One of the most common misunderstandings among Ontario landlords — especially those new to the province or new to renting — is about damage deposits. Damage deposits are illegal in Ontario. The RTA is clear on this, and landlords who collect them are exposed to tenant claims. Here is what you need to know.
What the RTA Says
Under the Residential Tenancies Act, a landlord may only collect a rent deposit (last month’s rent) and a key deposit. A key deposit must be refundable and cannot exceed the actual replacement cost of the key or fob. Any other deposit — including a damage deposit, security deposit, or pet deposit — is prohibited.
What Happens If You Collect One
A tenant who pays a prohibited deposit can apply to the LTB to have it returned, with interest. If the landlord refuses, the LTB can order repayment. There is no benefit to collecting an illegal deposit — it does not protect you, and it creates liability.
How to Recover for Damage Without a Deposit
The proper mechanism for recovering for tenant damage in Ontario is through an LTB application — either the L1 (if the tenant is still in possession) or the L10 (after the tenancy ends). You need photographs from move-in showing the unit’s condition, photographs from move-out showing the damage, and invoices or estimates for the repair costs.
The Importance of the Move-In Inspection
Because you cannot hold a security deposit, the move-in inspection and photographs are the only protection you have against damage disputes. Without a documented baseline, proving that damage was caused by the tenant — rather than pre-existing — is very difficult. Do the inspection, take the photos, and keep them.
What You Can Collect
You can collect: one month’s rent as a last month’s rent deposit (with interest accruing annually), and a refundable key deposit equal to the actual replacement cost of the key or fob. That is it. Any other upfront payment is a violation of the RTA.
What Comes Next
Stonegate advises first-time Ontario landlords on compliant tenancy practices. Book a free call at https://calendly.com/stonegatelegalservices/20min.
▶ Watch: First-Time Landlord Guide: Everything You Need to Know in Ontario
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