Can You Charge a Damage Deposit in Ontario? What Landlords Can Legally Collect

Can you charge a damage deposit in Ontario?

No. A damage deposit is illegal in Ontario. Under the Residential Tenancies Act, 2006, the only security deposit a landlord may collect is a rent deposit, capped at one month's rent, and it can only ever be applied to the last rental period of the tenancy. A refundable key deposit is also allowed. Damage deposits, security deposits, cleaning deposits, pet deposits, and credit check fees are not.

This surprises a lot of owners, particularly anyone who has rented out property in another province or in the United States, where damage deposits are standard practice. In Ontario, collecting one is not merely unenforceable. The province lists it as an offence under the RTA, and the tenant can apply to the Landlord and Tenant Board to get every dollar back.

What deposits can an Ontario landlord legally collect?

Two, and only two:

• A rent deposit, commonly called last month's rent, or LMR. Section 105 of the RTA is blunt about it: the only security deposit a landlord may collect is a rent deposit.
• A refundable key deposit, limited to the reasonable cost of replacing the keys, fobs, or remotes, and returned when the tenant hands them back.

That is the entire list. If a lease says otherwise, the lease term does not survive. The RTA applies regardless of what the parties agreed to, so a signed clause promising a $1,500 damage deposit is worth nothing at the Board. Owners sometimes assume a tenant's written consent cures the problem. It does not.

Is a non-refundable key deposit allowed?

No. The refundability is the whole point. A key deposit passes muster only because the money comes back, which keeps it outside the definition of a security deposit. Charge $200 for keys and keep it, or set the amount well above what a locksmith would charge to cut replacements, and you have collected an illegal deposit under a different name.

How much can the rent deposit be, and when can you collect it?

Where rent is paid monthly, the deposit cannot exceed one month's rent. Where rent is paid weekly, it cannot exceed one week's rent. The Landlord and Tenant Board's guide to the RTA is specific about timing too: you collect it on or before the start of the tenancy.

That timing detail catches people out. If you did not ask for LMR before the tenancy began, you cannot circle back six months later and demand it. The window closes.

You also cannot stack deposits. First and last is the maximum, so on a $2,200 per month unit you can collect $2,200 in first month's rent and $2,200 as the rent deposit, and nothing beyond that. Asking for first, last, and a $1,000 damage deposit puts you offside by $1,000.

Can you use the last month's rent deposit to cover damage?

No, and this is where well-meaning owners get into real trouble. The rent deposit can only be used as the rent payment for the final month or week before the tenant moves out. Ontario lists using a tenant's rent deposit for something other than the last month's rent as a specific offence.

So the common move at the end of a tenancy, applying LMR to a hole in the drywall and a carpet cleaning invoice, is not available to you. The deposit covers the final month's rent. Full stop. If the tenant owes you for damage on top of that, damage is a separate claim you pursue separately.

A tenant can consent in writing to apply the deposit elsewhere, but do not build your plan around it. Consent obtained at move-out, when a departing tenant has no reason to cooperate, is rare.

Do you have to pay interest on the rent deposit?

Yes, every year, and failing to do so is its own offence. The rate is tied to the annual rent increase guideline, which means 2.1 per cent for 2026 and 1.9 per cent for 2027, per the province's published rent increase guideline figures.

On a $2,200 deposit, 2026 interest works out to $46.20. Small money, easy to forget, and it compounds into a headache when a tenant of six years files an application and the arithmetic runs back to the start of the tenancy.

Two wrinkles worth knowing:

• You can top up the deposit when rent increases. If you serve an N1 raising rent, you may ask the tenant to increase the rent deposit by the same amount so it still equals one month's rent.
• Interest and top-up usually land together. Many owners net the interest owing against the top-up owing on the anniversary date. Document it either way, because the tenant is entitled to a receipt for any rent payment, deposit, or charge on request, and you cannot bill for issuing one.

If the mechanics of guideline increases are new to you, our Ontario rent increase guide covers the notice periods and forms in detail.

What about application fees, pet deposits, and cleaning charges?

All off the table before a tenancy starts. You cannot charge a prospective tenant an application fee, a processing fee, or a credit check fee. You cannot require a pet deposit. You cannot collect a cleaning deposit or a non-refundable move-in fee.

Ontario also makes it an offence to require a tenant or prospective tenant to buy something from you in order to get or keep the unit. Requiring a new tenant to purchase the previous tenant's blinds or appliances as a condition of the lease is not a workaround.

You can still run credit and reference checks. You just absorb the cost, which is how it should be priced into the leasing process anyway.

Can you insist on post-dated cheques or pre-authorized debit?

You can ask. You cannot require. A landlord and tenant may agree to post-dated cheques or automatic payments, but a tenant cannot be refused a unit or evicted for declining. Once you have agreed on a payment method, neither side changes it unilaterally.

What happens if you already collected an illegal deposit?

The tenant files a T1, the Tenant Application for a Rebate of Money the Landlord Owes. The filing fee is $53, and the LTB tells tenants they save money by filing through the Tribunals Ontario Portal. The Board's standard remedy is an order returning the full amount. The size of the illegal deposit is not a mitigating factor, and a signed lease clause does not protect you.

Beyond the Board, RTA offences are prosecuted through the province's Rental Housing Enforcement Unit, and the fines run to $100,000 for an individual and $500,000 for a corporation.

Prosecution over a single $800 pet deposit is unlikely. A repayment order plus a tenant who now knows their rights is very likely, and that tenant is often the same person whose cooperation you will need later over an inspection, a rent increase, or a notice to end the tenancy.

If you cannot hold a damage deposit, how do you protect the property?

Ontario pushes the risk forward, into screening and documentation, instead of backward into a pot of held cash. The owners who lose the least money are the ones who front-load the work.

1. Screen properly. Employment and income verification, landlord references you actually phone, credit history, and consistency across the file. A damage deposit was never going to save a tenancy that should not have started.
2. Document condition at move-in. A dated written inspection report with time-stamped photographs of every room, appliance, floor, and wall. This is the evidence that wins a damage claim at the Board. Without it, you are describing a scuff from memory.
3. Require tenant insurance and confirm it annually. A valid tenant policy is what covers a burst washing machine hose or a kitchen fire, and the coverage is far larger than any deposit would have been.
4. Repair small problems immediately. A loose toilet flange costs a fraction of the subfloor replacement it becomes. Responding fast to maintenance is how you prevent damage in the first place.
5. Use the Board for damage. Tenants are responsible for damage they or their guests cause, whether on purpose or through carelessness, and the Board can order them to pay for repairs. Normal wear and tear is not their responsibility, so sort the two honestly before you file.

Every one of those steps takes time and consistency, which is the real reason self-managing owners tend to skip them. We break down that trade-off in property management versus self-management.

How KEILTY handles deposits across Ontario

KEILTY Realty Management has managed Ontario residential and commercial rentals since 2003, from Kingston and Belleville through Peterborough, Cobourg, Oshawa, Ottawa, and the Quinte and Durham regions. Deposit compliance is one of the least glamorous and most consistently expensive parts of the job, so we standardize it: LMR collected at lease signing and never touched, key deposits set at replacement cost and logged, interest calculated and applied on the anniversary date, receipts issued on request, and a photographic condition report on file for every unit before the tenant gets the keys.

Our fee structure is a flat monthly rate per unit rather than a percentage of rent, plus a placement fee when we lease a vacancy. Because it is flat, it does not climb every time market rent does. For current numbers in your city, see our pricing page, and our locations page shows where we operate.

Not sure whether your current lease and deposit practices would hold up at the Landlord and Tenant Board? Book a free rental evaluation and we will review your setup, tell you what needs to change, and give you a realistic rent range for your unit.