In many real estate markets, security deposits are fairly common. However, in Ontario, landlords are not permitted to charge a security deposit.
You are, however, permitted to collect a rent deposit. This guarantees that you won’t be left without a rental payment if the tenant moves out before the end of the lease term or needs to be evicted. There are specific rules and stipulations to how you collect and hold that rent deposit, however.
Rent Deposit Limits in Ontario
Before your tenant moves in, you’re permitted to collect a rent deposit at the beginning of the tenancy. The amount you can collect depends on how the tenant is paying rent. Check your lease agreement. If the tenant is paying monthly, you are permitted to collect a rent deposit that’s equal to one month’s rent. You cannot collect more than that. If your tenant is paying rent on a weekly basis, your rent deposit cannot be more than the amount of one month’s rent.
Purposes of the Rent Deposit
A rent deposit cannot be used to pay for damages or maintenance after the tenant moves out or during the tenancy. The rent deposit can only be used to pay rent at the end of the lease term. So, your one month payment or one week payment can be used as the last rental payment of the lease agreement, but not for any other purpose.
Increasing the Rent Deposit
The amount of the rent deposit can be increased if the amount of the tenant’s rent increases. So, if you raise the rent after one year, you can collect the additional amount and add it to the rent deposit once the new payment terms take effect.
Rent Deposit Interest
The Residential Tenancies Act requires that landlords pay the tenant interest on the rental deposit every year. The amount of interest will be determined with the rent increase guideline. Make sure you make an interest payment to your tenants every year, otherwise that interest will compound, and you’ll end up owing more at the end of the full tenancy.
Security and Damage Deposits are Not Allowed
With landlords unable to collect a security deposit or protect themselves against the potential property damage that a tenant can cause, it’s even more important that the tenant is well-screened. Make sure you do all of the appropriate checking so you know you’re renting to someone who can be relied up on to pay rent on time and take good care of your Ontario rental property. You don’t want to have to face expensive repairs because your tenant left behind a mess.
Key deposits are permitted in Ontario, but they cannot be more than $100. Owners can also charge a furniture deposit if the home is furnished, but this cannot be charged to tenants unless they are renting a property with furniture already inside of it.
It’s also important to inspect your property frequently. This will tell you if there’s any tenant damage or if you have unreported maintenance issues that could be compromising the condition of your investment. Look for lease violations during these inspections
We can help you handle the collection of appropriate rent deposits. If you have any questions, please contact us at Spotted Properties.