landlord can't demand a top-up unless the rent actually increased, and can't charge interest on anything beyond a lawful rent deposit. If you paid an illegal “damage deposit,” there is no interest or top-up framework for it at all — it's simply money the landlord must return (see below).

Moving out: what happens to your deposit

In your final month, you don't pay rent — the deposit covers it. If the deposit is larger than the last month's rent actually owed (for example, after a rent decrease or a partial month), the landlord must return the difference. The landlord cannot redirect the deposit to cleaning, repairs, or unpaid utilities without your written agreement; damage claims go through the Landlord and Tenant Board like everything else.

If you assign your tenancy to someone else, sort out the deposit in writing between the three of you: typically the incoming tenant reimburses the outgoing tenant, and the landlord continues holding one deposit for the unit. Don't leave it to a handshake — deposit handoffs between tenants are a classic Small Claims file when the landlord later claims they never received anything.

And if your landlord sells the building, the deposit travels with the tenancy — the new owner inherits the obligation to apply it to your last month and to pay the annual interest. You don't need to pay a fresh deposit to a new landlord.

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.

Deposits and the Standard Form of Lease

Ontario's Standard Form of Lease has a dedicated section for the rent deposit and any key deposit — which is exactly where these amounts belong. If a landlord asks for money that isn't recorded on the form, or tacks on a side agreement demanding an extra “refundable” payment, that's a red flag: lawful deposits are documented on the lease itself.

Tenants: before signing, check that the deposit line matches one month's rent (not more), that any key deposit is a believable replacement cost, and that nothing else with a dollar sign and the word “deposit” appears anywhere in the paperwork. Landlords: putting it on the form correctly is the cheapest dispute prevention there is.

Before you hand over money: a renter's checklist

Run through this before you e-transfer anything on signing day:

• The total up front is first month's rent plus last month's rent — nothing more.
• Any key deposit is a plausible replacement cost (tens of dollars, not hundreds) and is marked refundable.
• You get a written receipt showing exactly what each dollar was for.
• The deposit amounts appear on the Standard Form of Lease, not just in texts or a side letter.
• No post-dated cheques or pre-authorized payments were required as a condition of getting the unit.

If a landlord balks at any of this, consider it information — compliant landlords document deposits without being asked twice.

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.