handshake landlord

January 3rd, 2019

4 good practices for collecting deposits

Deposits have historically been a sticking point for landlords and tenants. Advanced payments and extra fees can cause problems, especially when misinformation is used to secure what are essentially illegal deposits.

Some landlords and tenants may not be fully aware of the residential laws in place to regulate deposits in the province.

In this post, we’ll go over which deposit types are legal and illegal, so you can approach the rental process without getting into any compromising situations. Making the deposit structure a habit with all new tenants is recommended as is putting a deposits section in writing on the lease.

Understand the law

One of the only legal deposits allowed in Ontario is known as the last month’s rent (LMR) deposit, which can be understood as a security deposit for both parties. You are not allowed to charge an additional security deposit beyond LMR.

The LMR deposit has to be held in trust by the landlord, and used to pay for the tenant’s last month on the property (if the tenant is paying weekly, it is to be used to cover the last week). This security deposit or LMR cannot exceed the total cost of one month’s (or one week’s) rent.

As a landlord, you cannot use your tenant’s LMR for anything other than their last term on your property, and you technically have to pay interest on the deposit each year. This means that the security deposit cannot be used to pay for property damage or cleaning no matter the circumstances.  

Covering property damage

Since you cannot take a security deposit beyond last month’s rent, it’s a good idea to stipulate the consequences for any additional property damage (beyond wear and tear) to the rental unit in the lease.

Before a new tenant moves in, do a walk through with the new tenant, while noting the state of the unit on paper with a checklist. How are the floors, cupboards, faucets, etc.? Take photos and store them somewhere safe.

This checklist will act as a baseline on the state of the property, so have the tenant sign off on the inspection. The tenant is only required to pay for damage that exceeds wear and tear, and if you are unable to prove the tenant caused the damage, they can walk away without responsibility in most cases.

A move-in walkthrough or inspection can save you a lot of time and energy if you net yourself a rather destructive tenant.

Key, access card or fob deposit

The only other legal deposit landlords are allowed to request are those for the tenant’s keys or access cards to the residential building. The deposit cannot cost more than the real replacement cost for the keys or access card. The tenant also must get the key deposit back when they move out and return the items to the landlord.

Keep written records and give receipts

Receipts give tenants peace of mind. Any security/LMR deposits should be met with a receipt for the tenant to keep in their records, while the landlord should always store this information in their tenant’s file and review it should they receive notice of a move out.

Know the law

Most other deposits, advance payments or extra charges are illegal in the province of Ontario. Some landlords may ask a prospective tenant to pay for the curtains, appliances or other included property in the unit before moving in; again, this is illegal.

The only deposits applicable under residential tenancy laws are those for last month’s rent and keys, access cards or proximity fobs.